Cardano DeFi TVL About to 10x | Here's Why

[00:00:00]something really big and amazing is going to happen with Cardano DeFi. And this is something that we should not miss because if I'm anticipating it correctly, this move is going to grow Cardano's DeFi to 10 times of what it currently is. So if you're at about $100 million of TVL average, it might grow to $1 billion or even more. Now there are a lot of contributions being made to grow Cordono D5. There are a lot of different factors that will contribute towards this growth. But there is one catalyst that is involved here that is going to enhance and make all these different factors more efficient.

[00:00:47]And that particular factor, that particular initiative or as I'm calling it a catalyst is liquid staking protocol. Now we have one protocol on Cardano that is finally making this possible. And I'm going to explain why this is important, why Cardano has this D5 crisis and we will finally understand how it is being solved.

[00:01:15]So let's start with the basic and actually before we start I am going to mention one protocol that is the lava protocol that is developing this liquid sticking protocol but I'm not sponsored by Lava. They don't even know that I'm making this video or that I even exist.

[00:01:34]So it's not sponsored at all. But this is important and we have to talk about this. So Cardano have this problem and it's not actually a problem. It's one of Cardano's greatest strength that is hindering D5 growth. Now to understand this we have to talk about the general staking mechanism. Let's take Ethereum as an example. How does staking work?

[00:02:02]Because we have a lot of different proofofstake blockchains. They all have their own staking mechanism. And Cordono in my opinion has by far the most superior staking mechanism. It's better in every single way. But there is still one problem that we have because of this great staking mechanism. So on Ethereum users have two option to earn yield on their capital. The first method is to stake their Ethereum tokens. And when they stake their ETH tokens, they get locked but they earn yield. The second option that they have is to use these ETH tokens or their capital into DeFi and through this they earn yield. Uh I mean in this case they also earn yield.

[00:02:58]So they have to choose between both of these options. If they choose to stake, their tokens get locked in smart contracts. They earn yield, but their tokens remain locked. If they put it into DeFi, they put it into different DeFi protocols and they earn yield on it. But when they put it into DeFi, they cannot stake it because if they stake it, their tokens get locked. Now, the problem that Ethereum have is they don't have liquid staking because when you stake, your tokens get locked up. So they don't have liquid staking natively but they have protocols and there's one important protocol that is Leo. What Leo offered is I'm going to put their name here. What Leo offered is that users instead of staking directly, we'll give them that Ethereum and what they're going to do is they're going to put it to stake, earn yield, and give us back. And when we stake using their protocol, they give us liquid staking tokens. And these are the tokens that we can put into DeFi and we can earn yield. And when we stake, of course, we also earn yield.

[00:04:14]So using LEO liquid staking protocol, now these users are getting yield from staking and they're also getting yield by putting these tokens into DeFi and they can earn extra yield. And this is how users are able to use almost the same capital into staking and also in DeFi. Now let's talk about Cardano. how users are earning yield through staking and DeFi. So in Cardono what users are able to do is they can stake their tokens and these tokens remain liquid. That means they don't get locked up in smart contracts. These users, they keep their staked tokens, they keep their staked ADA into their wallets and they can afterwards put that into D5. Now they're earning yield from staking and they can also earn yield from D5. And this is an ideal situation.

[00:05:28]But the problem that we have is that when you stake your ADA, what happens is that when you stake your ADA or you delegated to stake pool, your ADA is linked to a delegate stake key.

[00:05:52]So there's a link that is created between the ADA the use state into delegate stake key and this link it has to be maintained in order for you to keep getting your yield. But if this link is broken you stop getting yield or rewards or staking rewards.

[00:06:18]Now you can stake it and get yield and you can then put these staked data into D5. In D5 you have different protocols.

[00:06:28]Now there are protocols that have programmed or coded their smart contracts in a way that they preserve this link and when you put your staked data in those protocols you are earning yield from that D5 protocol but you're also getting your staking rewards but not every protocol in Cardano have this because putting this functionality is not easy it's difficult it requires more resources it becomes more complex.

[00:06:59]So there's a composibility issue there.

[00:07:01]There's a friction there. So the problem that we have that is that in different protocols because when you're you know putting your capital into DeFi, it's not just in one protocol. Usually you do yield stacking or yield farming where you will put it into you know you'll start with the lending protocol. You will lend your pro you know you lend your um staked ADA. you will use your receipt as collateral. You will borrow against it. Use the borrowed asset into liquidity provision. Uh in the liquidity provision, you're going to get LP tokens. You can take those LP tokens.

[00:07:36]You can stake them afterwards or use them in or use them in different DeFi protocols. And in that way, you are earning yield from different D5 protocols. That is yield stacking, that is yield farming. And it's possible that maybe one protocol there has this functionality, has this programmability that they don't break this link between your ST data and the delegate ST key.

[00:08:01]But there are protocols that doesn't have the functionality, doesn't have the capability to preserve this link. And when this link is broken, you stop getting staking rewards. And that is the problem that we have. It's not a problem with Cardano staking. It's the problem with the D5 protocols. If every single protocol develop their smart contracts in a way that when this staked data are used in the smart contracts in those transactions, this link is preserved.

[00:08:34]And if all of these D5 protocols do this, we don't need a liquid staking protocol because we already have liquid staking natively. But the problem is that we you know not all those D5 protocols have this functionality and when our you know when we use our staked era in those protocols this link is broken. When it's broken we stop getting you know we stop getting staking rewards. So we have to choose between whether we want to stake and earn yield or use it into DeFi and then earn yield.

[00:09:05]Majority of the people they prefer this because they're getting a decent ROI and it's stable. It's less riskier because in DeFi protocol let's say if you go for liquidated provision you have you know risk of impermanent loss. So most people are happy with staking and earning yield and that's why they're not putting that capital into DeFi. Because of this we have from the latest stats about like 56% of the entire supply staked. That is almost 3 to $3.5 billion in current valuation which is by the way is really low. Um when Cordona was at 25 this was maybe like $5 billion. So you have 5 billion or maybe let's talk about the current numbers. you have $3.5 billion in capital that is just staked and it's not being used into D5 in other you know blockchains if you talk about Ethereum they have a huge portion that is staked but the same portion is also being used into D5 and if that happens if you're able to capture even one/ird of this 56% that is $1 billion $1 billion in D5 TVL Well, so we have native liquid staking and in theory we should keep on getting staking rewards from our ADA even if you use it into DeFi. But because not every protocol has the you know has the functionality has you know they have programmed their smart contracts in a way to preserve this link.

[00:10:57]In most cases this link is broken. we stop getting staking rewards and that's why people are choosing to stake more than they're inclined in putting that capital into DeFi.

[00:11:09]Now, here's where the liquid staking protocol from Lava comes in. Now Lava is a protocol that we have uh in Cardano and they are developing liquid staking and that's why we need this even though we have liquid staking but we have this problem that not all D5 protocols have this functionality they have the resources to develop this functionality to not break this link. So now what liquid you know what Lava is going to do is offer the liquid staking protocol and that is going to offer the same thing that Leo does for Ethereum that they're going to take your ADA uh of course that is staked so they're going to keep that ADA staked. going to give you LST, liquid staking tokens that are kind of like receipt or wrapped tokens that proves that you have this position, you have this amount of um staked ADA. Now, you can use those liquid staking tokens and you can use those in DeFi in whatever platform, whatever protocol that you want to use them in. It doesn't matter because your original era they are you know um lava has those staked ADA and you're using the liquid staking token so that it is safely secured it is earning staking rewards and you use the LST in DeFi and you earn yield on it and in that way now all those people that are just earning yield from staking that accounts for 56% % of the entire supply. Now they will have a way to earn more yield. And who doesn't want to earn more yield when they know that they now have a safe way to put that capital into DeFi and earn more yield without compromising their staking rewards.

[00:13:09]Obviously, majority of them will be inclined on putting that into D5 to earn more yield. And when they put that capital into D5, we're just talking about one-third of it, not 100% of it.

[00:13:21]We're just talking about one-third of it. If one-third of these people decide to put their capital into D5 using this liquid staking protocol, we are looking at a D5 TVL of more than a billion dollars. Now, not only that, this is pretty huge because we will get more onchain activity, more onchain activity, more onchain liquidity, more transactions, more transactions will lead to more, you know, ADA being used as fees. This will create new demand for the token. New demand means new, you know, better pricing. Moreover, this huge capital will now attract more capital from outside. right now. What incentives do do builders have in coming into Cardano and launching new DeFi protocols when they know that the entire D5 TVL accounts for at this moment is just $90 million. So there's not a lot of capital and all these different D5 protocols they are essentially businesses and businesses they want more capital. They want to establish their business in a in in an area where where there's more capital. So once we get a huge capital here, it will attract more D5 protocols, more builders from outside. More D5 protocols means even more people and users are going to come from outside and put their capital into staking to earn yield. And in that way we will going to enter a a flywheel where Cardano Defi and it TVL is going to grow exponentially larger than what it currently is. that will have a huge impact on the price of ADA. Now, this is just one factor, one catalyst.

[00:15:13]There are a lot of other factors that are in play here to improve Cardano D5 to contribute to the D5 growth to improve Cardano D5 TVL. And there are a lot of factors. There are a lot of different announcements and I'm going to talk about that in a new video probably tomorrow. But for now, um, this is what we have. This liquid staking protocol is being built by Lava. So I would suggest that you go and show them some support.

[00:15:46]It's not just going to be for ADA, but they will offer liquid staking for all the Cardano native tokens that you know that have staking or will have staking.

[00:15:56]they're going to offer the same thing for them as well. So, we can use these Cardono native tokens in the same way that we're using ADA into DeFi. And that is why I think this is really important and I'm glad that someone is taking the you know is is making an effort into doing this because I've been talking about it for I think or a couple months now that we do need a liquid staking protocol. Finally, it is happening. So, yeah. Uh this is all of you guys in this video. Let me know your thoughts in the comment section and I'll see you guys in the next video shortly.