Whether we are in a market cycle or not is often determined by the level of complexity of the new protocols. Everyone develops infrastructure in the deep bear. New mechanisms are obtained in the early bull. However, once we enter the mature stage, when we are arguably in late 2025, the complexity tends to go through the floor. We have been performing the past two years of wrapping tokens in wrappers, restaking the restaked assets, and constructing leverage loops that are so complex that one sneeze in the bond market could unwind a billion dollars of notional worth. This is the reason why my initial impression of Falcon Finance in the early part of this year left me in a state of confusion. It seemed too simple. Where was the self-purifying burn mechanism? What was the ponzi-type points multiplier to refer to your grandmother? Falcon was nearly too dull to be.
However, as we enter the end of the year and the USDf amount in circulation is up to the tune of $1.5 billion on-chain, it is becoming obvious that what the market desperately needed was to be bored. We are experiencing a paradigm shift as people are moving to innovate through complexity to innovate through coherence. We have been working under the assumption over the years that in order to extract liquidity out of an asset, you were essentially obliged to kill its economic life. You sold your ETH, in case you wanted to spend it. Should you wish to ride on your Treasuries, you stored them in a safe-room and left them idly there. However, it is not a new asset class that Falcon Finance is challenging, but rather universal translation layer. They understood that it was not the liquidity that was the bottleneck, but the difficulty of transformation of value in one form to the other without destroying the underlying asset.
They refer to it as the Universal Collateralization, and that is why institutions are in fact utilizing this thing rather than merely cultivating it. When the collateral is deposited in Falcon by a fund to mint USDf, by depositing tokensized Treasury bills or liquid staking tokens, the collateral does not cease to work. The Treasuries continue to grow old towards maturity; the validators continue to validate. Falcon merely converts such active value into a stable, spendable dollar. It is a simple sounding one, but it eliminates the huge opportunity cost challenge that has afflicted DeFi since 2020. Traders are no longer forced to make tough decisions between gaining yield and having liquidity. This is a huge upgrade in operations in a market which has matured sufficiently to appreciate capital efficiency rather than crude speculation.
This change in attitude is supported by the data. Falcon token, native to Falcon, the dollar, $FF, has stabilized at the $0.10 price with a market valuation of approximately 240 million, which can be compared to relatively small in scale with meme coins that are blowing up at the start of 2025. However, have a closer look at the utilization. The protocol is not being supported on the shoulders of the retail degens with 4-digit APYs. Market makers who are operating intraday liquidity and treasury desks as well are using it to unlock capital without unwinding their long-term positions. The supply of one hundred and fifty billion USDf is not merely sitting in liquidity pools; it is circulating through chains and being interconnected through Chainlink and its CCIP, and it is working as plumbing. The retention is sticky and the growth is lower than the hype cycles that we are accustomed to.
The best thing about it is that Falcon does not play the games of the peg defense that the algorithmic stablecoins played and died before it. No magic formula can guarantee USDf to remain at $1.00. It is nothing but uninteresting, colossal overcollateralisation, to the tune of 116 percent, and a $10 million insurance fund on protocol revenue. They consider stability to be a structural and not a psychological game. Once you start seeing the audit reports come flying in by companies such as Harris & Trotter displaying actual-time tracking of their reserves (about 52 percent BTC, 28 percent stablecoins, and 20 percent altcoins as of November), one realizes that this is a crash, not a pump. It is a gloomy first-mover strategy within a rosy sector.
Naturally, this mode does not lack threats as well. When this wide array of collateral, volatile SOL to sluggish RWAs, is aggregated, a colossal surface area on which to play becomes available. In black swan event, when the relationship between these assets soars, that so-called universal collateral pool is tested in a manner that cannot be predicted by simulation. It is yet to witness Falcon encountering a real systemic meltdown of the extent of 2022. Although their conservative LTV ratios and gradual assimilation of new assets indicated that they were ready, the ultimate challenge with a lending protocol is to be able to survive once the music goes off.
Finally, Falcon Finance does not appear as a technological revolution but as a maturity process. It strikes me of the dial-up optimizations of the internet being replaced by broadband we did not attempt to squeeze the data into the pipe anymore, we simply increased it. Falcon is the larger value pipe. It demonstrates that we do not require additional financial engineering to get DeFi to work, we simply require superior continuity among the assets that we presently possess. To us, who are weary of seeing our yield-bearing jobs languishing, so we can get at the cash, a silent ability of Falcon is the most optimistic signal I have seen all year round. It is not endeavoring to make the world any different; it is merely attempting to turn the world we already have built into a real liquid. And frankly, that’s enough.
