The DeFi space is rapidly evolving, with innovative protocols emerging and pushing the boundaries of traditional finance. However, this experimental edge also comes with significant risks, including smart contract vulnerabilities, economic design flaws, and governance attacks.
One key aspect of successful protocols in this space is their ability to integrate into the broader DeFi stack. This requires a clear understanding of what makes them innovative, how they generate yield, and who benefits from using them.
To evaluate early-stage protocols effectively, investors should consider several key factors, including:
- What is the core innovation?
- Where does yield come from?
- Who benefits most?
- Can it survive without growth?
By applying this framework, investors can identify which protocols are likely to succeed and which ones may fail. It's also essential to consider whether a protocol would be used even without incentives or rewards.