On-chain protocol Six Pillars HyperEVM faces off against Ethereum

Connectionism, on-chain asset power law expansion

Ethereum returns with DeFi once again, Aave/Pendle/Ethena turns circular lending into a leverage amplifier. Compared to the on-chain stack based on ETH during DeFi Summer, the leverage rising curve supported by stablecoins like USDe is much smoother.

We may enter a warm long cycle, and the examination of on-chain protocols will be divided into two parts. The first involves more asset types, with external liquidity being more abundant under the expectation of interest rate cuts by the Federal Reserve; the second examines the extreme values of leverage multiples, corresponding to the process of safe deleveraging, that is, how individuals can exit safely and how the bull market will end.

Crypto Six Protocol: Interaction between Ecosystem and Tokens

On-chain protocols and assets are numerous, but under the 80/20 rule, we only need to focus on parameters like TVL/transaction volume/token price. More specifically, we should pay attention to the few indispensable individuals in the on-chain ecosystem, and examine their relationships within the ecological network, in order to balance individual importance, ecological connectivity, and the highest growth potential of new protocols.

Image Description: DeFi TVL Overview

Image source: @zuoyeweb3

In the composition of DeFi TVL, Ethereum accounted for over 60% of DeFi TVL in July, while Aave accounted for over 60% of Ethereum's ecosystem TVL. This represents the 20% in the Pareto principle, and the remaining protocols must have a strong connection with the two in order to be included as main passive beneficiaries.

With the flywheel of the three musketeers of revolving loans starting, the correlation between Ethereum, Aave, Pendle, and Ethena goes without saying. Adding Bitcoin, WBTC, ETH, and USDT/USDC are de facto DeFi foundational assets. However, similar to Lido, USDT/USDC only possesses asset attributes and lacks ecological value, while Plasma, Stablechain, and others are just beginning to compete.

With a slight distinction, a protocol can have multiple values. For example, Bitcoin primarily has asset value, meaning everyone needs BTC, but no one knows how to utilize the Bitcoin ecosystem. This is not to say that BTCFi is a scam (just to be safe).

ETH/Ethereum has dual value; everyone needs both ETH and the Ethereum network, including the EVM and its extensive DeFi stack and development facilities.

Based on the division of assets and ecological value, we examine the degree of "being needed" of various leading protocols. An asset attribute that is needed scores one point, and an ecological value that is needed scores one point. This can be summarized in the table below:

Pendle/Aave/Ethena/Ethereum/HyperEVM/Bitcoin are the six strongest protocols in the link, and any two of them can be coupled with each other, requiring at most one additional protocol or asset to link.

Let us explain briefly:

1. 1. Ethena <> HyperEVM: USDe has been deployed to the HyperEVM ecosystem
2. 2. Pendle <> HyperEVM: $kHYPE and $hbHYPE ranked first and third on the trend list.
3. 3. Aave <> HyperEVM: Hyperlend TVL accounts for 25% of HyperEVM ($500M vs. $2B), which is a friendly fork of Aave, promising to distribute 10% of profits to Aave.
4. BTC/ETH are the two cryptocurrencies with the highest trading volume on Hyperliquid, and can be deposited and withdrawn through Unit Protocol.
5. 5. Pendle, Aave, and Ethena have become integrated, but the asset attributes of USDe are recognized, and the ecological value of $ENA is slightly inferior.
6. 6. Pendle's new product Boros is based on funding rates for trading, with BTC and ETH contracts being the preferred choices.
7. 7. Aave requires WBTC and various types of ETH, such as staked ETH, especially since Ethereum's ecological value as infrastructure is needed by Aave/Pendle/Ethena, providing on-chain support for ETH prices.
8. 8. The most unique aspect here is that the Ethereum ecosystem requires BTC unidirectionally, while the Bitcoin ecosystem does not require any external assets.
9. 9. Ethena has no relation to Bitcoin/BTC.
10. 10. HyperEVM/Hyperliquid is the most "proactive" external ecosystem, giving a strong sense of "I am here to join this family."

According to the statistics, these are the six assets that are most closely linked. The introduction of any other ecosystems and tokens requires more assumptions, such as Lido, which is second in TVL, and the relationship between Hyperliquid and Bitcoin is quite weak. Additionally, after Pendle "abandoned" LST assets to invest in YBS, Lido's on-chain ecological linkage properties in Ethereum will also weaken.

We base the highest 7 on BTC and classify 6 types of assets into three nodes according to their influence on other protocols. Please note that this is not a depiction of their asset value, but a ranking of their importance within the ecosystem:

BTC/ETH is the strongest infrastructure, with BTC excelling in value attributes and ETH having an unshakable ecological status. If we include Solana to calculate the degree of linkage, we will find that it is not as good as Hyperliquid/HyperEVM's linkage to Ethereum. The core reason is the trading attributes of Hyperliquid itself, which, combined with HyperEVM, is more aligned with the EVM ecosystem.

• • In Ethereum, there is insufficient interaction between Lido/Sky and the existing six protocols.
• • Aside from Ethereum, Solana/Aptos and existing six protocols have insufficient interaction.

However, Solana needs to support its own DEX to be compatible with more external assets, which naturally adds an additional step to the required assumptions. SVM's compatibility with the EVM ecosystem will also be more difficult. In short, everything on Solana must develop independently.

Image description: Connectionism

Image source: @zuoyeweb3

However, in the relational network, the synergy of the Ethereum ecosystem is the strongest. The 1 dollar Ethena comes through ETH hedging, and then enters Pendle and Aave for value circulation, while the Gas Fee generated on it becomes the value support of ETH.

In addition to Bitcoin naturally relying on BTC to complete its value self-circulation and self-flow, ETH is the closest to a value closed loop, but this is the result of proactive actions. The combination of Hyperliquid/HyperEVM is still in progress, and whether it can achieve the linkage of trading (Hyperliquid) + ecosystem (HyperEVM) and $HYPE remains to be seen.

This is a hypothetical stepwise increasing entropy process, BTC only needs itself, ETH needs the ecosystem and tokens, $HYPE needs trading, tokens, and the ecosystem.

Does the expansion of DeFi have an end?

As mentioned earlier, Hyperlend needs to share profits with Aave. Aave's influence is not limited to this; in fact, Aave is the main character in the cycle loan initiated by Pendle and Ethena, bearing the leverage role of the entire cycle system.

Aave is the closest to becoming an on-chain infrastructure for Ethereum, not because it has the highest TVL, but due to a comprehensive consideration of security and capital volume. The safest way for any public chain and ecosystem to initiate lending and borrowing models is through a compliant fork of Aave.

Image description: Aave and Hyperlend profit sharing settings

Image source: @zuoyeweb3

In the Hyperlend fork template, a 10% profit sharing is the base, in addition to allocating 3.5% of its own tokens to Aave DAO and 1% to stAave holders, meaning Aave sells itself as a service to various ecosystems, which is where its ecosystem value and token value are interconnected.

But it is not without competitors; Maple has already expanded to HyperEVM, and new lending protocols such as Fluid and Morpho are also fiercely competing with new assets like YBS. Moreover, HyperEVM, as the strongest competitor in the Ethereum EVM ecosystem, may not always remain peaceful.

In terms of proactivity, Bitcoin and HyperEVM are absolutely two extremes. HyperEVM is siphoning traditional transaction types onto the chain through HIP3, bridging the liquidity of HyperCore and HyperEVM via CoreWriter, and supporting its front-end agents through Builder Code.

In addition, it also utilizes Unit Protocol and Phantom to connect the funds of the Solana ecosystem, siphoning all on-chain liquidity, which is also a way to expand infrastructure.

In summary:

• • Pendle focuses on all types of assets that can be split, starting from fixed income and expanding the derivatives market beyond perpetual contracts, namely the broadly defined interest rate swap market.
• • Ethena leverages the DeFi circular lending model and treasury strategies to create a third pole of stablecoins starting from $ENA and $USDe, $USDtb. The primary use of USDT/USDC remains trading and payments, while USDe aims to become a risk-free asset in the DeFi space.
• • Aave has already become a de facto lending infrastructure, closely tied to Ethereum.
• • Bitcoin and Ethereum represent the limits of the blockchain economic system, and their level of expansion is the foundation for the growth of DeFi, that is, how much the scale of BTC can be migrated to DeFi and how much room there is for DeFi to grow.
• • Hyperliquid/HyperEVM has tightly bound existing DeFi giants in the ecosystem. Although its TVL is far inferior to Solana, its growth prospects are greater. The story of Solana is about defeating the EVM system from the perspective of a public chain.

Conclusion

The Crypto Six Protocol examines the degree of connectivity among them; it does not imply that other protocols lack value, but rather that a high degree of collaboration will exponentially increase the freedom and utilization of funds, benefiting everyone equally.

Of course, a loss will also lead to a loss for all, which requires examining the subsequent development of DeFi re-pegging—from ETH to YBS. As a high-value asset, ETH is more aggressive in terms of leverage, while YBS, like USDe, is naturally more price-stable (not value-stable). The DeFi Lego built on it is more solid, and apart from extreme decoupling situations, in theory, it can make the leverage and deleverage curves more gentle.

The seats in the Crypto Pantheon are limited; new chosen ones can only push forward with all their might, forge connections with existing deities, and build the strongest protocol network to earn a place for themselves.