Article reproduced from: BlockBeats
Original title: (Why Fluid will kill Aave & Curve (or Uniswap))
Written by: Foxi_xyz, Crypto KOL
Compiled by: zhouzhou, BlockBeats
Editor's Note: This article discusses how Fluid is disrupting the traditional DeFi model by combining lending and trading. Its dynamic debt mechanism allows borrowing to earn trading fees while significantly enhancing capital utilization, with every $1 TVL generating $39 in liquidity. 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关注.
The following is the original content (to facilitate reading and comprehension, the original content has been edited):
Fluid's lending protocol has already sparked a surge: with monthly growth rates of up to 3 times, TVL has reached $800 million. However, 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 much potential it has for the future.
What is Fluid?
Fluid is a money market protocol launched by the Instadapp team, and holding INST is akin to directly participating in Fluid's growth. It is similar to other money market protocols (like Aave and Kamino), but with improvements in liquidation mechanisms. While lending itself may not have disruptive innovation, Fluid demonstrates new possibilities in the lending market by combining lending with DEX, which is key to Fluid's success.
Fluid may become the super DeFi of this cycle
Beyond 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 of each other, significantly limiting capital efficiency. These assets have only one purpose - to generate lending yields. Similarly, the liquidity provided to DEXs like Uniswap can only earn trading fees.
Traditional Lending Model
This fragmentation leads to high costs for users:
Low Capital Utilization
Liquidity is dispersed across different protocols
Fluid DEX: The Perfect Combination of Lending and Trading
Fluid DEX redefines how DEX operates. Unlike traditional DEX that focuses on trading, Fluid DEX integrates the functions of a trading platform and a money market, 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 (e.g., ETH/wstETH or ETH/WBTC) as collateral. Liquidity provider (LP) tokens also serve as borrowing collateral 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 a pure liability, and users only need 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 DEX
Dynamic Debt Mechanism and Automatic Rebalancing
Unlike traditional fixed-asset borrowing, users borrow dynamic debt positions in Fluid. When traders want to exchange (e.g., 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 source of liquidity for the DEX while generating trading fee income for borrowers.
Automated Rebalancing Example:
Borrowing 1000 USDC and 1000 USDT, after depositing into Fluid DEX, someone exchanges 500 USDC for USDT:
Your USDC debt reduces to 500
Your USDT debt increases to 1500
You earn fee income from this transaction
Total debt remains unchanged while generating income through trading activity.
Massive Capital Efficiency
The combination of smart collateral and smart debt achieves unprecedented capital efficiency. Through innovative design, Fluid can create up to $39 in effective liquidity for every $1 of TVL. This is not theoretical data but is achieved through the following carefully designed system:
High Loan-to-Value (LTV) ratios, with some assets reaching up to 95%, thanks to advanced liquidation mechanisms.
Simultaneously using collateral and debt as sources of liquidity.
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?
Source: Coingecko, Token Terminal, Defillama, and other sources
TVL/FDV multiples still have 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 capability.
Strong Fee Generation Ability
Fluid generates approximately $15.95 million 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
Extra Yield of Smart Debt
Overall, INST's price is expected to reach at least $8.
Looking Ahead: DEX Will Be the Killer App for Fluid
Fluid does not rely on token incentives to drive growth but achieves an organic growth cycle through efficient capital utilization:
Efficient Capital Utilization -> Reduced Borrowing Costs -> Attract More TVL -> Increase DEX Liquidity -> More Trading Fees -> Further Reduce Borrowing Costs
Although Fluid's success in the lending space is impressive, its upcoming DEX might be the true innovation. By redefining the relationship between lending and trading, Fluid is not only improving existing tools but also creating new possibilities for capital efficiency.
