Original title: (Why Fluid will kill Aave & Curve (or Uniswap))
Written by: Foxi_xyz, crypto KOL
Translated 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 allows borrowing to earn trading fees as liquidity while significantly enhancing capital utilization, creating $39 of liquidity for every $1 of TVL. It also analyzes the potential of INST, suggesting that with strong growth and the upcoming DEX, the price could rise above $8, making it a project worth watching.
Below is the original content (for ease of reading, the original content has been reorganized):
Fluid's lending protocol has sparked a frenzy: with monthly growth of up to 3 times, TVL has reached $800 million. But lending is not a new concept in DeFi. The real game-changer lies in 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 great its future potential is.
What is Fluid?
Fluid is a money market protocol launched by the Instadapp team, 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 improved liquidation mechanisms. Lending itself is hard to have disruptive innovation, but when Fluid combines lending with DEX, it shows new possibilities for the lending market, which is the key to Fluid's success.
Fluid could become a super DeFi in this cycle.
Beyond traditional money markets
To understand the potential of Fluid, one must first understand the limitations of the current DeFi liquidity ecosystem: traditional money markets and DEXs are independent of each other, greatly limiting capital efficiency. These assets have only one purpose - to generate lending returns. Similarly, the liquidity provided to DEXs like Uniswap can only earn trading fees.
Traditional lending model
This fragmentation results in high costs for users:
Low capital utilization
Liquidity is scattered across different protocols
Fluid DEX: The perfect combination of lending and trading
Fluid DEX redefines how DEXs work; unlike traditional DEXs focused on trading, Fluid DEX integrates the functions of trading platforms and money markets, potentially becoming the most capital-efficient DEX design in DeFi.
Core innovation: smart collateral and smart debt
Smart collateral (regular function)
Users can use liquidity pairs (such as ETH/wstETH or ETH/WBTC) as collateral. Liquidity provider (LP) tokens serve as collateral for lending and earn trading fees from the DEX. This has been reflected in many new lending protocols.
Smart debt (true innovation)
This is the most revolutionary design of Fluid DEX. Traditional DeFi views debt as purely a liability, with users only needing to pay interest after borrowing. Fluid overturns this model, allowing debt positions to be used to provide liquidity and earn trading fees.
The key innovation lies in the automatic rebalancing of 'smart debt', becoming the liquidity in the DEX.
Dynamic debt mechanism and automatic rebalancing
Unlike fixed assets in traditional lending, users borrow dynamic debt positions in Fluid. When traders want to exchange (for example, USDC to USDT), the system automatically adjusts the borrower's debt structure (reducing USDC debt and increasing USDT debt) without using traditional liquidity pools. This debt rebalancing mechanism acts as a source of liquidity for the DEX while providing trading fee income for borrowers.
Automatic rebalancing example:
Borrowing 1000 USDC and 1000 USDT, after depositing into Fluid DEX, someone exchanges 500 USDC for USDT:
Your USDC debt is reduced 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 of effective liquidity for every $1 of TVL. This is not theoretical data but is achieved through the following meticulously designed system:
High loan-to-value ratio (LTV), with some assets reaching up to 95%, thanks to advanced liquidation mechanisms.
Simultaneously using collateral and debt as liquidity sources.
Automated risk management system that adjusts positions based on market conditions.
In a bull market, the market chases 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, other sources
TVL/FDV multiple still has room for growth
Fluid's FDV/TVL ratio is 0.78x, which still has significant room for improvement compared to Aave's 0.19x. More importantly, Fluid's TVL has grown to $516 million without large-scale token incentives, demonstrating its strong organic growth ability.
Strong fee generation capability
Fluid generates approximately $15.95 million annually through its lending protocol, with a fee / FDV ratio of 3.98%, competitive with emerging lending protocols like Morpho and Euler. With the upcoming DEX, its revenue is expected to further increase:
Regular trading fees
Additional revenue from smart debt
In summary, INST's price is expected to reach at least $8.
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 -> reduces lending costs -> attracts more TVL -> increases DEX liquidity -> more trading fees -> further reduces lending costs
While Fluid's success in the lending field has been impressive, its upcoming DEX may be the true 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.
