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 not only allows borrowing to earn trading fees as liquidity but also significantly improves capital utilization, with each 1 USD of TVL creating 39 USD of liquidity. It also analyzes INST's potential, suggesting that with strong growth and an upcoming DEX, the price may rise above 8 USD, making it a project worth paying attention to.
The following is the original content (for readability, the original content has been compiled):
Fluid's lending protocol has already generated a buzz: monthly growth rates of up to 3 times, with TVL reaching 800 million USD. However, lending is not a new concept in DeFi. The real game-changer is Fluid's upcoming decentralized exchange. Let's take a look at why this new type of DEX design may 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 with improvements in the liquidation mechanism. Lending itself is difficult to have disruptive innovations, but when Fluid combines lending with DEX, it reveals new possibilities for the lending market, which is the 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, greatly limiting capital efficiency. These assets only serve one purpose - to generate lending income. Similarly, 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 DEXs work. Unlike traditional DEXs focusing on trading, Fluid DEX integrates the functions of trading platforms and money markets, potentially becoming the most capital-efficient DEX design in DeFi.
Core Innovations: Smart Collateral and Smart Debt
Smart collateral (regular feature)
Users can use liquidity pairs (such as 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 (true innovation)
This is Fluid DEX's most revolutionary design. Traditional DeFi treats debt as pure liability, where users only need to pay interest after borrowing. However, 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 and automatic rebalancing
Unlike fixed assets in traditional lending, users borrow dynamic debt positions in Fluid. When traders want to exchange (like USDC to USDT), the system does not 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 DEXs while providing trading fee revenues for borrowers.
Example of automatic rebalance:
Borrowing 1000 USDC and 1000 USDT, after depositing in 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 USD of effective liquidity for every 1 USD of TVL. This is not theoretical data but is achieved through the following carefully 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 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?
Sources: Coingecko, Token Terminal, Defillama, and other sources
TVL/FDV multiples still have growth potential
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 USD without large-scale token incentives, demonstrating its strong organic growth ability.
Strong fee generation capability
Fluid generates approximately 15.95 million USD annually through its lending protocol, with a fee/FDV ratio of 3.98%, competitive compared to emerging lending protocols like Morpho and Euler. With the upcoming DEX, its income is expected to further increase:
Regular transaction fees
Additional earnings from smart debt
Overall, it is expected that the price of INST can 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 -> Lower borrowing costs -> Attract more TVL -> Increase DEX liquidity -> More trading fees -> Further lower borrowing costs
While Fluid's success in lending is already impressive, its upcoming DEX may be the real innovation point. By redefining the relationship between lending and trading, Fluid not only improves existing tools but also creates new possibilities for capital efficiency.
