Original title: (Why Fluid will kill Aave & Curve (or Uniswap))
Author: Foxi_xyz, Crypto Kol
Compiled by: zhouzhou, BlockBeats
Editor’s note: This article discusses how Fluid disrupts the traditional DeFi model by combining lending and trading. Its dynamic debt mechanism not only allows borrowing to earn trading fees as liquidity but also significantly enhances capital utilization, generating 39 dollars of liquidity for every 1 dollar of TVL. It also analyzes the potential of INST, suggesting that with strong growth and the upcoming DEX, the price could rise above 8 dollars, making it a project worth watching.
The following is the original content (for readability, the original content has been reorganized):
Fluid's lending protocol has already sparked a wave of excitement: with a monthly increase of up to 3 times, TVL has reached 800 million USD. However, lending is not a new concept in DeFi. The real killer feature is Fluid's upcoming decentralized exchange. Let's take a look at why this new DEX design could disrupt the market, whether the current valuation of INST is worth buying, and how much potential it has in the future.
What is Fluid?
Fluid is a money market protocol launched by the Instadapp team, where holding INST is equivalent to directly participating in Fluid's growth. It is similar to other money market protocols (like Aave and Kamino) but has improvements in the liquidation mechanism. While lending itself is hard to innovate disruptively, Fluid shows new possibilities in the lending market by combining lending with DEX; this is the key to Fluid's success.
Fluid may become the super DeFi of this cycle
Surpassing traditional money markets
To understand Fluid's potential, one must first recognize the limitations of the current DeFi liquidity ecosystem: traditional money markets and DEX are independent, significantly limiting capital efficiency. These assets serve only one purpose - to generate lending income. Similarly, the liquidity provided to DEXs like Uniswap can only earn trading fees.
Traditional loan model
This fragmentation leads to high costs for users:
Low capital utilization rate
Liquidity is fragmented across different protocols
Fluid DEX: The Perfect Combination of Lending and Trading
Fluid DEX redefines how DEX works, unlike traditional DEX focused on trading, Fluid DEX integrates the functionalities of a trading platform and a money market, possibly becoming the most capital-efficient DEX design in DeFi.
Core innovation: Smart collateral and smart debt
Smart collateral (regular functionality)
Users can use liquidity pairs (like ETH/wstETH or ETH/WBTC) as collateral. Liquidity provider (LP) tokens also serve as lending collateral and earn trading fees from the DEX. This has already been reflected in many new lending protocols.
Smart debt (real innovation)
This is the most revolutionary design of Fluid DEX. Traditional DeFi views debt as a pure liability, where users only pay interest after borrowing. Fluid disrupts this model, allowing debt positions to be used for providing liquidity and earning trading fees.
The key innovation lies in the automatic rebalancing of 'smart debt', becoming liquidity in DEX
Dynamic debt mechanism with automatic rebalancing
Unlike traditional fixed-asset lending, users borrow dynamic debt positions in Fluid. When traders want to exchange (for example, USDC for USDT), the system does not need to use traditional liquidity pools but automatically adjusts the borrower's debt structure (reducing USDC debt and increasing USDT debt). This debt rebalancing mechanism acts as a liquidity source for the DEX while providing trading fee income to borrowers.
Example of automatic rebalancing:
Borrowing 1000 USDC and 1000 USDT, after depositing into Fluid DEX, someone exchanges 500 USDC for USDT:
Your USDC debt decreases to 500
Your USDT debt increases to 1500
You earn fee income from this transaction
Total debt remains unchanged while generating income through trading activities.
Large-scale capital efficiency
The combination of smart collateral and smart debt achieves unprecedented capital efficiency. Through innovative design, Fluid can create up to 39 dollars of effective liquidity for every 1 dollar of TVL. This is not theoretical data, but achieved through the following meticulously designed system:
High loan-to-value ratio (LTV), up to 95% for certain assets, thanks to advanced liquidation mechanisms.
Simultaneously using collateral and debt as a source of liquidity.
Automated risk management system adjusts positions based on market conditions.
In a bull market, the market pursues high leverage and high capital efficiency, which may further increase Fluid's TVL and fee income.
Valuation: Is it worth buying INST now?
Sources: Coingecko, Token Terminal, Defillama, and other sources
TVL/FDV multiple still has room for growth
Fluid's FDV/TVL ratio is 0.78x, compared to Aave's 0.19x, indicating significant room for improvement. More importantly, Fluid's TVL has grown to 516 million USD without large-scale token incentives, demonstrating its strong organic growth capability.
Strong fee generation capability
Fluid generates approximately 15.95 million USD annually through its lending protocol, with a fee/FDV ratio of 3.98%, which is competitive compared to emerging lending protocols like Morpho and Euler. With the upcoming DEX, its revenue is expected to increase further:
Regular trading fees
Additional income from smart debt
Overall, it is expected that the price of INST could reach at least 8 USD.
Looking Ahead: DEX will be Fluid's killer application
Fluid does not rely on token incentives to drive growth but achieves an organic growth cycle through efficient capital utilization:
Efficient capital utilization -> Reducing lending costs -> Attracting more TVL -> Increasing DEX liquidity -> More trading fees -> Further reducing lending costs
While Fluid's success in lending has been impressive, its upcoming DEX may be the real innovation point. By redefining the relationship between lending and trading, Fluid is not only improving existing tools but also creating new possibilities for capital efficiency.