A DeFi flywheel describes a self-reinforcing economic loop within a decentralized finance protocol where positive actions by users create further incentives and growth. This mechanism typically involves multiple interconnected components, such as lending, borrowing, and liquidity provision, each amplifying the others. Increased participation in one area often leads to greater activity and value accrual across the entire system. It represents a sustainable growth model for decentralized applications.
Context
News analyses often discuss DeFi flywheels when evaluating the long-term sustainability and economic models of various decentralized protocols. Projects with well-designed flywheels are seen as more resilient and capable of attracting consistent user engagement. Understanding this concept is important for assessing the intrinsic value and growth potential of decentralized financial ecosystems.
The hybrid protocol's "smart collateral" architecture unifies liquidity and lending, creating a powerful flywheel that captured $820 million in 48-hour volume .
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