Decentralized Finance (DeFi) has evolved from a niche crypto experiment into a foundational layer of the digital economy. As innovation accelerates and user adoption grows, understanding how to navigate this complex ecosystem is crucial for both new and experienced investors. Drawing from an in-depth conversation between blockchain experts Zhou Zhiqiang and He Taiji, moderated by Pingfeng on BaBit, this article unpacks a comprehensive and actionable DeFi investment methodology—one that balances innovation, risk, and long-term vision.
Whether you're exploring Ethereum, Binance Smart Chain (BSC), or emerging Layer 2 solutions, this guide offers clarity on where DeFi stands today, where it’s headed, and how to position yourself strategically.
The Evolution of DeFi: From 1 to N Innovation
The era of "zero to one" breakthroughs in DeFi—such as the invention of automated market makers or lending protocols—has largely passed. Today, the space is entering a phase of horizontal and vertical expansion, as He Taiji describes it.
- Horizontal axis: Expansion of asset types and credit creation. Currently dominated by native crypto assets like ETH and BTC, the future lies in integrating real-world assets and expanding collateral diversity.
- Vertical axis: Advancement in leverage mechanisms, risk layering, yield optimization, and capital efficiency.
This dual-axis framework forms the backbone of a robust DeFi investment strategy. Instead of chasing short-lived yield farming opportunities, investors should focus on protocols enabling deeper financial functionality and broader composability.
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Why Most DeFi Projects Fail (And How to Avoid Them)
Many so-called “DeFi” projects are little more than rebranded forks of existing protocols with unfair token distributions. These projects often lack real users and sustainable business models. As Zhou Zhiqiang points out:
“If you strip away liquidity mining and the bull market momentum, many projects would have died at birth.”
This highlights a critical truth: short-term hype is not a substitute for fundamental value. True innovation requires solving real financial problems—not just copying code.
Investors must distinguish between:
- Projects built for long-term utility
- Those designed solely for quick token grabs
Focus on teams with clear roadmaps, active development, and genuine community engagement. Avoid anything that smells of “fair launch” deception or insider advantages.
Is DeFi in a Bubble? Yes—But That Doesn’t Mean It’s Doomed
Zhou Zhiqiang candidly acknowledges that DeFi is currently in a bubble phase. UNI’s valuation once rivaled Coinbase’s despite vastly different user bases and compliance frameworks. Yet bubbles can persist—and even serve a purpose.
“The best way to delay a bubble burst? Print money.”
In DeFi, protocols like MakerDAO act as decentralized central banks, minting DAI against collateral. This ability to expand the money supply mirrors traditional monetary policy and helps sustain market liquidity during volatile periods.
While corrections are inevitable—especially when global monetary policy tightens—the underlying belief in DeFi as future financial infrastructure remains strong. Even in bear markets, innovation continues. Value-driven projects emerge stronger after the hype fades.
BSC, Heco, and the Rise of Exchange-Layered Chains
With Ethereum gas fees soaring, alternative chains like BSC and Heco gained traction by offering cheaper transactions and faster speeds. But are they competitors—or complements?
He Taiji sees them primarily as:
- Testing sandboxes for developers
- Onboarding ramps for new users
While these chains host many copycat projects, they lower the barrier to entry. Users can experiment with DeFi without risking hundreds in gas fees.
However, quality follows value. As users mature, they naturally migrate back to Ethereum for access to deeper liquidity and superior assets.
Zhou Zhiqiang reinforces this:
“Users chase high-quality assets. Eventually, they’ll return to where the innovation lives.”
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Layer 2 vs Exchange Chains: What’s the Difference?
Layer 2 solutions like Optimistic Rollups and ZK-Rollups aim to scale Ethereum while preserving security. But Zhou Zhiqiang argues that BSC and Heco function as non-technical Layer 2s—offering similar benefits through parallel chains.
Key trade-offs:
- Rollups: Higher security but limited composability
- Exchange chains: Faster and cheaper but less decentralized
Ultimately, the winner isn’t determined by technology alone—it’s about user experience, security, and specialization. Future Layer 2s may focus on niche use cases like privacy or institutional-grade services.
The Future of Financial Infrastructure: Composability & Innovation
One of DeFi’s most powerful advantages is composability—the ability to combine protocols like Lego blocks.
A standout example discussed is Curve’s integration with Synthetix, which enables near-zero slippage for large trades. In traditional finance, such efficiency is nearly impossible due to fragmented systems and intermediaries.
“DeFi’s composability is a structural advantage over centralized finance,” says Zhou Zhiqiang.
This synergy unlocks new possibilities:
- Cross-protocol arbitrage
- Automated hedging strategies
- Complex derivative structures
As He Taiji notes, we’re only beginning to explore asynchronous composability, where financial actions unfold across time rather than within a single transaction.
Flash Loans: The Game-Changing Innovation You Can’t Ignore
Flash loans allow borrowers to take out uncollateralized loans—on the condition they repay within the same block.
While often associated with exploits, they represent a paradigm shift in financial logic:
- Money can now move before it exists
- Transactions are atomic: all-or-nothing execution
- Risk is mathematically bounded
This capability enables:
- Instant arbitrage
- Collateral swaps
- Self-repaying loans
Zhou Zhiqiang calls flash loans “a black cloud”—feared yet transformative. They exemplify how DeFi isn’t just replicating traditional finance but redefining its rules.
The Next Frontier: Financial NFTs and Tokenized Rights
Current DeFi tokens (like cTokens or LP tokens) are primitive. They represent ownership but lack nuance—unable to express time-bound rights or complex conditions.
Enter financial NFTs.
Unlike collectible NFTs (e.g., art or sports cards), financial NFTs represent structured claims:
- Time-locked deposits
- Tiered yield rights
- Risk-tranched instruments
Zhou Zhiqiang explains:
“Finance is about contracts. The stronger our ability to define rights, the more advanced our financial system becomes.”
Protocols that enable fine-grained financial expression will attract institutional capital—currently hesitant due to rigid product designs.
Where Are the Real Investment Opportunities in 2025?
Despite saturation in some areas, several sectors remain underdeveloped:
1. Derivatives (Futures & Options)
No dominant player has emerged. SNX leads in synthetic assets but ties its success too closely to its token. Hegic struggles with market maker incentives.
Opportunity: Protocols that decouple governance from product mechanics.
2. Insurance
Still fragmented. Demand exists for coverage against smart contract failures, oracle manipulation, and custodial risks.
3. Fund Management Platforms
New models let professional managers deploy strategies via vaults or indexed pools—democratizing access to sophisticated investing.
4. Stablecoins Beyond Over-Collateralization
Algorithmic stablecoins face skepticism. RAI attempts volatility reduction without USD pegging—positioning itself as low-volatility collateral rather than a currency.
True algorithmic stability remains elusive—but progress continues.
Frequently Asked Questions (FAQ)
Q: Is DeFi still worth investing in during high market volatility?
A: Yes—but selectively. Focus on protocols with strong fundamentals, active development, and real usage rather than speculative hype.
Q: Should I invest in BSC or stick with Ethereum?
A: Use BSC for low-cost experimentation or short-term yield plays. For long-term holdings and innovation exposure, Ethereum remains the leader.
Q: Can algorithmic stablecoins ever be truly stable?
A: Not yet. Without sufficient scale and balanced supply-demand dynamics, pure algorithmic models struggle. Hybrid models (part collateralized) show more promise.
Q: What makes DeFi different from traditional finance?
A: Composability, transparency, permissionless access, and innovations like flash loans enable financial operations impossible in legacy systems.
Q: When will Ethereum 2.0 solve scalability issues?
A: Full rollout is ongoing. While Layer 2s offer interim relief, Ethereum’s long-term edge lies in its security and developer ecosystem.
Q: How do I avoid scams in DeFi?
A: Audit code if possible; check team transparency; avoid anonymous teams; prioritize protocols with insurance coverage or bug bounties.
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Final Thoughts: Think Long-Term, Act Strategically
DeFi is not just another crypto trend—it's the foundation of a new financial system. While speculation drives short-term price movements, lasting value comes from solving real problems: capital efficiency, accessibility, transparency, and programmable finance.
To succeed:
- Build a framework based on data, not hype
- Understand the trade-offs between chains and layers
- Watch for breakthroughs in financial abstraction, like NFT-based rights
- Stay skeptical of “get-rich-quick” narratives
As the space matures, those who develop deep literacy now will be best positioned to thrive in the decentralized economy of tomorrow.
Core Keywords: DeFi investment strategy, Ethereum vs BSC, Layer 2 solutions, financial NFTs, algorithmic stablecoins, flash loans, DeFi derivatives, decentralized finance infrastructure