(1/8) A thread on DeFi composability with service providing protocols, "mutual protocol rewards", and the future of DeFi cartels

When @synthetix_io creates LP incentives for @UniswapProtocol or @CurveFinance, they are increasing the SNX supply to incentivize people to take action on another protocol.

This reward is good for Uniswap and Synthetix. The external protocol reward trend has caught on, and is starting to work with compounding effects. E.g. @iearnfinance and curve are mutually beneficial. $YFIs also ties into many protocols to farm many yields.

I think “mutual protocol rewards” will propagate into decentralized service providing protocols. Example - oracles like @chainlink or @bandprotocol, indexing and querying like @graphprotocol , layer 2 rollups like @loopringorg

Instead of just rewards for yields and liquidity - there will be rewards for services.

It is entirely possible , that @AaveAave or @synthetix_io could create rewards that incentivize users to index and curate their subgraphs.

So, a well functioning protocol will allocate token rewards to ensure their protocol has liquidity, has solid oracles, has an indexed subgraph, has affordable txs on layer 2, can passively earn yield, has bridges, etc. etc.

I assume what might happen is some sort of DeFi Cartel. The communities at the top protocols will chose to integrate with each other and provide rewards to each other. And because there are diminishing returns to integrate a 2nd protocol of the same type, cartels will form

With DeFi cartels it makes it much harder to fork and copy cat protocols. Which is good. But we need to make sure the cartels are run by communities like $YFIs, and not by VC coins with small groups of people owning large portions of tokens