Impressive numbers Image via PancakeSwap Finance

Introduction

PancakeSwap is one of the top DeFi protocols on the Binance Smart Chain with some decent metrics. BNB tokens are used to pay for gas fees on this protocol. Users are rewarded with their native token CAKE that allows them to participate more fully by voting, playing lottery, and making predictions, just to name a few. 

The first thing that caught my eye immediately when the homepage loaded is the cute sleepy-eyed bunny floating around with the bottle pack behind its back. This image alone is enough to convince me that the website designers surely have some intention of getting more women to jump onboard their platform. Given the skewed male-female ratio in the crypto world, the efforts from the design team at Pancake Swap is laudable, and I’m buying it! Ok, no more staring at cute bunny, let’s get down to business. 

Welcome to PancakeSwap

Getting Started with PancakeSwap

1. Connect Wallet

Connect a Web3.0 wallet with the platform. The usual suspects are here plus some minor players that are displayed upon clicking the three dots. There’s even a handy guide at the bottom to show you how to connect to wallets if you need help.

Choose your favorite wallets to connect with the platform

2. Customizing the platform for your experience. (optional)

If you’re eager to get started, you can skip this step. However, taking a bit of time for customisation might make for more pleasing future engagement. Next to the price of the CAKE token is a globe icon for language selection. Scroll down if you don’t see your language. They have a good variety so it’s highly likely you will find what you’re looking for. The cogwheel icon next to it is the Settings icon. Hover your mouse over the mini Help button next to each setting for additional information about it. 

Select your language and change settings where applicable

Slippage Tolerance – For those who are unfamiliar with the concept of slippage, it means that the order is fulfilled at a price different from what you expected. If it exceeds the tolerance level selected, the transaction will not go through.

Let’s say you want to swap 10 CAKE tokens for BNB. The price per CAKE token is $18.50. With a 0.5% slippage, you accept the price range of $18.40 – $18.59. Any transactions beyond that range won’t get put through.

Tx deadline (mins) – due to traffic jam writing to the blockchain, how long are you willing to wait before calling off the transaction? 

Expert Mode – only for those who know what they’re doing.

Disable Multihops – Sometimes, swapping two tokens isn’t as straightforward as A to B. It might involve other tokens acting as a go-between. Disabling it means you’re only taking direct flights, no stopovers in between. 

Flippy sounds – On by default (and they sound cute too!)

One other piece of prep-work you might need to do is to set a profile. You can do that by hovering the mouse over the wallet to reveal the dropdown menu. Here is also where you can check your past transactions and check out any NFTs you have in your collection. Since the profile set-up is part of the NFT section, I will go through it over there.

The guide is organised by lowest to highest risk to help readers of all risk levels get started as quickly as possible. A quick note: risk is defined as “the possibility of losing money”, so the lower the risk level, the least likely you will lose money. If you know your risk level, feel free to skip to the ones that appeal to you. Now let the fun begin with (drumroll, please)…

Syrup Pool (Risk level 1)

One of the easiest ways to experience the platform and have some skin in the game is by staking tokens in the Syrup Pool. Most of the pools have a limited time to allow people to stake their tokens in them, except for the CAKE pool which has no time limit. The pools also require you to do some manual farming, i.e. you need to click on the Harvest button. The only exception is the AutoCAKE pool that do the harvesting for you. It really is set-and-forget! The APRs, ranging from 50.15% to 132.55%, aren’t too bad either, in exchange for little to no work needed on the users’ end.

Take note of the 0.1% unstaking fee if you change your mind within 72 hours every time you manually deposit tokens to the pool. There is also a 2% performance fee for every withdrawal made, which they call yield harvest. CAKE tokens collected from these fees are burned to keep the token deflationary. 

In the Syrup Pools, there is a special reward called Auto CAKE Bounty that incentivises users to stake in the Auto CAKE pool as they are seen to be providing a service to other users. 

How to Get In (Adding to the Pool)

The idea of auto-compounding sits well with me so I’m going ahead by clicking the Enable button to gain access to the pool. There is a $0.12 transaction fee which I pay through the Metamask wallet. 

Yummy Syrup that makes CAKE taste soo much better

Once enabled, I click the Stake button and am greeted with a pop-up window asking for input. While it’s possible to type the amount I want, it’s just a lot more fun using the bunny slider, which was what I did. Based on the amount intended for staking, the platform calculates the annual ROI at current rates.

Look how much I can get for doing nothing!

Another cool feature about the calculator icon next to it lets you key in your desired ROI so you can see how many tokens you would need to stake to make that amount of money.

You get what you put in

I went ahead to confirm the amount to stake, paid the gas fee, and voila! I’m in the game.

Let’s start earning, baby!

If you choose to join the manual CAKE pool, you will also get Syrup tokens, which are basically IOUs to prove you own the CAKE tokens. These will be returned to the platform when you withdraw from the pool. It’s important that you have the same amount of Syrup tokens as the CAKE tokens you want to withdraw.

How to Get Out (Removing from the Pool)

Getting out is also easy. Simply click the ‘-‘ button and enter / use the bunny slider to key-in how much you want to take back. The Unstaking Fee is calculated in CAKE. Click Confirm to continue.

Getting out safely and easily

After clicking Confirm, you will need to pay the gas fee to complete the transaction.

Trade | Exchange (Risk level 1)

Exchange is for swapping one token for another. To swap, the top section is what the token you want to get rid of. The bottom section is the token you want to acquire. By default, the protocol displays tokens only on the Binance Smart Chain.

Choose the pair of tokens to swap

If you want to see more tokens on the list, there is the option to add them through the Manage Tokens function. Selecting either the PancakeSwap Top 100 or PancakeSwap Extended would generally yield what you might be looking for. You can also import lists of tokens by its IPFS or ENS name.

More tokens to choose from

If you have a particular token in mind that you’d like to swap for that’s nowhere in the list, click on the Tokens tab and enter the token’s Contract number into the field. Once it appears, click the Import button to proceed to the next step. A warning will appear. This is a good time to check that the token you intend to swap to is a legit one. It pays to verify it on BscScan just in case. Click Import if you’re really, really sure.  It will appear on the list and be available for an exchange. 

Be careful when adding an unknown token to the list.

By clicking on the Swap button, I now have a chance to confirm whether I want the trade to happen. If there are changes to the price, it will also be reflected here, giving me another chance to say yay or nay. After I’ve accepted the price, the Confirm Swap button lights up. I accept the confirmation via my Metamask wallet, and the swap is complete. I can also view the transaction on the Binance Smart Chain.

The swapping process

Price Impact refers to how this order impacts the availability of tokens available in the liquidity pool. The smaller the order, the less impact it will have. 

The Liquidity Provider fee is a 0.25% fee, broken down as follows: 

0.17% – for liquidity providers
0.03% – for the Pancake Swap Treasury
0.05% – for buying back CAKE to be burnt.

Trade | Liquidity (Risk Level 2)

If you want to give liquidity pools a try, this is the place to do so. If you’re new to the concept of liquidity pools, you can watch this video to learn more together with its associated risks. In summary, you can be a liquidity provider by putting forward a pair of tokens of equal value with each other. Others will be able to borrow from this pool and pay fees which you can earn by being part of the pool. You get liquidity provider (LP) tokens that act as proof of your participation in the pool which are deposited into your wallet. Simply return them to the platform to get your staked tokens back.

Click on the +Add Liquidity button to get started and select the pair of tokens you want to be a liquidity provider for together with the amount involved.

Joining in the liquidity pool

Enable CAKE to confirm participation of the pool. You can also see your share of the pool with what you are planning to offer. The 0.17% liquidity provider fee will be distributed to each contributor of the pool proportionate to their share. 

Check everything looks good and click Confirm Supply

Once you have the LP tokens in your wallet, it’s time for it to earn its keep by putting it to work in a …

Farm (Risk level 2)

We have a list of the farms available to earn more money from. What you’ll earn is the CAKE token. The main factors affecting the rate of exchange include the annual percentage rate (APR), liquidity, and Multiplier. Hover the mouse over the mini Help icon for a description of the Multiplier which mainly deals with the number of CAKE tokens produced in this farm. You can also sort the list by Hot, APR, Multiplied, Earned and Liquidity metric in the Sort By dropdown list. If there is a particular farm you’re looking for, put in the LP token in the Search section. 

List of Farms available to plant seeds in

The ROI calculator (same as the one seen previously) is also available here to help you calculate your potential ROI. It is next to the APR rate. 

How To Farm

To get started, select the farm you want to be a part of by clicking on the Enable button. Pay the gas fee associated with gaining access to this plot of farming land. The Enable button changes to Stake LP button.

Gain access to the farm you want.

Click the Stake LP button to confirm the amount of LP tokens you want to stake.

Stake ’em, grow’ em!

Congratulations! You’re officially a farmer. Don’t forget to harvest the tokens when they’re ready! Watch out for the harvest fee though. While it’s up to you to decide when to harvest, it’s worth keeping in mind what you’d like to get after the fees are deducted. Different wallets may have slightly differing fees.

Wait for your crops to grow.

Adding/Removing LP Tokens

If you’d like to add or remove the LP tokens, click the ‘-‘/’+’ button and a window pops up for you to key-in what you want to do. Add/remove tokens manually or use the MAX button to add/remove all the LP tokens.

Remove your tokens here

Initial Farm Offerings (IFO)

Be one of the first to get your hands on some brand-spanking new PancakeSwap tokens as soon as they are available. As you know in crypto, early adopters take the most rewards! These IFOs are available for a limited time only, so check back regularly for the appearance of new farms. 

The guide down is a mini-roadmap showing you how to take part. Basically, the steps are:

1. Activate your Profile. Scroll down this article to learn about this in the Set Up a Profile section.
2. Get CAKE-BNB LP tokens. These are needed as currency to buy the IFO sale tokens. 
3. When the IFO sales are live, use the LP tokens to swap/buy the new tokens on sale. There are two kinds of sales: Basic and Unlimited. 
   Basic Sale limits the number of LP tokens that can be committed but each token yields a higher return. Unlimited Sale, as the name suggests, puts no limit on the number of tokens committed, but additional fees will be charged.
4. Last but not least, claim the IFO tokens bought when the sale is finished and the unspent LP tokens will be returned to your wallet.

How to take part in new farm offerings

An example of a Initial Farm Offering (IFO)

Community Farm Auction

Another way to participate in the Farm section without being an actual farmer is to bid for the right to host a Farm on PancakeSwap for 7 days. If you’re interested, click  the Apply for a Farm/Pool button to get started. This will lead you to two GoogleDoc forms. Select the one that represents the type of farm you want to operate and fill out the form. Only approved projects will be able to bid for a farm to be set-up in PancakeSwap. CAKE tokens are required for the bid. You can always take a peek at current bids for new farms too. Select the three buttons next to a farm you’re interested in to find out more. 

List of farms bidding to get set up to issue LP tokens.

Prediction: Beta version (Risk Level 4.5)

If you fancy yourself to be a dab hand with the market charts, test yourself by making predictions on the BNBUSDT price during one of several rounds by putting down CAKE tokens to back up your guess. If you guess right, you could stand to win a nice chunk of change. If not, there’s always the next round. Since this product is still in Beta, you need to sign a T&C saying you understand the risks involved. Also, once you’ve decided on your position and put down BNB to back it, you can’t change your mind, so bet carefully! 

Here’s how it works: 

• If you click “UP” and the closing price is higher than the locked price at the end of the 5-min round, you win! If not, you lose.
• If you click “DOWN” and the closing price is lower than the locked price, you win! if not, you lose.

How to make a prediction

Before you begin, check the timer in the top-right area. Make sure you have plenty of time left before making a prediction. Give yourself at least a minute or so. Next, select “UP” or “DOWN” in the upcoming round marked “Next”. 

Make predictions before time runs out

Each pool carries different level of rewards known as reward multiplier. This changes based on people’s predictions, reflected in the “Prize Pool”, just above the buttons. Let’s go with UP. This brings up a new window, asking you to “Commit” some BNB to back up your prediction. Enter, click the percentage button or slide in your bets. Click Confirm when you’re satisfied.

Place yer bets!

There will be a short wait to ensure there is enough time to participate in the upcoming round. If successful, the “Entered” message will pop up. You’re ready to go! You can watch the price update during the 5 minutes if you like. However, it is not possible to change your mind once your bet is in.

Will I be right? Yes? No?

The Results

After the 5 minutes is up, the results get calculated, indicated by the “LIVE” window changing to “Calculating” to “Expired”. The results will be displayed either as a green up arrow or red down arrow.

The moment you’ve been waiting for

Viewing Past Results

It’s likely that you may step away for a while, or a long time, from the Predictions page and missed out on seeing the result when it is announced. Fear not, there’s a way to reverse time (sort of)!

Click on the left/right arrows next to the bunny icon or the icon next to the timer. The “History” panel pops up with information on the most recent round together with any winnings you might be eligible for. Click on the round for more information.

A historical record of previous bets placed.

Collecting Past and Present Winnings

If you are the grand winner of the round, you get to click on the Collect Winnings button. A new window pops up showing you your reward. Click the Confirm button to collect the money into your wallet. From the History window above, you can also check for winnings from past rounds and collect them too.

Money money please hop in.

Viewing historic wins and losses

If you have done more than your fair share of predictions and want to know what your track record looks like, click on the PNL tab in the History window. You’ll see some stats to give you an idea how (un)successful you were. Perhaps these stats can help you up your game in the future? 

Your track record of past predictions

Lottery (Risk Level 5) 

This is nothing more than going to the casino and having a roll of the dice on roulette. The chances of losing your money is very high. However, if Lady Luck is passing by in your neighbourhood, it’s worth a shot! There is a fixed number of tokens for each pool. More winners in a pool means less tokens for everyone. 

Feeling Lucky?

Here’s how it works:

• Click Buy Ticket -> Enable button to gain access to this product. 
• Each ticket costs about USD5 in CAKE tokens. You get a discount for buying more. 
• You can choose to Buy Instantly to generate a random 6-digit number or put in your lucky numbers to feel more in control. 

I leave my Fate to faith.

• Match your number with the one revealed in order from left to right. While it’s great that you can win a prize with just the first digit, it’s always better to have more matches for a higher prize. 

As it turns out, better luck next time! 

No matches of the first number.

PancakeSwap Analytics

PancakeSwap has their own analytics page to help users gain a clear picture of the state of things in bunny land. These stats are categorised in three ways: Overview, Pools, and Tokens.

Overview

As the name implies, this is the general picture consisting of the following 5 elements: liquidity, 24H volume, top tokens and top pools, ordered by the 24H volume, and all transactions in bunny land in the interest of transparency. These transactions can be further filtered by swaps, adds, and removes. If you know what you’re looking for, you can also search for it through the search bar on the top-right corner.

The lowdown of what’s happening in bunny land

Pools

This section gives you the list of pools similar to what you see in the Overview section. Clicking on an individual pool leads you to a more detailed view of it. There is a Add Liquidity button and Trade button, making this a one-stop place to do everything you need. You can also save this to your Watchlist by clicking on the star button at the top-right corner of the page. 

One-stop place for all things pool-related

Tokens

Just like the Pools section, this area is all about the tokens. Individual stats for each token including the pools that use them and transactions are also visible here. Current top movers are also shown here. 

Looking for a top-moving token? Find it here!

Learn more about your favourite token here

NFT Market

The team at PancakeSwap knows that not everyone is a yield-chasing farmer. With the amount of work they’ve put in to design the webpage for maximum cuteness, it makes perfect sense to monetize that cuteness to bits by offering bunnies (and other types) for sale in their own NFT Market. Without further ado, let’s go (I can’t wait to get my hands on those bunnies)!

Overview

The main page gives you an idea of the kinds of NFT collections available in the market. These collections aren’t exclusive by any means (most of them are on OpenSea), but you might be able to snag one at a good price here, especially for the ones designed by the PancakeSwap team. 

Welcome to the market!

Collections

The first collection I want to find out more about are the Pancake Bunnies. Each collection has 4 main stats: number of Items, Items listed, Lowest value and trading Volume (in BNB). Click on the Traits tab to see the bunnies sorted by rarity together with their corresponding prices. 

So here’s where all the bunnies hang out…

Why’s that bunny worth 100BNB?!

Other collections that are more similar to the CryptoPunks style can be filtered by other characteristics such as hair, eyes, accessory etc. Here’s an example with BornBadGirls (yeah, girls rock!).

All girls are a combination of traits that make them unique.

All traits individually sorted by rarity.

Clicking on the individual bunny (ahem, item/character) gives you some detailed stats and who’s selling in case you’d like to buy from them, as opposed to buying it directly from the platform. However, it doesn’t mention the reason for the rarity, which would be nice to know. It is possible to find out based on analysing the traits but that’s a roundabout way. My best guess is the low supply count number.

The most expensive bunny in the collection

Now that you’ve gotten a glimpse of the rarity factor for each Item, it’s time to get our hands on one of them! To do that we need to activate our profile.

Setting Up a Profile

Hover the mouse over your wallet connection and go to “Make a Profile”. You can also check your wallet to see how many CAKE tokens you have.

Check to see if you need to make any top-ups to your wallet.

After clicking on “Make a Profile”, you’ll be greeted with the first step, picking a NFT as your profile avatar. If you’d like to take a look at the stats for the characters offered, feel free to go to the Pancake Bunnies collection and check them out. Once you’ve decided which one takes your fancy, make your choice here. Because this is a beginner NFT, the cost is fairly low at 1 CAKE. When you’re happy with your choice, click the Enable button to pay the transaction fee. Once paid, the Confirm button lights up allowing you to mint the NFT. Click Confirm to mint the NFT and pay the gas fee. 

Time to get my grubby hands on a bunny!

Set your Profile Picture with the newly-minted NFT by clicking the Enable button which triggers another transaction fee. Once paid, the Next Step button lights up.

Sunny is gonna be me

The next step is to join a team. There isn’t a lot of information about the teams, so it’s entirely up to you which one you choose. As of now, there aren’t any special benefits but this choice can’t be undone. Choose whichever tickles your fancy and click Next Step. 

Try closing your eyes and pick one

The most important step is finally here: choosing your name. If you want to maintain a consistent presence, you probably already know what name you want to use. Some of you might like to take this chance to create a new identity. Whatever you decide, know that you can’t change it later on, so it’s ok to take some time for this. Click “Confirm” when you’re ready, and a Signature Request pops up asking for your signature. Click the “Sign” button and that cause the Complete Profile button to light up.

Pick a name you like.

Click the Complete Profile button to Enable and Confirm this transaction. 

The last time you need to pay gas fee for this action.

Ta-da! Profile is now complete!

Voting

All blockchain projects thrive on community participation and this is no exception. Having invested what may be a fair amount of money on the platform, it would make sense to also have an active voice in how the platform is run. The most obvious way to do so would be to vote on proposals, or make one if you have a good idea on how to make it better. 

To make a proposal, simply click on the “Make a Proposal” button and fill in the form outlying your proposal. 

There are two kinds of proposals to vote for: Core and Community. Each kind comes with three statuses: Vote Now, Soon and Closed, ie past proposals.

Check out proposals listed to have an idea of what people are interested in.

Click on the arrow to get details of the proposal. In this page, the Current Results reflect the number and percentage of votes collected thus far. To cast your vote, click either the Yes or No button and click “Cast Vote”. 

Cast your vote for a worthwhile cause.

Unfortunately, I don’t hold enough CAKE to be able to put in a vote. 

Uh oh, need more CAKE!

Conclusion

Now that you have a good understanding of how the platform works and the various ways you can choose to participate on it, are you keen to get started? If you are, here’s my suggestion to get the most out of it, in the following order: 

1. Get some BNB and CAKE tokens into your wallet with a ratio of 1.1 : 25. If you have one or the other, use the Exchange to help you achieve that ratio. The 0.1 is to help with the gas fees of which there are quite a number, even though the amount is a small one. An exchange between two tokens can easily result in paying gas fees two or three times.
2. Stake the CAKE in the Auto CAKE Syrup Pool for gain. This is practically free money. Use the ROI Calculator to figure out how much you can get as rewards based on current APR. Some other tokens might give you insane APR but those are usually quite unstable so unless you’re the type whose eyes are glued to the page more than you spend sleeping, CAKE is a much safer bet. 
3. Harvest the rewards from the pool periodically and join the CAKE-BNB liquidity pool to get LP tokens. Where possible, try to increase your share of the pool to get more.

At this point, you have a few ways to put the tokens to good use: 

4a. Farm the LP tokens in the farm of your choice to get more CAKE. You can put the extra CAKE back into the Syrup Pool to get even more CAKE! 
4b. Use some of the LP tokens to get into Initial Farm Offerings. This is a short-term strategy because most of the farm pools are only valid for 7 days, so if you have a small chunk of spare time, it’s worth getting into it but it requires close monitoring and it is quite high risk. However, those insane APRs can potentially net you some nice gains that you can then splurge on some NFTs. After all, life’s not all about making money. If you get the occasional itch to take a walk on the wild side, try your hand at a few lottery tickets. 

One thing I’ve learnt about buying lottery tickets is always set your own numbers, especially the first one. If you buy 4 tickets, and set a different beginning number per ticket, you have a higher chance of winning something since matching just the first number is enough.

If chart-reading and TA is your thing, then you might be able to make some nice cash with predictions. The downside is that page is in Beta, which means it doesn’t always work, thus not to be relied on for any kind of steady income. 

Oh, and always have enough CAKE to be able to vote in proposals that appeal to you. True decentralisation requires everyone to do their own bit, so if you like the platform to stay healthy, please vote. 

The post Make a Killing on the Cute and Potentially Lethal PancakeSwap appeared first on Coin Bureau.

Today, in an ever-changing world filled with dynamic applications and relentless technological advancements, financial ecosystems find themselves being on the cusp of a major internal revolution, spearheaded by the proposition of Decentralised Finance. DeFi, in fact, has come to encapsulate a whole new environment of alternative economic structures and financial paradigms, and is very likely destined to utterly disrupt the way people engage with money, value and traditional banking systems.

The infrastructure put forward by protocols in the DeFi space is therefore set to potentially refashion the deeply-rooted mechanisms inherent in traditional financial systems, forging a more sophisticated, cutting-edge and transparent economic framework.

DeFi Is Slowly But Surely Revolutionising Traditional Financial Structures, Opening Up A Whole New Environment Of Propositions.

In the post-Bitcoin era, new DeFi-influenced value propositions are being architected on a regular basis, with lending and borrowing protocols, decentralised exchanges (DEXes), yield farming and staking programs being at the forefront of the 21st century financial revolution.

Apart from blockchain-enabled decentralised and trustless lending and borrowing protocols, among the many other DeFi-related things, it is important to emphasise the vital role played by stablecoins in the digital asset economy. This is because, without stablecoins, DeFi and the whole crypto space would not be able to function nor operate correctly.

Stablecoins Such As USDC, USDT And DAI Play A Vital Role In The Preservation Of Stability Within The Crypto Markets

In fact, stablecoins such as USDC, USDT and DAI, offer traders and investors a way out of the crypto market volatility and provide stability within the digital asset economy. At present, there exists a very exciting protocol looking to merge both stablecoin generation, as asset-backed collateral, and DeFi lending and borrowing, synthesising the perfect environment for the development of DeFi and, subsequently, of Finance 2.0.

We are of course referring to Maker DAO, the decentralised platform through which anyone, anywhere can generate the DAI stablecoin against crypto collateral assets.

About MakerDAO

MakerDAO is an organisation developing technology for borrowing and savings, as well as a stablecoin crypto asset called DAI on the Ethereum blockchain. MakerDAO has created a protocol allowing anyone with ETH and a Metamask wallet to lend themselves money in the form of DAI stablecoin. By locking up some ETH in MakerDAO’s smart contracts, network participants can create a certain amount of DAI, with the more ETH locked up, the more DAI generated.

MakerDAO, The Go-To DeFi Platform For Decentralised Savings, Borrowing And DAI Stablecoin Generation.

When users want to unlock their ETH, which serves as collateral for their DAI loan, they simply pay back the loan alongside any existing fees. Thus, MakerDAO can be described as a decentralised organisation dedicated to bringing stability to the cryptocurrency economy through the DAI stablecoin.

The Maker Protocol employs a two-token model, with the first being the collateral-backed DAI stablecoin, and the second being the protocol’s governance token MKR. The Maker Foundation, together with the MakerDAO community, strongly believe that a decentralised stablecoin is required for any individual or blockchain business to leverage and take advantage of the benefits offered by digital capital.

The second component of Maker’s two-token system is MKR, a governance token that is utilised by stakeholders to maintain the system and manage the DAI stablecoin, making MKR holders the true decision-makers when it comes to MakerDAO’s governance.

MakerDAO Employs A Two-Token Model Based On MKR And DAI. Image via YoungPlatform.com

Ultimately, MakerDAO seeks to unlock the power of DeFi for anyone around the globe by creating an inclusive infrastructure for individual economic empowerment, allowing users to gain access to its permissionless borrowing marketplace and trustless financial applications. Before diving deep into the functionalities and use cases of the Maker Protocol and the DAI stablecoin, a brief introduction to the project seems productive.

A Brief History Of MakerDAO

Technically speaking, MakerDAO originates as an Ethereum-based, open-source project operating as a Decentralised Autonomous Organisation (DAO) system, hence its name. A Decentralised Autonomous Organisation, or DAO, is defined as an organisation represented by rules encoded as a computer program that is fully transparent, controlled by the organisation’s members and disintermediated from the influence of a central government.

While a complete implementation of DAO infrastructures is yet to be fully realised, DAOs embody the heart and soul of decentralisation in blockchain and, more specifically, in smart contract ecosystems.

A Decentralised Autonomous Organisation (DAO) Is The Ultimate Expression Of Decentralisation Through Blockchain. Image via Binance Academy

Smart contracts are extremely useful for automating transactional processes, and for reducing the input that humans must supply for relatively simple tasks. The goal of a Decentralised Autonomous Organisation isn’t just to reduce human inputs—it’s to eliminate them entirely. Though still largely an on-paper idea rather than one that’s been perfected in practice, a DAO is effectively a business that uses an interconnected web of smart contracts to automate all its essential and non-essential processes. ‘DAOs, Blockchain, and the Potential of Ownerless Business’, Investopedia

Launching in 2015, the MakerDAO project began operating with developers around the world working together on the first iterations of code, proof of concept, architecture and primary documentation. In December 2017, the first MakerDAO Whitepaper was published, introducing the original DAI stablecoin system. The 2017 Whitepaper described how anyone could generate DAI stablecoin through MakerDAO by leveraging Ethereum as collateral via unique smart contracts known as Collateralised Debt Positions (CDPs).

Given that Ethereum was the only available asset for collateralisation on the Maker Protocol, the DAI generated was named Single-Collateral DAI (SCD), or SAI. Furthermore, the 2017 Whitepaper also described the team’s intention to upgrade Maker’s SCD to a Multi-Collateral DAI (MCD) system, an intention which then materialised in November 2019. At present, the DAI stablecoin system accepts any ERC-20 asset as collateral that has been approved by MKR token holders, who must first vote on the risk levels of each ERC-20 before they are on-boarded onto the Maker Protocol.

The Maker Protocol

MakerDAO is one of the largest, most well-established dApps on the Ethereum blockchain, and it holds a considerable percentage of the total liquidity in the DeFi ecosystem. In fact, when the Total Value Locked (TVL) of ETH in DeFi first surpassed the $1 billion mark in June 2020, around 60% of ETH was held by the MakerDAO protocol.

TVL In DeFi First Crossed The $1 Billion Mark In Early June 2020. Image via DeFiPulse

Currently, at the time of writing, Maker stands in 5th position for Total Value Locked after Aave, Compound, InstaDApp and Curve Finance, with over $8 billion in assets locked on its platform.

A Visual Of MakerDAO’s TVL In DeFi. Image via DeFiPulse

As it stands, the Maker Protocol is managed by people around the globe who hold its native governance token, MKR. Through MakerDAO’s governance system, based on Executive Voting and Governance Polling, MKR holders can manage, run and govern the Protocol as well as the financial risks of DAI to ensure its stability, efficiency and network transparency.

Maker’s Two-Token System

The Maker governance token, MKR, was created by the MakerDAO Protocol in order to essentially support the stability of the DAI stablecoin and enable governance for the DAI credit system. MKR is an ERC-20 asset running on the Ethereum blockchain and it can be minted or burned proportionally to how close the DAI stablecoin is to the US dollar.

This inherently means that the creation of MKR is dependent on the stability of DAI as a whole. For instance, if DAI remains stable, more MKR is burned decreasing the total supply, whereas, if DAI fluctuates too far from the one dollar peg, more MKR is minted subsequently increasing the total supply.

MKR, MakerDAO’s Governance Token

Since MKR holders benefit financially from the stability of the MakerDAO system and the DAI stablecoin, holders are incentivised to act in the best interest of the MakerDAO protocol. Thus, MKR holders can vote on governance decisions and proposals such as how high to set fees and which collateral types can be accepted as collateral by the protocol. In the MakerDAO ecosystem, one MKR token equates to one vote so entities and organisations with substantial MKR holdings can have a larger influence on voting outcomes.

The DAI Stablecoin

The DAI stablecoin is the second monetary component in MakerDAO’s two-token model, after MKR. Stablecoins emerged as somewhat of a middle ground between the legacy financial market and the nascent digital asset one.

Tracking the value of fiat currencies while operating as cryptographic assets, these blockchain-based tokens were initially attractive to traders as a way to lock-in and realise their profits. At present, the most popular forms of stablecoins are fiat-backed ones such as USDC and USDT, which are typically collateralised by the US dollar, but commodity-backed stablecoins do also exist.

Stablecoins, The Backbone Of The DeFi And Digital Asset Economies

When Bitcoin first emerged, the message was clear: Pure disruption of dysfunctional centralised financial systems through decentralised currency and blockchain. By distributing data across a network of computers, the first instance of blockchain technology allowed any group of individuals to embrace economic transparency as opposed to central entity control.

While BTC has greatly succeeded as a crypto asset on many different levels, it isn’t however the most optimal medium of exchange due to its fixed supply and volatility. The DAI stablecoin, on the other hand, succeeds where Bitcoin has perhaps failed, in that it is literally designed to minimise price volatility and reduce aggressive price fluctuations.

DAI, The ERC-20 USD-Pegged, Unbiased, Crypto Collateral-Backed Stablecoin.

Maker’s DAI stablecoin is a decentralised, unbiased, collateral-backed crypto asset that is softly-pegged to the US dollar. On the MakerDAO protocol, users can generate DAI by depositing collateral ERC-20 assets into Maker Vaults, creating the liquidity necessary to take out loans on the protocol.

Once bought, received or generated, DAI can be deployed just like any other crypto asset, meaning that it can be sent to other users, traded and exchanged for other cryptos, used as payment for services or even held as savings through Maker’s DAI Savings Rate (DSR).

It is important to note that every DAI token in circulation is backed by excess collateral, meaning that the value of the collateral is higher than the DAI debt, and every transaction with DAI is publicly visible and verifiable on the Ethereum blockchain.

DAI’s Financial Properties

As an Ethereum-based stablecoin, DAI is designed to perform 4 main functions in the broader crypto space and, more specifically, in the MakerDAO ecosystem. These functions include:

• Store Of Value: With DAI being a stablecoin, it can function as a store of value by preserving relative stability in the volatile crypto markets.
• Medium Of Exchange: The DAI stablecoin is widely used across the crypto and DeFi space as an efficient medium of transaction and exchange.
• Unit Of Account: DAI has a target price of $1, as it is softly-pegged to the US dollar. Within the MakerDAO protocol, DAI functions as the go-to unit of account.
• Standard Of Deferred Payment: DAI is used to settle debts in the MakerDAO protocol.

Maker Collateral Vaults

DAI is generated and kept stable through the collateral assets deposited into Maker Vaults on the MakerDAO Protocol. Maker’s collateral assets are ERC-20 tokens which have been voted on and approved by MKR token holders through governance.

In order for an ERC-20 token to be accepted as collateral on Maker, MKR holders must first approve its Risk Parametres and deem it a safe asset for collateralisation. Network participants can generate DAI by opening a Maker Collateral Vault via MakerDAO’s Oasis App dashboard and depositing collateral.

Users Can Generate DAI By Depositing Collateral Through The Oasis App Dashboard. Image via Oasis App

These Maker Vaults, previously referred to as Collateralised Debt Positions (CDPs), are smart contracts that run on the Ethereum blockchain and hold collateral in escrow until the borrowed DAI is returned. The value of the collateral deposited must exceed the value of the DAI issued to the user and, while this might seem quite disadvantageous, the benefit of locking up collateral is that users can put in riskier assets and receive stablecoin in return, mitigating their risk exposure overall.

Some common examples of accepted ERC-20 collateral assets on Maker are ZRX, BAT, OMG and ETH, among many others. Thus, once users have deposited their collateral assets, they can redeem their borrowed DAI and redeploy them in other DeFi protocols for staking, yield farming or trade them for other assets or NFTs, for instance.

Opening A Maker Vault

Opening a Collateral Vault on MakerDAO is actually a rather straightforward process. In order to open Maker Vaults, users will need to:

• Head To Oasis.App. Oasis is a platform where users can Trade, Borrow or Save using DAI.
• Connect Preferred Wallet. Oasis accepts a variety of different wallets including Metamask, WalletConnect, Coinbase Wallet, Portis, MyEtherWallet, Ledger and Trezor.

Image via Oasis.App

• Users Can View Their Active Vaults On The ‘Your Vaults’ Tab.
• To Open A New Vault, Click ‘Open new vault’.
  

  Image via Oasis.App

• At this stage, users will be able to see all the available Vaults on Oasis/MakerDAO, including DAI availability for the Vault, Stability Fees, Minimum Collateral Ratios and the Amounts Deposited.
• Select Preferred Vault And Click ‘Open Vault’.
• After having selected their preferred Vault, users will be able to see their Liquidation Prices and Ratios, Value Of Their DAI Debt, Stability Fees and Liquidation Penalties.
  

  Image via Oasis.App

• Configure Vault And Deposit Desired Amount.
• Click ‘Enter Amount’.
• Confirm Transaction On Metamask And Receive DAI In Wallet.

Now that users have locked up their preferred collateral assets and received DAI, they are presented with a few options. For instance, let’s assume that a user locked up ETH as collateral on MakerDAO to generate DAI. They could, potentially:

• Use DAI to buy ETH again and deposit it into a Vault.
• Redeploy DAI in other DeFi applications, such as farming or high APY staking.
• Lend DAI on DeFi platforms such as Compound to earn interest.
• Create Collateral Leverage.

Using Maker Vaults To Create Collateral Leverage

Perhaps one of the most efficient ways to use DAI generated from Maker Vaults is to create collateral leverage. For example, a user redeploys the DAI generated to buy more ETH as collateral and deposits it into a Maker Vault. If the price of ETH increases, the Vault owner stands the profit. The user could also borrow from the Vault as a form of decentralised leverage. Because Maker Vaults require a minimum of 150% collateralisation for ETH lockups, the maximum leverage available is 3x. Let’s now consider the following scenario:

• 1 ETH is worth $100, for simplicity, and User X deposits 15 ETH worth $1,500 into their Maker Vault.
• User X generates 1,000 DAI against it, the maximum possible given the 150% collateralisation requirement. (1500/3 = 500; 1500-500 = 1000)
• User X redeploys the 1,000 DAI and buys 10 ETH this time, which they deposit into another Vault.
• User X can now generate an additional 667 DAI against the extra $1,000 in ETH collateral.
• Purchasing $667 of ETH allows User X to generate a further 444 DAI. Repeating this process provides User X with a further 296 DAI, then 198 DAI, 131 DAI, 88 DAI and 59 DAI.
• Ultimately, this equates to a total of 3,000 DAI that can be generated against the original 15 ETH, enabling User X to leverage the initial stake by 200%.

MakerDAO’s Risk And Collateral Mechanisms

Through the DAO, MKR token holders assign Risk Parametres to each collateral asset that outline the amount of debt that can be created by that collateral type, the amount of volatility the asset is expect to experience, and what happens if the collateral needs to be liquidated in the event that it cannot any longer cover the outstanding DAI debt borrowed against it.

In This Instance, The Price Of 1 ETH Drops From $100 Dollars To $75. Due To Market Volatility, The DAI Loan Collateralised By 1 ETH Becomes Under-Collateralised Which, In Turn, Triggers The Vault’s Liquidation. Image via FilippoAngeloni.com

In the event that there is increased market volatility and the collateral deposited no longer covers the outstanding debt, the collateral will be liquidated via an automated process. Automated market actors, called Keepers, who take advantage of arbitrage opportunities bid in DAI for the collateral from a liquidated vault. This DAI is then utilised to pay back the vault’s debt, plus a liquidation fee.

Keepers bid in DAI for the vault’s collateral through an auction process, and if there is enough DAI received in the auction to cover both the debt repayment and the penalty fee, the leftover collateral will be returned to the respective vault owner. Moreover, in the Maker Protocol, Keepers represent those market participants that help DAI maintain its stability and $1 target price, as they buy DAI when the market price is below the $1 level and sell it when the market price is above it.

In The MakerDAO Protocol, Keepers Are Market Participants Taking Advantage Of Arbitrage Opportunities To Stabilise The Price Of DAI. Image via QuickNode

On the other hand, if the auction fails to accumulate enough DAI to cover the vault owner’s debt, this debt then becomes ‘protocol debt’ and is covered by the Maker Buffer, a liquidity pool containing the fees denominated in DAI and paid on collateral withdrawals in addition to the proceeds from the collateral auction. If there is insufficient DAI in the Maker Buffer pool, a debt auction will be triggered and the protocol will mint MKR and sell it to bidders for DAI to recapitalise the pool and repay the outstanding debt.

Thus, DAI, MKR and ERC-20 collateral assets work as an automatic system of checks and balances, with each functioning to counteract the other and maintain the system’s stability and decentralisation.

Maker’s Price Oracles

Oracles play a fundamental role in MakerDAO’s collateral assessments. In fact, in order to assess the collateral deposited on the platform, Maker must have information on the price of collateral ERC-20 assets. To do this, Maker leverages a decentralised network of trusted oracles selected through governance by MKR token holders. However, for security reasons, the protocol does not actually receive price data directly and instantaneously from these trusted oracles.

Instead, it receives information through the Oracle Security Module (OSM), a smart contract that delays price reception and communication by 1 hour. The main goal of the Oracle Security Module is to periodically feed delayed prices to the MakerDAO protocol for a particular collateral type.

Visual Of Maker’s OSM Architecture. Image via docs.makerdao.com

This oracle price delay function allows emergency oracles, a special type of oracle selected by MKR holders through governance voting, to essentially freeze the original oracle providing the price feed if it is compromised or corrupt. Emergency oracles, in fact, can also trigger emergency shutdowns, a mechanism put in place to protect MakerDAO from hacks and external attacks.

MKR Tokenomics

As previously mentioned, MKR is MakerDAO’s native governance token used to vote on governance proposals and protocol updates, as well as ensure the stability of the MakerDAO Protocol and the DAI stablecoin. The MKR token launched in 2017, but the MakerDAO Team deliberately decided not to hold any particular ICO to bootstrap their token. In fact, in the words of Jessica Salomon, a member of the MakerDAO Team at the time:

Initially MKR were sold via private sales to friends and family, as well as investors like Andreessen Horowitz and Polychain. The process was and has been way more personal that what you see with a typical ICO. The goal was to create an ownership community that is cohesive and committed to long term success and not just short term gain […] The goal of having responsible “owner/operators” is part of the reason Maker never had a wild and crazy ICO. Jessica Salomon, Hackernoon 

At the time of writing, MakerDAO’s native asset MKR is trading at approximately $3,280 and is currently down 48% from its all-time-high of $6,339.02, which it reached in early May 2021. The market capitalisation of MKR equates to more than $3.2 billion, and it has a maximum token supply of 1,005,577 MKR.

Since 2017, MKR Has Enjoyed A Steady Upward Trend. Image via CoinMarketCap

MakerDAO has proven to be an incredibly solid, functional project with some widely adopted use cases across the digital asset ecosystem. The DAI stablecoin is indeed way too important for the DeFi space for it to be potentially ever neglected. Thus, due to its lending and borrowing functionalities, its collateralised assets and its use of the DAI stablecoin, the MKR token should carry on growing alongside the rest of the MakerDAO ecosystem, resulting in a general upward momentum over the medium to long-term outlook.

Team

The MakerDAO Protocol has always had one fundamental goal in mind: Ultimate Decentralisation Through A Decentralised Autonomous Organisation (DAO). Thus, in order to achieve this, Maker has through the years developed and built a strong team of blockchain engineers, developers and growth experts around it to help the project reach its long-term objectives.

Rune Christensen, Founder And CEO Of MakerDAO. Image via LinkedIn

MakerDAO was founded by Rune Christensen who, since 2015, has been focused on delivering the organisational structure of the MakerDAO protocol and dedicated to bootstrapping the economic foundations of the DAI stablecoin in DeFi.

Before diving into the crypto space, Christensen founded a business that recruited Westerners to teach English in China, which he continued to manage while studying at the University of Copenhagen and Copenhagen Business School. After discovering Bitcoin in 2011, Christensen sold the business, invested in the asset, became interested in stablecoins and eventually became the founder of MakerDAO.

At present, the MakerDAO Team is composed of:

• Rune Christensen – Founder
• Derek Flossman – Head of Protocol Engineering
• Phil Inje Chang – Product Leader
• Andrew Chorlian – Blockchain Developer
• Michael Elliot – Blockchain Engineer
• Krzysztof Kaczor – Senior Software Engineer
• Matthew C. – Business Development Manager
• Coulter Mulligan – Head of Marketing

Conclusion

In today’s world, financial infrastructures are starting to feel the effects of digitisation, technological advancement and, ultimately, DeFi. Decentralised Finance, in fact, is slowly but surely restructuring financial paradigms as we know them through its blockchain-enabled functionalities and decentralised applications.

Over the course of the last 4 years or so, a very intriguing protocol has arisen in the DeFi space looking to merge both stablecoin generation, as asset-backed collateral, and decentralised lending and borrowing functionalities, and this protocol is no other than MakerDAO.

MakerDAO is one of the largest, most well-established dApps on the Ethereum blockchain, and it holds a considerable percentage of the total liquidity in the DeFi ecosystem. With its two-token model, MKR and DAI, MakerDAO allows pretty much anyone around the globe to gain access to economic empowerment through its trustless, permissionless, DAO-like financial platform.

The Maker Protocol enables network participants to lock up a variety of different assets as collateral on Maker Vaults and generate collateral-backed DAI stablecoin in return. Users can then go ahead and deploy their newly generated DAI on other DeFi protocols, engage in yield farming or staking, or even redeploy DAI to deposit more assets as collateral in Maker Vaults to leverage their positions.

In the grand scheme of things, MakerDAO has come such a long way since its inception and, for the foreseeable future, it will most likely carry on developing its infrastructure, expanding its use cases and economic utilities and, potentially, even find itself at the very forefront of Finance 2.0.

The post MakerDAO: 1st Unbiased Currency and Decentralized Stablecoin appeared first on Coin Bureau.

This model is built on the long-standing idea of incubation in the tech startup space. However, the new method and dominance in the crypto industry by the various launchpads is definitely a more recent phenomena. The new launchpad model has already been successful in tackling some of the common issues faced by crypto projects in their early stages when trying to raise funds.

One good example of this is that the new launchpad model allows for far greater diversification in public sales, whereby anyone can participate, even with small amounts of capital. This helps to avoid centralization issues where a handful of well-funded individuals or organizations snap up a majority of the coins being issued during a round of fundraising.

Where the Launchpad Model Stumbles

However, the launchpad model isn’t without its own issues, and several of these have become easily identified. The most glaring and problematic for users is the massive increase in gas fees on parent networks.

While popular automated market makers like Uniswap and SushiSwap made it possible to quickly bootstrap liquidity from the universe of retail investors, rather than raising capital by selling pre-mined tokens, it also led to the increase in Ethereum gas fees. And as the AMM fair-launch model has gained popularity, so too have gas fees continued climbing higher and higher.

Crypto gas has become more costly than regular gas.

In addition, as you might expect from the ever innovating and evolving field of blockchain, once the launchpad model was out of the bottle it quickly spread to other non-Ethereum chains. Launchpads such as DAOMaker, BSCPAD, and Polkastarter weren’t far behind the creation of Uniswap. And since then many other launchpads have emerged. Each chain seems to have seen the creation of a number of launchpads, all with the intent of addressing rising gas fees on the Ethereum chain.

Are Fair Launches the Answer?

Recent upgrades to the launchpad model are making coin allocation fairer, which is good both for users and for the decentralization of the underlying projects. But these fairer launches aren’t solving any problems. Instead they are simply treating the symptom of how launchpads source the necessary liquidity for new projects.

You see, the problem isn’t that the process needs to be fairer. Rather the issue at hand is that all the launchpads are following the same business model of giving away seed funding and private sale allocations to major crypto influencers in return for promoting the new projects on their own social media channels.

The fair launch model makes everyone happy, but it’s gotten overdone.

And while this model has been excellent in the early stages at providing a solid ROI for investors, more recently it has been succumbing to rapidly diminishing returns. There are simply too many new launchpads and projects, and too few influencers for the method to continue being as effective as it once was when the number of launchpads was far smaller.

Launchpads: Success is their Downfall

There are well over 50 launchpads in existence, and more are being created all the time. With the more popular launchpads launching as many as 10 projects monthly it’s easy to see how crowded the space is becoming.

Everyone gets a launchpad! Image via Twitter.

The crypto audiences on Youtube and Twitter are understandably reaching a level of burnout when it comes to launchpad IDOs. The launchpads have responded by turning to non-crypto influencers on both platforms as a way to continuing promoting their projects, tapping into niches like music, fitness, sports, gaming, and others as a way to find more retail investors to bring into the ecosystem and keep the capital flowing like champagne.

However, even that strategy is reaching its limits. After all, there are only so many audiences that can be tapped to purchase coins from these new projects. And with the number of launchpads and projects continuing to grow it’s become obvious that this model is not going to be sustainable in the long term.

Another related issue is that the newer launchpads seem to have no loyalty to their own blockchains. For example, many launchpads that were created to be Polkadot-centric are now branching out and launching BSC projects. In short, the launchpad model is rapidly devolving into a mish-mash of blockchains and projects, all of which are competing for the same limited pool of retail capital to bootstrap liquidity and provide an acceptable ROI to the seed investors and private sale participants.

Introducing Thorstarter

Those who wanted a decentralized solution allowing them to easily swap tokens across chains without wrapped or pegged tokens were excited when THORChain launched. The core concept behind THORChain is clearly explained in their whitepaper

“THORChain is a liquidity protocol designed to connect all blockchain assets in a marketplace of liquidity through cross-chain bridges and continuous liquidity pools secured by economically incentivised validators.”

While this is great in theory, in practice THORchain doesn’t connect all blockchain assets together. Instead the number of assets able to pool with its RUNE token and access multi-chain swaps is limited by the protocol. Sure it supports the largest assets like BTC, ETH, and BNB, but the long-tail assets can’t access multichain swaps unless approved by the protocol.

And the problem that causes is that new projects have very little hope of launching on THORChain unless they are able to create massive liquidity through their fundraising. That’s simply not realistic anymore given the aforementioned issue of the growing number of launchpads and projects, combined with the limited amount of available capital flowing into the space. And that’s a shame for these new projects, because gaining access to the cross-chain liquidity offered by THORChain could give them a huge competitive advantage.

It’s increasingly obvious that a solution is needed to support these long-tail cryptoassets with limited liquidity. That solution is Thorstarter. Thorstarter’s XRUNE token was created as a settlement currency between IDOs and the active THORChain pools.

Let’s have a look at how Thorstarter will level the playing field for IDO projects.

Thorstarter’s Major Advantage

With Thorstarter users will be able to safely and efficiently swap even long tail crypto assets. The protocol also allows any blockchain that supports smart contracts to access the liquidity from any THORChain compatible blockchain.

Thorstarter will be a new generation of IDO platforms that can provide any project with deep liquidity right from the start. Existing projects can also use Thorstarter to reach investors across a number of blockchains. This is made possible by creating a liquidity pool on Thorstarter with their native token paired with XRUNE. Thorstarter is a positive compliment to the THORChain ecosystem, extending its utility while also benefitting from its capabilities and liquidity.

Thorstarter allows users to participate in IDOs using native assets on any major blockchain.

In order to access liquidity on THORChain there must be a frictionless onramp to the THOR ecosystem. Thorstarter provides this onramp in the easiest way possible for users, through a common web browser. That’s right, with Thorstarter users can easily (and cheaply) swap any THORChain approved assets right from their browser.

Thorstarter will grant even the smallest project access to the deep liquidity of ThorChain. Image via Thorstarter blog.

With a simple browser extension, users can:

• Receive, quickly send and store digital assets regardless of the chain
• Connect to their favorite dApps
• Swap easily between protocols
• Integrate other native DeFi features

If you’ve ever used a browser extension before then you know how easy it will be to join in IDOs using Thorstarter. It will also allow you to buy XRUNE and fund new projects cheaply and instantly. In fact, swapping native assets on Thorstarter is less expensive than swapping ERC-20 assets with their wrapped counterparts. As long as Ethereum gas fees remain so high Thorstarter remains extremely attractive.

It should be noted that XRUNE tokens are required as they work as the bridge asset between the IDO projects launching on Thorstarter and all the native, approved assets on THORSwap.

XRUNE swap on SushiSwap.

As Thorstarter creates an increasingly deeper pool of liquidity with RUNE-XRUNE the protocol will allow even the smallest new projects to tap into the deep liquidity from major blockchains easily, using a basic web-browser extension.

Midgard Explained

In Norse mythology “Midgard” is the middle realm, the only visible realm, and the realm inhabited by people. In terms of the visualization of Midgard on the world-tree Yggdrasil, it is at the base of the tree, between the upper branches above and the roots below.

The world-tree Yggdrasil and Midgard.

Midgard, as represented in Thorstarter, is the deep liquidity for the long-tail digital assets paired with the XRUNE token. This puts these assets just one step away from the RUNE asset pools, and is equivalent to the position of the Norse Midgard between the roots of the tree and the upper branches.

Liquidity is the key. Without liquidity prices can experience extreme volatility. When that happens, the credibility of the project and its token is impacted negatively. This in turn limits the project’s ability to use its own token as a reliable incentive mechanism for network participants. After all, people want assets that appreciate in value, but not if they have to see price whipsaw up and down by 10% or even 50% in a short period.

When liquidity increases sufficiently volatility becomes less of a problem. Eventually it become irrelevant, once liquidity is great enough. In addition, a project with sufficient liquidity is able to build far more functioning layers on top of the base protocol.

Liquidity Depth and Fair Launches

The launchpad model being used currently focuses almost exclusively on the price action of the token. Very little attention is paid to attracting and maintaining liquidity. The result is extreme volatility in some cases, as early capital flows easily into the project, but soon after it flows out just as easily as investors take their profits and seek out the next great project launch.

Early buyers often bail out as soon as possible.

Whenever you see a project fundraiser designed in such a way that the founders and private investors are able to exit early, or even immediately, it screams a lack of faith from the team in the long term success of their project. After all, if a project plans on increasing the depth of its liquidity pools why would early investors need an early exit? Despite all the claims of fairness and decentralization, very few launchpads actually exhibit these traits.

In addition, with many of the launches conducted at the end of the DeFi summer, which were typically called “Fair launches”, they were actually anything but fair. When you have a token issued exclusively through liquidity mining incentives it may sound fair, however in reality the new tokens often ended up concentrated in the hands of a small number of whales who staked a substantial amount of liquidity very early on. That’s the opposite of decentralization.

Thorstarter hopes to avoid this by creating a community of strong hands , thus avoiding the token dumping soon after an IDO that’s been so common with current launchpad models.

Thorstarter DAO Governance

The Thorstarter founders brought their project to life with the long-term vision of a fully decentralized DAO that is based on a community voting process. There are four key pillars to the Thorstarter DAO governance model:

The four pillars make governance fair and equitable.

1. The primary aim is to onboard projects that will launch fairly and then will use and grow THORChain.
2. Project selection will be handled by a DAO, with voting weight given to a council of nine members known as the Council of Asgard.
3. Council members earn and retain their voting rights based on the number of tokens held, proven experience and support of the THORChain ecosystem, and active participation in voting on and supporting new projects which launch on Thorstarter.
4. After launch, the Thorstarter DAO will handle Council member approvals and any changes to the governance structure.

The initial phase of leadership in Thorstarter is provided by a governance council consisting of nine members and known as the Council of Asgard. These nine council members are required to actively participate in the project selection and incubation process. The council is comprised of those with significant XRUNE amounts, Thorstarter developers, node operators, and thought leaders within the Thorstarter community.

Council of Asgard Members

The Council will be responsible for deciding how to find and onboard the best and fairest projects. It will oversee product iterations and ensure community participation.

Council members conduct their conversations primarily via Discord and Telegram, but when a vote is required they will move to a private members area of the apps to conduct multisig voting on projects. When approved the project will move on to the pending Pools page to await its launch date.

Eventually, the wider community of XRUNE holders will elect Council members and vote on all DAO proposals. This transition will result in what is being called the Valhalla DAO.

Valhalla DAO

The final goal of the Thorstarter DAO is to evolve into on-chain governance structure called the Valhalla DAO. In this later phase, Valhalla DAO members will identify and recommend projects, provide opportunities for liquidity pools, and adjust incentives for liquidity providers. Members of the DAO will be able to pool capital and decide which projects to support.

The Council of Asgard will lead Thorstarter to the Valhalla DAO.

On-chain governance will allow XRUNE holders to propose and vote on a number of strategies via the DAO. Execution of these strategies will then be provided by Council members. Valhalla DAO will allow democratic voting for protocol upgrades and new features, as well as treasury allocation. Decisions will be made via Discord discussions, community calls, forum discussions, and ultimately Snapshot votes

The Thorstarter Team

The Thorstarter team is quite diversified, consisting of dedicated community members, long-time investors in RUNE, and supporters of individual privacy. Many of the team members were early adopters and supporters of Haven and Monero, and the privacy being introduced across chains by THORChain has been a motivating feature for them.

The team has been working together for several years, and decided on developing Thorstarter on RUNE because they see it as one of the few projects that has adhered to the original principals that led to the development of Bitcoin and other early crypto projects.

Here is a quick intro to the founding team:

Bjørn Svensson — A lover of code, privacy tech and known to occasionally enjoy a glass or two of strong mead. Bjørn is leading the technical team and is a contributor to a number of crypto projects. In a previous life he worked as a security engineer for major CySec firms. Bjørn leads a team of three other developers.

Hafþór Ragnarsson — A crypto enthusiast back from the glory days of bitcoin pizza, Hafþór leaves a long career in enterprise IDaaS to develop Thorstarter’s key integrations and smart contracts.

Not really the founders of Thorstarter, but these guys do look cool.

Tormod Lindström (aka “Compound22” and “AM”) —Tormod is a master of strategy, communication and community for Thorstarter. He is the primary face of the project, and any interviews and communications have come from him.

Note that these are pseudonyms for the project founders, who choose to remain anonymous.

XRUNE Price History

The XRUNE token is pretty new, having launched in early July at a price just below $0.15. A week-long rally more than doubled that price to just over $0.36. However price then began to slide lower and by the end of July was down to the $0.065 level.

Since then the price has recovered dramatically, with the biggest gains being made in the first week of August. As of that time the token is trading at $0.2745, but also has strong upside momentum.

XRUNE has had strong performance. Image via CoinMarketCap.

Early investors have done well as the private sale of the tokens was at $0.02 and the strategic sale was at $0.01. With a total of 500 million tokens in the genesis mint, there will be an additional 500 million tokens emitted over the following 10 years for a total supply of 1 billion XRUNE.

Thorstarter Roadmap

Thorstarter development can be broken down into three distinct phases:

Phase 1: dApp Build and Launch DAO

This is the current phase of development for Thorstarter. This phase of the project will include a forked version of THORChain’s ASGARDEX that omits certain features. Once this phase is complete a user will be able to go to the Thorstarter website to access the asset swapping app, find current available IDO projects, access token farms, read FAQs, and eventually participate in community governance. The Aragon DAO contracts will also be launched, and the Council of Asgard will be elected by the DAO. It is estimated that this phase will take roughly 10 weeks.

Phase 2: IDOs and DEX Improvements

The second phase of development for Thorstarter is expected to see improvements in the swapping mechanism and user interface, integration with XDEFI and other chains, and the launch of the first IDOs. Once IDO launches begin there will be an increasing number of features added to the feature suite, and eventually the IDO launch contracts will be able to be upgraded. The team intends to launch IDO functionality with 1-2 IDO projects per month for the initial several months. It is estimated that the second phase will take 3 months to complete.

Phase 3: Ongoing IDOs and Protocol Work

The third phase of Thorstarter development is meant to refine the cross-chain IDO model. In addition, further work will go into attracting existing projects to tap into XRUNE-RUNE liquidity pools, regardless of whether they were an IDO on Thorstarter or not. This will have an added benefit of increasing the buying power for XRUNE. Consideration will also be given to new projects that want access to THORChain liquidity without launching on Thorstarter.

Conclusion

Thorstarter is meant to expand on the THORChain by making it possible to relay liquidity between the long-tail crypto assets and the THORChain network.

New IDOs on Thorstarter will use XRUNE as a settlement currency to access THORChain’s active pools. In this way Thorstarter will bring new users and projects into the THORChain network, thus adding even deeper liquidity in both the RUNE and XRUNE pools. In turn this all helps to strengthen the security of the THORChain network.

If the developer’s plans work as intended the functionality of XRUNE can be extended to include many DeFi applications and potentially user in DeFi 2.0.

The post Thorstarter Review: The Beginning of DeFi 2.0? appeared first on Coin Bureau.

From lending and borrowing to yield farming, from high APY staking protocols to margin trading, DeFi is ultimately transforming into one of the most desirable, go-to solutions for private investors, institutions, crypto VCs and retailers. With so many new, alternative value propositions being architected on almost a daily basis, DeFi is set to become the quintessential disruptor of 21st century finance.

Over the course of the last few years, the digital asset space has experienced tremendous growth and has structured a truly novel, cutting-edge economic framework. DeFi, in fact, provides blockchain projects with the infrastructure necessary to implement traditional, fundamentally centralised financial models and experiment with their propositions in a decentralised environment.

This, in turn, has led to the development of decentralised financial applications, or dApps, that can leverage the functionalities of traditional finance and essentially incorporate them within a trustless, disintermediated setting.

Projects Tapping Into The DeFi-TradFi Ecosystem Are On The Rise.

Indeed, the proposition that comes with hybrid TradFi-DeFi ecosystems has ignited a whole new market in the world of digital assets, captivating the imagination of leading entities in the space, sparking new concepts of wealth creation and generating innovative financial infrastructures.

This is primarily because advancements in technology, payment processors and applications have now made it possible for centralised, traditional finance (TradFi) and decentralised finance (DeFi) to offer the same services historically only available within the traditional financial sector.

DeFi Offers Its Users Financial Applications Historically Only Available In And Limited To Traditional Finance.

The vast community of crypto aficionados, traders and digital asset investors can now benefit from trustless lending and borrowing mechanisms, can trade freely without the need for third party intermediators and can deposit crypto asset collateral to gain leverage on their trading positions.

Pertinent examples of projects looking to merge the paradigms of traditional finance with DeFi are, for instance, lending and borrowing platform Compound, decentralised exchange and AMM protocol Uniswap, DeFi liquidity protocol Aave and, finally, decentralised trading hub dYdX.

About dYdX

dYdX is a decentralised margin trading protocol built on the Ethereum blockchain. The protocol allows users to lend, borrow and make bets on the future price of crypto assets through its decentralised exchange (DEX), and its ultimate goal is to bring trading tools normally found in traditional markets, such as forex and stocks, to the blockchain environment.

While on the surface it might seem like any other Ethereum-based lending and borrowing protocol, dYdX is actually trying to take DeFi to the next logical step in its development. In fact, while decentralised lending and borrowing protocols have existed on the Ethereum network for quite some time now (think Compound), the Ethereum ecosystem overall still lacks in advanced margin trading tools and protocols, and this is precisely where dYdX comes in.

dYdX, The Decentralised Margin Trading Protocol Built On The Ethereum Blockchain. Image via dYdX.Exchange.

Just like with the majority of DeFi financial products, dYdX is readily available for anyone to use and build upon, with its users’ assets being completely managed, run and stored by smart contract applications, as opposed to third party escrows. The dYdX decentralised trading platform is open-source, transparent and free to use, and one of the most exciting features offered by its infrastructure is its ability to allow users to execute trustless peer-to-peer short sells and option trades on any ERC-20 asset.

dYdX’s powerful, Ethereum-built DEX supports spot, margin and perpetual contracts trading and, in true DeFi spirit, enables anyone to use it without registering, filling out KYC procedures or handing over assets to a centralised authority, like on traditional CEXes.

dYdX: The Go-To, Trustless Solution For Decentralised Margin Trading. Image via dYdX.Exchange.

In a move to facilitate on-chain decentralised perpetuals trading, dYdX recently launched its Layer-2 scalability infrastructure. In fact, in order to significantly increase efficiency and scale trading on its platform, dYdX has partnered with StarkWare to design its own Layer-2 protocol for cross-margined perpetuals, based on StarkWare’s StarkEx scalability engine and dYdX’s perpetual smart contracts.

Through its in-house Layer-2 scaling solution, dYdX enables platform users to execute trades with zero gas costs, lower trading fees and reduced minimum trade sizes. This represents a major advancement in DEX perpetuals trading and will most definitely accompany dYdX on its journey of becoming the ‘numero 1’ decentralised trading protocol in the space.

There Are Currently 32.9K ETH In dYdX’s Total Value Locked (TVL). Image via DeFiPulse

At the time of writing, according to DeFi Pulse, dYdX is among the Top 4 derivative protocols within the DeFi ecosystem, with over $195 million in assets locked on its platform.

At Present, dYdX Stands In 4th Position Among The Largest Derivate Protocols In DeFi. Image via DeFiPulse

After Synthetix, Nexus Mutual and BarnBridge, dYdX has firmly established itself within the space and it arguably constitutes the most popular decentralised margin trading protocol in DeFi, with approximately $300 million in volume per day for derivatives and about $5 million in volume for its spot market.

Before diving any deeper into the protocol’s functionalities, use cases and how it works, a brief analysis of margin, collateral and perpetuals is necessary. This will help to gain a better understanding of how dYdX works and will provide the fundamental knowledge required to gauge its innovative propositions in DeFi.

What Is Margin Trading?

Margin trading essentially consists of borrowing money to make bigger bets on the price movement of a specific crypto asset or asset pair, such as BTC-USD for instance. Crypto traders will bet on the price of a crypto asset moving in a specific direction, either up or down, and they can execute their trades on an exchange’s spot market, which entails no leverage, or by using margin.

Margin trading allows them to increase their profit potential if they are right, but also maximises their losses if the trade goes against their prediction. In essence, margin is used by traders to increase their potential rewards and leverage their existing positions in the market.

Most Margin Trading Occurs On Centralised Exchanges Like Binance. Image via Binance.com

For instance, traders placing their trades on the Binance CEX using a 2x, 5x, 10x or even 100x leverage (best of luck!) can profit two, five, ten or even one hundred times more than they would have if they had just entered with no margin. Trading on leverage is of course incredibly appealing for some as the potential for profit is maximised proportionally to the amount of leverage used, but the risk of liquidation is also multiplied.

Initial Margin

Initial margin is the minimum value that a trader needs to pay to open a leveraged position on, say, Huobi, Kraken or Binance. For instance, a trader could buy 10 ETH with an initial margin of 1 ETH at 10x leverage. Thus, the trader’s initial margin would be 10% of the total order, acting as collateral for the trade.

What Is Collateral?

Collateral constitutes the backbone of decentralised lending and borrowing protocols. Because identity solutions and reliable credit checks are yet to be incorporated into blockchain, almost all DeFi protocols require collateral as proof of funds and in order to remain solvent.

Collateral, The Bread And Butter Of Decentralised Lending And Borrowing Platforms.

In DeFi lending and borrowing, collateral is the minimum deposit needed to take out and repay a loan, and the more collateral deposited the more the borrowable amount. For example, in order to borrow crypto from the Compound protocol, users will need to supply another type of crypto as collateral. Supplied collateral assets earn interest while in the protocol, but users cannot redeem or transfer crypto assets that are being used as collateral.

A Visual Of The Compound Lending And Borrowing Money Market. Image via App.Compound.Finance.

With Compound, the maximum amount users can borrow is limited by the collateral factors of the assets they have supplied. If a user supplies say 100 DAI as collateral and the posted collateral factor for DAI is 75%, the user can borrow at most 75 DAI worth of other assets at any given time. Thus, it is relatively easy to see how important collateral is for DeFi protocols as, without it, decentralised finance projects might risk insolvency and would, of course, not be able to function correctly.

What Is Perpetuals Trading?

Perpetual contracts are synthetic trading markets that allow for exposure to liquid assets using stablecoins as collateral. By trading perpetuals, users can participate in market movements, reduce risk and make a profit by longing and/or shorting with leverage on a futures contract. A futures contract represents a financial derivative contract, meaning a type of contract that ‘derives’ its value from the performance of the underlying asset.

A Futures Contract Entails A Legal Agreement To Buy Or Sell An Asset, Security Or Commodity At A Predetermined Price At A Specified Time.

In more practical terms, a futures contract is a legal agreement to buy or sell a particular commodity, asset or security at a predetermined price at a specified time in the future. Thus, a buyer of a futures contract is taking on the obligation to buy and receive the underlying asset once the futures contract expires.

On the flip side, a futures contract seller is agreeing to provide and deliver the underlying asset at the contract’s expiration date. Currently, the most liquid futures contracts with the highest trading volumes are:

• S&P 500 E-mini Futures
• Crude Oil Futures
• Gold Futures
• EuroFX Futures
• 30-Year Treasury Bond (T-Bonds) Futures
• Japanese Yen Futures

A perpetual contract is a specialised type of futures contract that, as opposed to traditional futures, doesn’t have an expiration date. This basically means that one can hold their position for as long as they like.

Furthermore, trading perpetuals is fundamentally based on the performance of the underlying asset index, consisting of the average price of the asset according to major spot markets and their relative trading volume. As a result, in contrast to traditional futures, perpetuals are usually traded at a very similar price to that on spot markets.

Perpetual Contracts Are Futures Contracts Without Any Particular Expiration Date. Image via CryptoAdventure.org.

There are several reasons why traders might want to trade futures and perpetual contracts, as they provide them with a series of benefits and advantages such as:

• Hedging and Risk Management.
• Short Trading Exposure; Traders can bet for or against an asset’s performance even if they don’t physically have it.
• Leverage; Traders can open positions that are larger than their account balance.

The dYdX Proposition

As previously mentioned, the rise of DeFi has given birth to an explosion of digital assets and different value propositions. While many centralised and decentralised platforms designed to facilitate the exchange of these assets already exist, such platforms will usually only allow users to take long positions as it is currently pretty complex to execute short, hedged or other financial positions on a DEX.

dYdX, instead, offers decentralised peer-to-peer shorting, lending and derivatives trading on any Ethereum-based token. In addition, dYdX provides investors with some rather interesting decentralised financial strategies, including:

• Short selling; Short sells allow investors to profit on price decreases, and can be used for speculation or to hedge existing positions.
• Fully-collateralised, low-risk loans for short sellers allow token holders to earn interest fees.

As it stands, there are very few decentralised protocols offering derivatives or margin trading, and none that have any significant usage. In fact, most margin trading happens on centralised exchanges but even they somewhat fail to provide adequate financial products on decentralised assets.

In fact, in order for a decentralised derivatives and margin trading protocol to operate efficiently, there needs to be a way to exchange assets trustlessly and determine the price at which these assets will be exchanged. Thus far, several types of decentralised exchanges have been proposed, including AMMs, on-chain order books, state channels and hybrid off-chain order books.

We chose to base dYdX on the hybrid approach pioneered by 0x, as we believe it allows creation of the most efficient markets. This allows market makers to sign and transmit orders on an off-blockchain platform, with the blockchain only used for settlement. – dYdX Whitepaper

dYdX primarily chose to implement 0x’s infrastructure in order to improve its efficiency as a DEX, as well as use off-chain order books with on-chain settlement to increase trading performance. Previous attempts at decentralised derivatives proposed using an oracle based approach to feed the exchange rates of asset pairs to smart contracts. However, an oracle based approach presents some major infrastructural drawbacks.

In fact, due to the limitations of frequency, latency and cost of price updates, it is rather difficult to achieve a level of market efficiency that rivals that of centralised exchanges. In addition, using oracles entails a certain amount of centralisation in any protocol, as some central parties have full control over setting the price.

Thus, dYdX allows trading of decentralised financial products at any price agreed upon between two parties. This essentially means that contracts on dYdX do not require price oracles and there is no need for contracts to be aware of market prices, as contract agreements are settled between two entities directly to preserve decentralisation.

Lending, Borrowing And Margin Trading On dYdX

As previously discussed, in margin trading, a trader borrows an asset and exchanges it immediately for another asset. The borrowed asset must then be returned to the lender, usually with some interest, at a later date. In margin trading, traders can take both leveraged longs and short sells.

In a short sell, an investor borrows an asset and subsequently sells it for another asset. The investor capitalises if the price of the asset decreases, since rebuying the asset to repay the lender costs less than the price it was initially sold at. On the other hand, the investor loses money if the asset’s price increases.

One Of The Most Popular Platforms For Perpetuals Trading Is Binance Futures. Image via Binance.com.

In a leveraged long, an investor will borrow a currency and use it to buy another asset. The investor will capitalise if the asset’s price increases and will lose money if its price decreases. Profit and Loss (PnL) from the position is equal to the change in price of the underlying asset multiplied by the leverage ratio.

This means that traders executing a 2x leveraged long trade on BTC-USD on Binance Futures, for instance, and the price of BTC moves say 5%, traders will be able to capitalise on a 10% move because their trade is using 2x leverage.

Trading On dYdX

At present, dYdX performs lending and borrowing on Ethereum’s Layer-1 and supports three main assets, with these being: ETH, DAI and USDC. While some might consider this to be a rather limited selection of assets, it is important to bear in mind that dYdX is a fully trustless, permissionless decentralised margin trading protocol and is primarily designed to be as such, as opposed to a pure lending and borrowing platform. Thus, the limited selection of assets is somewhat justified.

dYdX Offers 3 Main Pairs For Margin Trading: ETH-USDC, ETH-DAI, DAI-USDC. Image via dYdX.Exchange

On dYdX, users can perform two types of margin trading:

• Isolated Margin Trading
• Cross-Margin Trading

Isolated margin allows users to leverage one asset, whereas cross-margin trading lets them use all the assets in their account to take a position. In other words, cross-margin trading utilises all the assets in a user’s account, and allows traders to take unique positions to further leverage interest.

Isolated Margin Allows Traders To Leverage One Asset, Whereas Cross Margin Enables Users To Leverage Multiple Assets In Their Wallet. Image via PrimeXBT Blog

The dYdX margin trading protocol uses one main Ethereum smart contract to facilitate decentralised margin trading of ERC20 tokens. Lenders can offer loans for margin trades by signing a message containing information about the loan such as the amount, tokens involved, and interest rate.

These loan offers can be transmitted and listed on off-blockchain platforms, such as 0x. In this scenario, a trader opens a margin position by sending a transaction to the dYdX margin smart contract containing a loan offer, a buy order for the borrowed token and the amount to borrow.

Once received, the smart contract then sends the margin deposit from the trader’s account to itself and uses a decentralised exchange such as 0x to sell the loaned amount specified in the trader’s buy order. The smart contract will then hold onto the deposit for the loaned amount for the duration of the trader’s position.

Supported Margin Trading Pairs

dYdX currently offers three margin trading pairs:

• ETH-USDC
• ETH-DAI
• DAI-USDC

For instance, let’s suppose that a trader held 1 ETH in their Metamask wallet and is confident that the price of ETH will suddenly turn bullish. The trader could send their 1 ETH to dYdX as they know they will be able to leverage their position there.

On dYdX, a trader decides to go 5x leverage, and they are able to buy 5 ETH with 1 ETH. Let’s now suppose that the spot price of ETH is $2,000 and that the token moves upward to $2,500. If the trader held only 1 ETH they’d be up $500, however, because they are using 5x leverage on their initial 1 ETH position, they are currently up $2,500 (500 * 5x).

To trade on margin on dYdX, users will need to:

• Go To dYdX.Exchange.
• Click ‘Trade’.
• Click ‘Margin’.

Image via dYdX.Exchange.

• Connect Metamask Wallet.
• Select Desired Trading Pair.
• Select Either ‘Isolated Margin’ or ‘Cross Margin’.

Image via dYdX.Exchange

• Select Desired Leverage, up to 5x.
• Review Position and Potential Liquidation Price.
• Click ‘Open Long/Short Position’.

dYdX Margin And Borrowing Collateralisation

On dYdX’s margin trading protocol users are allowed to trade with up to 5x leverage and they will need to over-collateralise their loans in order to open leveraged positions and borrow assets. This is very common among DEXes in the space and it entails depositing more than 100% of the loan amount.

On dYdX, users must deposit 125% of the loan amount before borrowing which is actually less than other DEXes, since most require 150%. Also, liquidations can occur if a 115% collateralisation ratio isn’t maintained.

These ratios, of course, are not selected at random, but they are used to protect lenders from borrowers taking out risky loans or performing risky trades. Thus, once a loan drops into or below the 115% ratio, the borrower’s position is liquidated to protect the lender.

To borrow and lend on dYdX, users will need to:

• Go To dYdX.Exchange.
• Click ‘Trade’.
• Click ‘Margin’.
• Click ‘More’ and Select ‘Borrow’.

Image via dYdX.Exchange.

• Depending On The Asset Selected, Click ‘Borrow ETH/USDC/DAI’.

Interest Rates For Lending And Borrowing

Interest rates for lending and borrowing assets on dYdX follow a floating model, meaning that they are dynamic and updated instantly depending on supply and demand ratios.

A Visual Of dYdX’s Lending And Borrowing Platform. Image via dYdX.Exchange.

This also means that interest rates are never locked to a specific yield percentage (APY) at the time of opening a position. In fact, interest rates move based on utilisation, which is the ratio between the amount ‘borrowed’ and the amount ‘supplied’, as shown in the image above.

On dYdX, both lenders and borrowers interact with what are called global lending pools. There is one global lending pool per supported asset, all managed by smart contracts. When lenders deposit assets into dYdX, these assets are deposited into their corresponding lending pool, allowing borrowers to gain access to those assets. This model inherently allows for greater liquidity and enables both lenders and borrowers on dYdX to deposit and withdraw assets at any given time.

Trading Perpetuals On Layer-2

As previously described, Perpetual contracts are synthetic trading markets that allow for exposure to liquid assets using stablecoins, such as USDC, as collateral. Besides margin trading, decentralised perpetual contracts trading is the heart and soul of the dYdX protocol.

With dYdX, users can either go long or short with leverage on a perpetual futures contract and capitalise on the price movement of the underlying asset. Perhaps the most intriguing part about this is that dYdX allows users to start trading perpetuals with as little as $10, one of the lowest minimum trade sizes in the DeFi arena.

A Visual Of The Perpetual Contracts Available On dYdX’s Layer-2 Trading Platform. image via dYdX.Exchange.

By going long, a trader buys a Perpetual contract with the expectation that the underlying asset will rise in value in the future. Rather than buying and holding the underlying asset, traders buy synthetic, derivative exposure to the asset. On the other hand, by going short, a trader sells a Perpetual contract with the expectation that the underlying asset will decrease in value in the future.

To start trading perpetuals on dYdX, users will need to:

• Deposit USDC or any ERC-20 token into their Perpetual account on dYdX’s Layer-2 platform. In order to do so, users can deposit funds to their account by sending a Layer-1 Ethereum transaction through their Metamask wallet. To do this, users will be required to hold some ETH in their wallet to pay for the transaction fee.
• Generate a Stark Key, which is a public key that links a user’s Ethereum key with dYdX’s smart contracts. This Stark Key is used to identify a user’s account on dYdX’s Layer-2 infrastructure and is saved locally on the user’s browser. To generate a Stark Key and enable Layer-2 for dYdX, users will need to agree to the Terms of Use and Privacy Policies.

Users Wishing To Deposit Funds Into Their Perpetuals Account On dYdX Will Need To Generate Their Own Personal Stark Key. Image via dYdX.Exchange

• Select A Market. With cross-margining and increased scalability, dYdX is able to offer perpetuals contracts based on more markets. Currently, the platform supports Perpetuals of BTC-USD, ETH-USD and LINK-USD among others, however, the protocol strives to launch more than 30 new contracts throughout 2021.

Select Preferred Asset. Image via dYdX.Exchange.

• Open Position Using Preferred Order Type: Market Order, Limit Order, Stop Limit Order or Trailing Stop.

Traders Can Select Their Preferred Order Type. Image via dYdX.Exchange

• Select Preferred Leverage Ratio. It is important to note that dYdX offers up to 25x leverage on Perpetual contracts trading. Exercising risk management is thus mandatory! This is because if you’re using 25x leverage on any asset pair, your position will be liquidated if the price suddenly moves against you by 4%. Whereas, if you’re using a modest 5x leverage, your position will be liquidated if the price moves against you by 20%, giving the trade considerably more room to run.

Image via Help.dYdX.Exchange

• View Open Positions in the ‘Positions’ tab to track your profits and close eventual losses.

dYdX Launches Governance Token

On August 3rd 2021, the dYdX decentralised trading protocol announced the launch of its Ethereum-based DYDX governance token. According to the Zug-based dYdX Foundation:

DYDX is a governance token that allows the dYdX community to truly govern the dYdX Layer 2 Protocol (“the protocol”). By enabling shared control of the protocol, DYDX allows traders, liquidity providers, and partners of dYdX to work collectively towards an enhanced Protocol. – Docs.dYdX.Community 

dYdX Launches Its Native Governance Token On Ethereum, DYDX! Image via dYdX Twitter

Similarly to previous governance token launches, such as Uniswap’s UNI and Compound’s COMP, a portion of the initial supply will be distributed to dedicated, past users of the protocol who meet certain requirements. In DYDX’s case, 7.5% of the initial supply will be distributed to previous dYdX users, with several token allocations being distributed over a 5-year period.

The DYDX Token Distribution Percentages. Image via dYdX.Foundation

The DYDX governance token will be utilised to determine the future direction of the decentralised trading protocol and will enable token holders to vote on proposals to add new features to the platform, structuring a governance model for the project.

The possibility of a governance token launch was hinted at when, in late January 2021, dYdX raised $10 million in a Series B round primarily led by Three Arrows Capital, DeFiance Capital, a16z, Scalar Capital and Polychain Capital.

According to dYdX founder Antonio Juliano, the fundamental reason for launching a dYdX governance token was fuelled by the aspiration to eventually create a DAO-governed decentralised margin trading protocol built on advanced functionalities and ultimate decentralisation. Better put, the founder himself stated:

Our team has actively been researching how best to decentralise the protocol over time. Decentralisation will be a gradual process that could ultimately result in a DAO [decentralised autonomous organisation] to govern the community. – Antonio Juliano, The Block

dYdX Team

dYdX launched back in 2017 and it has ever since developed a strong reputation for itself, receiving long-term support from heavyweight crypto VCs and firms in the space, and gathering an experienced team of consultants, developers and blockchain architects around it.

dYdX, Backed By The Best. Image via dYdX.Exchange.

dYdX has always set its standards incredibly high, and for good reason too! In fact, the protocol aspires to create a next generation professional trading exchange in which users are the true owners of their assets and, eventually, of the platform itself. Furthermore, dYdX seeks to empower and provide traders with the advanced tools of today’s financial ecosystem and looks to ultimately democratise global access to decentralised trading, margin trading and perpetual contracts.

The Team at dYdX is composed of:

• Antonio Juliano – Founder
• David Gogel – Growth Lead
• Paul Erlanger – Business Operations and Growth
• Lucas W – Software Engineer
• Corey Miller – Growth and Investments
• Marc Boiron – General Counsel

Conclusion

Over the course of the last few years, DeFi has grown exponentially and has structured some of the most cutting-edge FinTech developments and economic frameworks. With so many propositions being architected on almost a daily basis, it is no surprise that decentralised finance is sparking such high levels of interest across the space. Arguably, one of the most note-worthy propositions is the ecosystem developed by decentralised margin trading protocol dYdX.

dYdX strives to facilitate the process of trading crypto assets on leverage in a decentralised environment, embodying a major advancement in the fledging DeFi arena. With dYdX, users can long and/or short perpetual contracts seamlessly with up to 25x leverage, as well as trade ETH-USDC and ETH-DAI on margin with up to 5x leverage.

In a sense, dYdX is inherently transforming the way traders engage with DeFi applications and decentralised exchanges (DEXes) as a whole, as it provides them with the infrastructure necessary to perform functions and leverage the benefits that were previously only available on centralised exchanges (CEXes).

It is therefore quite obvious to see how important dYdX currently is and will continue to be for decentralisation in the space as, at present, there are very few decentralised protocols offering derivatives or margin trading, and none that have any significant usage.

Overall, the stakes are high for dYdX, but its recent $10 million Series B round and the launch of its DYDX governance token all point towards a successful, liquidity-rich and incredibly prolific future roadmap.

The post dYdX: Decentralised Margin Trading Protocol appeared first on Coin Bureau.

It should thus come as no surprise that NFTs have enjoyed such parabolic momentum in the markets and have sparked such high interest levels across many investors, institutions and crypto VCs.

Furthermore, the recent craze that we have witnessed surrounding NFTs could have indeed been fuelled by the fact that NFTs empower investors, asset holders and digital artists with a new format of blockchain-enabled ownership. In fact, these unique digital assets provide owners with proof of authenticity relating to pretty much anything one can think of.

Be it digital art, music, real estate or even precious metals, NFTs allow anyone to immortalise an asset on the blockchain through its distributed ledger system. Moreover, the ability to store valuables on-chain as non-fungible tokens is proving particularly beneficial for artists and collectors as it creates a new, permissionless, disintermediated environment for them to trade and exchange their art pieces.

Non-Fungible Tokens Are Restructuring The Proposition Of On-Chain Ownership

While it is true that NFTs are spawning a new market, captivating the imagination of many and allowing more artists and creators to realise their potential, non-fungible tokens still remain a rather exclusive, niche and somewhat enclosed environment.

Their uniqueness and scarcity have been their main focus and selling point but, despite their incredible success, there is a general lack of liquidity in the non-fungible token market. This is because the NFT market is limiting access to the broader audience, which includes retail investors and small collectors, as the majority of high-end NFT artworks are too expensive and quite frankly off-limits for most investors in the space.

Due To Their High Price, Some NFTs Are Out Of Reach For Most Investors In The Space

Thus, to ensure more liquidity and give investors the opportunity to gain more exposure to NFTs, many artists, creators and NFT issuers are beginning to experiment with a new non-fungibility model, the Fractionalised NFT. Up to this point, the majority of applications and use cases for NFTs have been pretty much linked to the realm of digital art, collectibles and gaming. But, what if Fractionalised NFTs could be the ultimate solution to democratising investment in not only the digital asset space, but in the entirety of the financial system?

Introduction To NFTs

An NFT is a type of cryptographic token that represents a unique, non-fungible asset and constitutes a tokenised version of a digital or real-world asset. NFTs function as verifiable proofs of authenticity and ownership in a blockchain network. Furthermore, they are non-interchangeable with one another and introduce a new proposition of scarcity in the digital asset world.

NFTs Are Unique, Authentic And Original Assets, And Their Proof Of Ownership Can Be Verified On The Blockchain

The term ‘fungibility’ refers to the property of an asset whose individual units are basically identical and interchangeable with one another. For instance, in order to act as a medium of exchange, all fiat currencies are fungible, meaning that each individual unit must be interchangeable with any other equivalent individual unit. A $1 bill is interchangeable with any other genuine $1 bill.

NFTs Can Be Traded Freely In NFT Marketplaces, But The Value Contained Within The NFT Will Always Be Unique To The Asset Itself

NFTs can be utilised by decentralised applications (dApps) to allow for the creation and ownership of unique digital collectibles and items. While an NFT can be openly traded in marketplaces such as OpenSea or Binance NFT, it is important to note that the value contained within it is and will always be unique to the asset itself.

Various frameworks have been created to facilitate the issuance of NFTs, with the most prominent being the ERC-721 token standard for the issuance of non-fungible tokens on the liquidity-rich Ethereum blockchain. A more recent and improved standard is ERC-1155, which enables a single contract to contain both fungible and non-fungible tokens.

The Two Most Prominent Ethereum Token Standards Are ERC-20 And ERC-721 – Image via HyperTrader

The majority of NFTs are associated with ERC-721 tokens and they are tracked on the blockchain to provide proof of ownership. Smart contracts store the exclusive data structures that differentiate the NFT from all other tokens, essentially making it unique.

When an NFT is exchanged between owners, it can be traced back to the original smart contract address on which it was minted, allowing buyers and sellers to verify the authenticity of the NFT and prevent fraud and forgery. The introduction of these NFT token standards allows a higher level of interoperability between networks, artists and investors, and enables the seamless transfer of these unique digital assets from one dApp to another.

However, there are some drawbacks to the widespread adoption of NFTs. This is because these ERC-721 tokens are not interchangeable with other ERC-721s, making the trading process more complex and the markets less liquid. Moreover, because of the high barrier of entry, most investors don’t have the funds to participate in the market of rare NFTs.

These constraints have most definitely inhibited NFTs from gaining the exposure and liquidity necessary to develop into an efficient and sustainable digital asset ecosystem, and have stunted the potential growth of its market overall. A new NFT model, the Fractionalised NFT, could indeed be the solution to some of these limitations.

About Fractionalised NFTs

NFT fractionalisation represents a new concept in the digital asset space and, because of its innovative proposition, it is most likely set to revolutionise the underlying architecture of non-fungible tokens as well as potentially open up new horizons in the world of investing.

Fractionalised NFTs Constitute A Novel Infrastructure In The Crypto Space And They Are Developing At A Fast Rate – Image via CoinGecko

When an NFT undergoes its fractionalisation process, it is first locked in a smart contract. The smart contract then splits the ERC-721 NFT into multiple fractions in the form of ERC-20 tokens, with each fraction representing partial ownership of the NFT.

Shareholders will possess a fraction of the NFT, essentially a percentage of the original ERC-721 asset, equal to the value of their ERC-20 tokens divided by the total number of ERC-20s minted when the NFT was initially locked in the smart contract. Fractions are typically put up for sale at a fixed price for a specific period of time, or until they sell out completely.

If The Mona Lisa Were A Fractionalised NFT, Each Fraction Owner Could Possess A Piece Of The Artwork – Image via Algorand Blog 

Fractionalised NFTs are of particular appeal as they offer a variety of interesting benefits to their issuers and holders. For instance, imagine a scenario in which we could fractionalise say Leonardo da Vinci’s (go Italy!) universally recognised ‘Mona Lisa’. Let’s now suppose that the, of course, priceless painting was valued at $1 billion and was represented on-chain as an ERC-721 asset. Given the incredibly high price of the art piece, only a small number of investors could afford to bid for it.

If, however, a smart contract were to fractionalise the Mona Lisa NFT into multiple fractions, each fraction would then represent fungible ERC-20 tokens. This, in turn, would allow every fraction owner to utilise their ERC-20 tokens to buy, sell or auction off their share of the NFT.

NFT Fractionalisation Incentives

Among the many benefits that come with NFT fractionalisation, there are several reasons why an NFT owner might want to fractionalise their asset. In fact, there are three major benefits to NFT fractionalisation, with these being:

• Price Discovery
• Asset Liquidity
• Democratisation Of Investment

Price Discovery

Price discovery mechanisms determine how much a specific NFT should cost. In order to do this, the worth of an NFT is generally established by using three different metrics: Past Sales, Auction and Fractionalisation.

The Past Sales mechanism utilises historical data to generate a price estimate for the NFT, and is typically used on the open market where there are many other similar, interchangeable products for sale. Applying this method to estimate the price of NFTs isn’t necessarily the most efficient as, more often than not, there quite literally isn’t enough historical data on the asset to formulate a fair evaluation.

The Auction mechanism reveals people’s willingness to pay for a specific NFT asset, and is used to gauge a rough price estimate. The Auction mechanism takes value from the bidder who is willing to pay the highest price for the asset, and this usually constitutes a great evaluation process as well as an excellent way to come up with an estimate for NFTs, since collectors hold their own different valuations.

As previously mentioned, the Fractionalisation mechanism entails taking an NFT, locking it into a smart contract that then divides it into multiple fractions of fungible ERC-20 tokens, rendering these tokens openly tradable on the market. This process produces a price estimate for each ERC-20 token, which then allows for an overall evaluation of the underlying ERC-721 NFT itself.

More Asset Liquidity

NFTs are inherently distinguished by the fact that they possess unique, one-of-a-kind characteristics. Their non-fungibility and scarcity have always been their main focus as well as their most important selling point. However, one of the most pressing issues when it comes to NFTs and NFT trading is the generally illiquid market that encapsulates them. In fact, illiquidity in the space remains a point of concern among NFT artists, creators and investors, as it is clear that the NFT market is limiting access to its selection of rare and most valuable NFTs.

Beeple’s ‘Everydays’ NFT Sold For $69 Million At Christies! – Image via NYTimes.com 

Indeed, with some NFTs going for millions of dollars, it is not surprising that only a few investors globally can afford to place their bids for them and get their hands on some of the most top-notch NFTs out there.

This naturally causes asset illiquidity due to the fact that just a handful of investors are willing to buy these NFTs. NFT fractionalisation, however, was created and designed to address and solve the lack of liquidity that exists in secondary markets.

When an NFT is fractionalised, the ERC-20 tokens representing each NFT fraction could be traded on decentralised and centralised exchanges, thus increasing the asset liquidity of the NFT itself. Instead of an artist waiting weeks for their NFT artwork to sell, numerous investors may buy NFT fractions immediately at a reduced price, which effectively addresses some NFT illiquidity issues.

Democratising Investment

More often than not, the prices in NFT marketplaces inhibit smaller investors and collectors from participating in NFT auctions, leaving only a few investors capable of purchasing the most expensive NFT pieces. Breaking up a high-end, expensive NFT into multiple fractions lowers the barrier of entry and ownership costs, and essentially allows more investors to gain exposure to the market of prestigious NFTs. Furthermore, it is important to note that if the price of the entire ERC-721 NFT increases, so will the price of the individual fractions of ERC-20 tokens.

Overall, thanks to their design, fractionalised NFTs can essentially boost the liquidity of the NFT market by fragmenting the base NFT asset into multiple, natively liquid components, and can also open up more investment opportunities for smaller collectors, democratising access to the previously exclusive NFT environment.

DeFi-NFT Fractions

NFT fractions have a variety of different applications in both the real world and the digital asset sphere. Indeed, bringing price discovery, liquidity and democratisation to the NFT environment opens up some exciting opportunities in the space, especially in Decentralised Finance (DeFi).

This is because fractionalised NFTs could potentially be leveraged in real estate investing, digital art, augmented reality (AR), gaming, fantasy sports, and more. With regards to Fractionalised NFTs in the real estate business, projects such as LABS Group, for instance, have already started experimenting with the concept of NFT fractionalisation in cross-border real estate investment.

Fractionalised NFTs Could Revolutionise Real Estate Investing

In fact, the project allows participants to invest in multiple properties around the world through the Ethereum they hold in their Metamask wallet. When users decide to invest in property via LABS Group, the project will automatically redirect them to their selection of real estate fractionalised NFTs that can then be purchased and staked on the platform to earn rewards.

In the gaming sphere, there are a few groups pioneering the new NFT fractionalisation trend, with the first being Niftex. Niftex is a blockchain-based startup that is working on its own NFT sharding technology, whereby NFTs are essentially fractionalised into ‘shards’ which can be purchased in an IPO-like format.

Fractionalised NFTs Could Play A Major Role In The Development Of The Gaming Industry

From there, a liquid market is created for the NFT shards using the Uniswap protocol, allowing investors and holders to buy and sell the shards like they would with any other crypto asset. The basic idea with Niftex is to increase NFT liquidity via sharding, and to essentially allow holders to accrue enough shards to gain access to the original NFT. Niftex has witnessed some major early wins with the Axie Infinity community where ultra-rare Axies, the gaming platform’s NFT assets, owned by community members have been fractionalised and sold via the Niftex platform.

Ultra-Rare Axie Infinity NFTs Were Sharded And Sold On The Niftex Platform – Niftex Twitter

Another interesting project looking to pioneer the fractionalised NFT trend is Fractional. Fractional is a decentralised protocol enabling NFT owners to mint tokenised fractional ownership of their NFTs as ERC-20s, with each fraction acting as governance on the underlying ERC-721 asset.

Fractional Allows NFT Holders To Mint Tokenised ERC-20 Fractions From Their Original ERC-721 Asset – Image via FractionalArt Medium 

The goal of the Fractional protocol is to facilitate the process of buying and holding a certain percentage of an NFT. In essence, the Fractional mechanism enables users who have been previously priced out of specific high-end NFTs by renown artists, such as Beeple and his ‘Everydays’ NFT for instance, to purchase a piece of their artwork. This furthermore allows the NFT holder to see some liquidity for their asset arise almost immediately, as opposed to having to wait for weeks or even months on-end for a buyer to appear.

In addition, because of the governance perks inherent in the ERC-20 token fractions, fraction holders also have the ability to vote on the reserve price of the entire NFT asset. This reserve price is the price in ETH required to be bid by a third party who is willing to purchase the NFT through auction. At the completion of the auction, all fraction holders will be able to cash in their fractions for ETH.

Fractionalised NFTs In DeFi

Some DeFi protocols such as Aave and Compound allow users to borrow capital by pledging their crypto assets as collateral. The borrowed funds come from lenders who deposit their assets in the DeFi protocol in return for some form of reward, mostly staking rewards. Typically, the collateral pledged by the borrowers is in the form of popular cryptocurrencies like Ethereum or USDT. At present, the realm of DeFi collateralisation is gradually entering the NFT space, with some new, exciting projects offering collateralised loans on NFTs and fractionalised NFTs.

NFTfi Brings DeFi Collateral To Non-Fungible Tokens – Image via NFTfi.com

Perhaps one of the most relevant DeFi-NFT collateralisation projects is NFTfi, a decentralised protocol allowing users to put up their NFT assets as collateral to borrow capital or offer loans to other users on their NFTs. The NFTfi protocol is currently experimenting with the proposition of DeFi-centric loans based on fractionalised NFTs as well, whereby users can pledge their ERC-20 fractions of an ERC-721 NFT asset as collateral to borrow cryptos like ETH or USDT.

Charged Particles Encapsulates Interest-Bearing DeFi Tokens Within NFTs – Image via Charged.Fi

Charged Particles is a decentralised protocol that is fundamentally restructuring the DeFi-NFT ecosystem, by allowing users to wrap their native NFT assets with interest-bearing tokens. Charged Particles enables NFT holders to deposit their ERC-721 or tokenised NFT fractions into its dApp, which then wraps the NFT with interested-bearing tokens through its integration with DeFi protocol Aave. This constitutes a true representation of the growing demand for NFTs in the DeFi sphere, and is also symbolic of the shared, hybrid infrastructure that is developing between DeFi and NFTs.

Fractionalised NFTs For Pre-IDO Liquidity

At this stage, it should be clear that NFT fractionalisation is posing a great number of benefits to holders, issuers, artists and investors. However, one of the most intriguing use cases for fractionalised NFTs is perhaps their ability to provide pre-Initial DEX Offering, or pre-IDO, liquidity for projects launching in the DeFi space.

Among the few projects looking to pioneer the DeFi-NFT pre-IDO liquidity environment is Genesis Shards, a decentralised protocol that wraps illiquid pre-IDO tokens into NFTs. The value proposition of fractionalised NFTs in the pre-launch token market is actually pretty relevant, as it enables a project’s pre-IDO tokens to gain some form of price discovery and economic exposure even before the IDO is held.

Genesis Shards Wraps Illiquid Pre-IDO Tokens Into Liquid, Fractionalised NFTs – Image via GenShards.com

Typically, the only way investors can access pre-IDO tokens is through over-the-counter (OTC) deals and transactions, however, these trades are usually pretty unreliable, come with some inherent risks and require a substantial amount of initial capital.

Fractionalised NFTs, on the flip side, can be leveraged to create a liquid pre-launch market by wrapping pre-IDO tokens into NFT fractions made up of tradable ERC-20 tokens. This allows projects such as Genesis Shards to effectively bring price discovery, liquidity and democratisation to pre-IDO tokens via fractionalised NFTs.

These pre-IDO NFT fractions can be either traded on NFT marketplaces such as OpenSea, for instance, or can be held until the project holds its IDO, after which NFT holders can swap their NFTs for the project’s IDO tokens.

It is thus clear that the functionalities of fractionalised NFTs stretch above and beyond the realm of digital art and gaming, as they are slowly but surely coming to merge with the DeFi ecosystem in a manner that was yet to be seen in crypto. In fact, thanks to projects such as LABS Group, Niftex, Axie Infinity, NFTfi, Charged Particles and Genesis Shards, NFT fractionalisation is progressively becoming more of an established proposition in the space, and it can develop, expand and realise its use cases in a purely decentralised, permissionless and disintermediated fashion.

In Conclusion

NFTs have come to firmly establish themselves within the digital asset space, and they are fuelling an enticing ecosystem of diverse artistic, gaming-oriented and DeFi cross-over utilities. NFTs are inherently distinguished by the fact that they possess unique, one-of-a-kind characteristics. Their non-fungibility and scarcity have always been their main focus as well as their most important selling point. However, one of the most pressing issues when it comes to NFTs and NFT trading is the generally illiquid market that encapsulates them.

Fractionalised NFTs, on the other hand, allow artists and investors to gain access to greater liquidity, as the NFT is broken down into multiple fractions of ERC-20 tokens that can be sold or redeployed in other DeFi protocols. By fractionalising an NFT, the asset holder can enjoy a variety of attractive benefits, which include NFT price discovery, more asset liquidity and democratisation of investment.

Indeed, bringing price discovery, liquidity and democratisation to the NFT environment opens up some exciting opportunities in the space, especially in Decentralised Finance (DeFi). There is most definitely a use case for fractionalised NFTs in the world of digital art, augmented reality, gaming, fantasy sports and, most importantly, pre-IDO liquidity.

With reference to this last note, fractionalised NFTs can be leveraged to create a liquidity-rich pre-IDO market, in which NFTs can essentially become DeFi options as well as the financial vehicles necessary to solve the illiquidity endemic in the pre-launch environment.

While the development of the NFT ecosystem is still rather young, that of fractionalised NFTs is perhaps even younger but, in due course, NFT fractionalisation is most likely destined to disrupt not only the world of fine art and gaming, but potentially even that of Decentralised Finance and investing as a whole.

The post Fractionalised NFTs – Making Non-Fungible Tokens Affordable appeared first on Coin Bureau.

Among these blockchain-enabled value propositions is Decentralised Finance (DeFi), a movement that is spearheading an attractive, alternative financial ecosystem and has firmly established itself as a true powerhouse in the digital asset space.

Decentralised Applications (dApps) constitute one of the most notable developments to come out of DeFi technology and their uniqueness lies in their ability to be disintermediated from third party actors and permissionless, meaning that anyone with an Internet connection and a supported wallet can interact with them.

DeFi Introduced dApps To The Digital Asset Space And Is Reshaping The World Of Finance As We Know It

Contrary to traditional financial applications, dApps typically do not rely on trust and they do not require custodians or middlemen to function, which essentially makes them ‘trustless’. These inherently decentralised qualities allow dApps to perform a wide selection of use cases, including decentralised trading, lending, borrowing, staking, liquidity provision and, more importantly, yield farming.

Yield farming is one of the newer liquidity concepts to emerge from the DeFi ecosystem, and it entails a process of generating capital and earning rewards through crypto asset holdings using DeFi liquidity protocols. Yield farming allows anyone to earn passive income using the decentralised ecosystem of ‘money-legos’ built on Ethereum.

Because of this, yield farming may very well change the way crypto investors HODL their assets in the future, as it enables them to leverage the built-in high APYs and staking models of many DeFi protocols, as opposed to just leaving their assets lying idle in a wallet somewhere.

The Origins Of Yield Farming

Bitcoin can be considered the first deployment of DeFi as it enabled people to execute trades and financial transactions without the presence of intermediaries. Thus, Bitcoin and a few other early cryptocurrencies arguably initiated the first DeFi wave. The second wave, however, was led by the Ethereum blockchain as it added another layer of programmability to the technology.

To this day, the majority of crypto assets and blockchain-based projects are built on Ethereum because it provides the openness, infrastructure and liquidity required to implement dApps and perform asset swaps efficiently, despite the fluctuating, high gas fees.

The Majority Of dApps Are Building On Ethereum Primarily Because Of Its Liquidity And Network Effect

Some of the advantages of DeFi include transparency, immutability, programmability with smart contracts and, most importantly, self-custody of funds, meaning that DeFi participants are the sole custodians of their capital and they are not required to rely on centralised crypto exchanges to store their assets.

Thus, given the immense potential that DeFi brought to the space, several projects began experimenting with DeFi functionalities in traditional financial applications, and looked to essentially create a DeFi-TradFi cross-over infrastructure.

In fact, when the Ethereum-based project Compound began offering its decentralised lending and borrowing protocol, it opened the door to a completely new world in Decentralised Finance and attracted large quantities of investors looking to maximise their ROI.

In Mid-2020, Compound Began Distributing Its Native Governance Token COMP As A User Incentive

In June 2020, Compound started to distribute its governance token, COMP, to the protocol’s user base. With the way the distribution process was structured, demand for the token initiated a craze and moved Compound into the leading position in DeFi.

This is primarily due to the fact that this Ethereum-based project allows users to stake and lend their tokens to the Compound protocol and earn interest on their assets for doing so. Consequently, this mechanism ignited a new trend in the DeFi space, and led investors to embark on a journey to find the protocols offering the highest APYs across the industry.

Throughout 2020, A New Craze Emerged In The DeFi Space, Yield Farming

The term Yield Farming was coined as a result of the process of actively searching for the best ROIs in the space whereby users, known as ‘farmers’, are on a constant lookout for the most profitable ‘yields’ in DeFi protocols on mainly Ethereum and the Binance Smart Chain.

How Yield Farming Works

Yield farming, also referred to as liquidity mining, is a way to generate rewards with cryptocurrency holdings. Put simply, it implies locking up crypto assets and receiving staking rewards and interest on those assets. In a sense, the yield farming process resembles that of staking, but with a few extra added complexities.

In most cases, yield farming requires users, called liquidity providers (LPs), to add funds to a protocol’s liquidity pool. Liquidity pools are basically smart contracts that store and preserve users’ funds, and they reward users for providing liquidity in the first place. These rewards may come from fees generated by the underlying DeFi protocol, or from some other sources.

Image via CoinCentral

Some liquidity pools pay their rewards in multiple tokens, and these reward tokens can then be redeployed to other liquidity pools to earn additional rewards there as well. Thus, it is quite simple to see how some incredibly complex farming strategies can emerge from this, but the basic idea is that liquidity providers deposit funds into a liquidity pool and earn rewards in return.

Yield farming is most commonly done with ERC-20 tokens on Ethereum and BEP-20 tokens on BSC, so naturally the rewards are usually in some kind of ERC-20 or BEP-20 format. This, however, may very well change in the near future as yielding protocols develop further and start implementing cross-chain bridges more efficiently.

Yield farmers will typically move their funds around quite a lot between different protocols in search of the highest yields. As a result, DeFi platforms may also provide economic incentives to attract more capital to their platform as in fact, just like on centralised exchanges, more liquidity tends to attract more liquidity.

Getting Started With Yield Farming

Now that we have defined and clarified what yield farming is, let us now discuss how a new user can get started with yield farming.

Yield Farming Strategies Come With A Certain Amount Of Structure And Procedure

Firstly, as a disclaimer, it is only reasonable to list the Pros and Cons that come with a yield farming strategy.

The Pros include:

• dApp Availability: Up to this point, a variety of yield farming-centric applications have come to life, and they give farmers the benefit of tracking their investments and percentage yields from a simple, all-in-one interface.
• Easy and Fast Implementation: To become a yield farmer, one needs only two required elements which are Ethereum, or BNB in some cases, and a crypto wallet. The barrier of entry to yield farming is relatively low, which draws immense attention from crypto investors looking for higher returns on their assets.
• Incredibly High Annual Percentage Yield (APY): While in staking protocols 8-10% APY on stablecoins such as USDT, USDC or DAI is the norm, yield farming can boast as much as 100% APY!

A Visual Of The Annual Percentage Yield On PancakeSwap – Image via PancakeSwap.Finance

The Cons include:

• Short-Term Rewards: It cannot be denied that yield farming is growing strongly in a fast-paced market, but it is still rather unstable so there is a risk of inconsistent returns. More than that, given its ease of entry, profitable strategies are hard to figure out.
• High Gas Fees On Ethereum: Put simply, gas is defined as the fee for each transaction performed within the ETH blockchain. Gas fees have been on a steep uptrend as of late, and this is one of the downsides of yield farming. Thus, farmers should be conscious not to pay gas fees that are higher than the expected reward.
• Benefits For Those With Greater Capital: DeFi allows anyone to participate in yield farming, but the rewards will be considerably higher for those users with a lot of initial capital. This is essentially because the more crypto you own, the more you can deposit in high APY strategies, naturally resulting in a higher ROI.
• Impermanent Loss Risks: This refers to a temporary loss suffered by a liquidity provider (LP) due to the volatility in a trading pair. Impermanent loss is one of the major hurdles of AMM protocols and it occurs when the price of tokens inside an AMM diverge too quickly in any direction, causing a token imbalance.

Yield Farming Platforms

In this section we shall discuss the most reputable yield farming platforms and take you through the process of getting started with yield farming on Ethereum, with Compound and Uniswap, and on the Binance Smart Chain, with PancakeSwap. For simplicity, we have selected these DeFi platforms as they offer perhaps the most straightforward and ready-to-go approach to yield farming.

The Importance Of Total Value Locked (TVL)

Total Value Locked (TVL) is the sum of all funds locked in a protocol’s liquidity pool. This is a very important metric to measure how healthy a yield farming platform is. An increase in the Total Value Locked leads to an increase in the yield farming on a platform. The current TVL for DeFi is approximately $64 billion, and these metrics can be tracked on DeFi Pulse.

Total Value Locked Is A Great Metric To Gain Insight On The Health Of A Farming Platform. Image via DeFiPulse.

As previously mentioned, there are various platforms where you can farm tokens. They all operate in a similar fashion, but the rewards system might be different and specific to the farming platform. Below are some of the yield farming platforms running on the Ethereum blockchain and the Binance Smart Chain (BSC).

Farming On Compound

Compound is an Ethereum-based protocol that allows lending and borrowing of crypto assets. The lender offers a loan by providing liquidity to the Compound platform, and then gets an interest on the loan supplied. The lender’s interest is then calculated based on the ratio of supply and demand for the crypto assets they provide, which may of course fluctuate from time to time.

A Visual Of The Annual Percentage Rates On The Compound Platform – Image via Compound.Finance

Lending capital on DeFi money markets such as Compound and Aave constitutes the easiest way to earn returns in Decentralised Finance. You can deposit stablecoins such as DAI or USDC to either of them and start earning yield instantly!

A Visual Of The APYs On DeFi Platform Aave – Image via Aave.com

Aave generally has better rates than Compound because it gives borrowers the ability to choose a stable rate of interest rather than a fluctuating, variable rate. The stable rate tends to be higher for borrowers than the variable rate, which increases the marginal return for lenders.

However, one of the most appealing additions made by Compound is the new incentive mechanism for farmers through the issuance of its native governance token COMP. In fact, anyone who lends or borrows on the Compound platform can farm a certain amount of the COMP token.

Thus Far, Compound Has Distributed 976,102 COMP Tokens To Farmers And Borrowers – Image via Compound.Finance

At present, 2,312 COMP tokens are distributed daily across the Compound user base meaning that, at approximately $400 per COMP token, this results in more than $920,000 in additional rewards each day. These COMP farming rewards are of course diluted across the platform’s 294,000 suppliers/farmers and 8600 borrowers and, despite the relatively low APYs, the incentive for users to farm on Compound remains incredibly high.

In addition, Compound has its own native interest-bearing tokens called cTokens, which are used to pay farmers for supplying liquidity to the protocol. When farmers provide and lock 5ETH on Compound, for instance, the protocol automatically generates 5cETH tokens, that earn farmers interest and can be redeployed on other DeFi platforms as well. Farmers can then redeem their cETH for ETH at any time, plus their staking rewards.

To participate in yield farming on Compound, as well as most other farming platforms, users will need to:

• Acquire crypto that is used on the particular farming platform. Widely accepted crypto assets are ETH, BTC, and stablecoins such as DAI, USDT, USDC and BUSD (for BSC farming).
• Download a decentralised wallet such as Metamask, Trustwallet or Wallet Connect. Register as prompted, and make sure that private keys and the seed phrase are secure and kept somewhere safe. You may follow Guy’s step-by-step guide on how to do this.
• After installing the preferred wallet, send funds to the wallet.
• Go to the dApp section of the wallet to start farming.
• For beginner farmers, it is advisable to start farming with the Compound platform because of the COMP incentive and its ease of use.

In Compound’s case, users looking to farm should:

• Go To Compound.Finance
• Click on ‘App’.

Image via Compound.Finance

• Connect Wallet through the Metamask icon.

Image via Compound.Finance

• Approve Connection Via Password and Unlock Wallet.

Image via Compound.Finance

• Once the connection is approved, users can choose from a selection of assets that they want to supply in order to start farming COMP.

A Visual Of The Compound Supply Market – Image via Compound.Finance

• If users want to supply the platform with a stablecoin such as DAI, for example, they will need to first click ‘Collateral’ and then ‘Use DAI As Collateral’.

Image via Compound.Finance

• Users will then need to enable DAI as collateral and pay a small ETH transaction fee.
  Once the transaction is executed, users will be able to deposit their DAI into the Compound platform and start farming COMP. The User’s APY will be displayed in the ‘Dashboard’ section together with their ‘Supply Balance’ and their ‘Interest earned and paid, plus COMP’.

Image via – DataDrivenInvestor

It is also important to note that the more assets a farmer supplies, the more potential borrowing power they have. Using the image above as an example, a user could provide liquidity with 1,237 DAI and potentially borrow $928. In this scenario, DAI would be held by Compound as collateral, and the user could borrow $928 for additional farming on other DeFi protocols, for instance.

Farming On Uniswap

Uniswap, one of the most well-established Ethereum-based AMM protocols in the space, is arguably the largest liquidity pool in DeFi. Uniswap allows Liquidity Providers (LPs) to earn fees as a reward for adding their capital to a pool. On Uniswap, liquidity pools are structured between two assets in a 50-50 ratio, a model typical of Automated Market Makers (AMMs).

Uniswap, A Sophisticated Decentralised Trading Protocol

LPs are of vital importance to Uniswap’s functionality as a DEX, as they provide the liquidity and collateral necessary for the protocol to execute trades in a decentralised manner. In fact, every time someone executes a trade through a liquidity pool, LPs that contributed to that pool earn a fee for facilitating the transaction. The exchange has a trading fee of 0.30% for every token swap but, instead of going to Uniswap, these fees are given to Liquidity Providers as a reward for providing capital.

Adding Liquidity On Uniswap v.3

Unlike most DEXes, Uniswap doesn’t contain order books and its liquidity is maintained through liquidity pools. This means that anyone can become a liquidity provider (LP) for a token pair on Uniswap by simply depositing equal amounts of each token in exchange for token pools. For instance, if a user wanted to add liquidity to an ETH-DAI pool on Uniswap, they would have to add the exact same amount of each token.

Visual Of The Uniswap Liquidity Pool Structure – Image via Uniswap.org

Currently, at the time of writing, 1 ETH equates to approximately 2,270 DAI. So, if the LP wanted to provide liquidity to the pool with say 3 ETH, the necessary 50-50 ratio would look something like 3 ETH – 6,810 DAI.

To add liquidity to a Uniswap pool and start yield farming on the platform, users will need to:

• Go To Uniswap.org.
• Click ‘Launch App’.

Click On ‘Launch App’ In The Top Right Corner – Image via Uniswap.org

• Click ‘Pool’.

Image via Uniswap.org

• Click ‘Connect Wallet’ to connect with Metamask.
• Once connected, users can either browse through popular liquidity pools by clicking on ‘Top Pools’, or click on ‘New Position’.

Top Pools On Uniswap – Image via Uniswap.org

• After having clicked on ‘New Position’, LPs can select their preferred token pair.

Select Token Pair – Image via Help.Uniswap.Org

• They must then review their preferred Fee Tier.

Review Fee Tier – Image via Help.Uniswap.Org

It is important to note that Uniswap v.3 offers 3 different Fee Tiers for every token pair: 0.05%, 0.3% and 1.0%. The 0.05% Fee Tier is ideal for assets that trade at a fixed or highly correlated rate, such as stablecoins. Thus, this Fee Tier is most suitable for liquidity pools such as DAI-USDC or USDC-USDT, for instance.

The 0.3% Fee Tier is best for most pairs, and the ones that undergo price fluctuations, such as ETH-DAI for example. This higher Fee Tier is more likely to compensate LPs for the greater price risk that they take on relative to stablecoin LPs. The 1.0% Fee Tier is primarily used for exotic pairs, and it is implemented to reward LPs for taking on major price risks on their assets.

• Set Price Range

Set Price Range – Image via Help.Uniswap.Org

Uniswap v.3 allows LPs to select a specific price range in which they can provide liquidity, which is one of the perks of the recent Uniswap upgrade. This means that if prices move outside the selected range, the user’s position will be concentrated in one of the two assets and will not earn any interest until prices come back into the range.

Deposit Tokens – Image via Help.Uniswap.Org

• Deposit the desired token amounts.

Preview And Approve Transaction – Image via Help.Uniswap.Org

• ‘Add‘, ‘Preview‘ and Approve Transaction on Metamask

Farming On BSC: PancakeSwap

Launched in September 2020, PancakeSwap is a Binance Smart Chain-based DEX and AMM protocol running primarily on smart contracts and permissionless liquidity pools. Similarly to Uniswap, PancakeSwap allows any two tokens to be exchanged, but with a few extra gamified additions.

PancakeSwap, The Go-To DEX On The Binance Smart Chain

The Binance Smart Chain has grown exponentially over the course of the last year, as investors, traders and yield farmers started to accumulatively reject the inefficiencies of the clogged-up Ethereum blockchain, and looked to more sustainable DeFi options. BSC is fast, cheap and easy to use, and its community is one of the strongest in the DeFi space.

The Binance Smart Chain Ecosystem Has Grown Exponentially Throughout 2020 And 2021 – Image via Binance Blog 

Let us now discuss how you can get started with yield farming on PancakeSwap and also farm its native token CAKE. To farm on PancakeSwap, users will need to:

• First create a BSC compatible wallet, such as Metamask or Trustwallet.
• Purchase some BNB tokens and send funds to the BSC compatible wallet. It is important to note that native BNB purchased on centralised exchanges cannot be utilised for DeFi applications on BSC. To yield farm on PancakeSwap, users will need to convert their native BNB tokens into BEP-20 BNB. This can be done directly on the Binance centralised exchange through the Binance Bridge or, alternatively, on Trustwallet.
• Head over to PancakeSwap.Finance. Once there, users will encounter various tabs such as Trade, Farms, Pools, Lottery and Collectibles. The Trade tab allows users to swap between tokens on the Binance Smart Chain mainnet, and constitutes the heart and soul of the PancakeSwap DEX.

Contributing To The CAKE-BNB Liquidity Pool

If farmers want to provide liquidity to the CAKE-BNB liquidity pool, the first thing they will need to do is acquire an equal value amount of CAKE and BNB tokens, which they can purchase on Binance first and then send to their Metamask wallet. It is also important to remember that, similarly to Uniswap, PancakeSwap utilises a 50-50 token ration in liquidity provision in order to maintain funds balanced and incentivise trading.

A List Of The Active Farms On PancakeSwap – Image via PancakeSwap.Finance

Users will then need to interface their Metamask wallet with the PancakeSwap platform by clicking on ‘Connect’ in the top right corner. Once they’ve successfully connected Metamask with PancakeSwap, they can head over to ‘Farms’, click on CAKE-BNB liquidity pool and then ‘Enable Farm’.

The CAKE-BNB Liquidity Pool On PancakeSwap Currently Offers 52.72% APR! – Image via PancakeSwap.Finance

In order to enable a farm, PancakeSwap charges a very small transaction fee, currently around $0.07, which users will need to pay in BNB token. After having completed and signed the transaction on Metamask, the option to add liquidity to the farm becomes open.

Alternatively, farmers can head over to the ‘Trade’ tab, then click ‘Liquidity’, ‘Add Liquidity’ and select their desired input tokens, in this case CAKE and BNB.

Just Like On Uniswap, LPs Need To Provide A Pair Of Tokens Due To The 50-50 AMM Structure – Image via PancakeSwap.Finance

• Add liquidity in the amount you want to contribute, but you can also use the ‘Max’ button to contribute up to your maximum in your wallet.
• Then Click ‘Supply’ and pay the liquidity provision transaction fee on Metamask with BNB, which will be considerably lower than Uniswap on the Ethereum network.

In return for supplying liquidity, you’ll receive CAKE-BNB LP tokens which represent your share of the liquidity pool. These LP tokens are interest-bearing tokens and they allow LPs to earn rewards every time a trade is executed through that liquidity pool.

What Next?

Once you receive your LP tokens, you may head over to ‘Farms’ and redeploy your LP capital through staking. The process of doing so is exactly the same as the one mentioned above.

• Click on ‘Stake LP’ and approve your LP tokens for staking.

Once You Have Your LP Tokens, You Can Redeploy Them In LP Staking Through ‘Farms’ – Image via StakingBits Medium

Once the transaction has been approved and the LP tokens are inserted into the PancakeSwap smart contract for staking, you will essentially start earning CAKE immediately. Farming on PancakeSwap can be incredibly beneficial for investors as it allows them to generate yield while maintaining their position open on their assets.

It is clear that farming offers some inherently optimal ways for crypto investors to yield high returns on their investment, as we have seen with the CAKE-BNB liquidity pool. Therefore, because of its qualities and growing adoption across the space, yield farming is proving to be quite the innovation in the DeFi ecosystem and is set to potentially revolutionise the way crypto enthusiasts, investors and traders will HODL their assets from now on.

In Conclusion

Yield farming is one of the newer trends to come out of DeFi technology, and it is slowly establishing itself as a true powerhouse in the space. Yield farming entails the process of actively searching for the best APYs and moving assets across the ecosystem to essentially ‘farm’ the best crops and yield the highest returns.

Originally, the concept for yield farming started when Ethereum-based DeFi project Compound began incentivising participants to use its platform in return for its native governance token COMP. To this day, Compound is still distributing COMP tokens to anyone who lends and borrows crypto assets through the platform.

The COMP incentive, paired with the possibility to farm native tokens just by using the platform, spearheaded a craze across the digital asset space and inspired users to come up with intricate strategies to move assets around and look for the most profitable crops to farm.

Yield farming as a procedure is rather straightforward and requires users to hold crypto assets relevant to the specific farming platform, a decentralised wallet such as Metamask, and the will to make some serious gains in a relatively short amount of time.

If you’re just starting out with yield farming, Compound is perhaps the best solution for you. Once you’ve developed your skillset further, you can then start farming on protocols such as Uniswap, on Ethereum, and PancakeSwap, on the Binance Smart Chain.

A yield farmer’s gains can be very enticing indeed, however, it is advisable to always exercise caution and understand the risks prior to engaging in the intricate, fast-paced and highly profitable DeFi segment that is yield farming.

The post Getting Starting with Yield Farming: The ONLY Guide you Need appeared first on Coin Bureau.

Blockchain, defined as a digital ledger technology, is primarily known for its application to cryptocurrencies and constitutes the foundational layer of this relatively new, exciting financial infrastructure.

Introduced in 2008 to serve as a public ledger for Bitcoin, blockchain has given rise to hundreds of value-rich, diverse and unique crypto assets, and has furthermore pioneered an emerging ecosystem of applications in various fields, including supply chains, DeFi, NFTs, patents, smart contracts and on-chain governance.

Blockchain First Emerged With Bitcoin In 2008 And Has Ever Since Produced A Dynamic Ecosystem Of Various Crypto Assets

The European Union Agency For Network And Information Security defines blockchain as:

… a public ledger consisting of all transactions taking place across a peer-to-peer network. It is a data structure consisting of linked blocks of data … This decentralised technology enables the participants of a peer-to-peer network to make transactions without the need of a trusted central authority and at the same time relying on cryptography to ensure the integrity of transactions. – ENISA (2019) 

In contrast to traditional ledger systems used by banks and governments for centuries, which are inaccessible and centralised, blockchain ledgers are decentralised and transparent. In fact, there is no central authority acting as the exclusive manager of the ledger and the main responsibilities of said ledger involve storage, updates and verification of transactions.

Blockchain stores, shares and synchronises data as ‘chains of blocks’ using cryptographic techniques. Blocks represent a set of recorded transactions and each new block of transactions is linked to the previous one, creating an ever-growing ‘block’ chain. The creation of each block must be approved by all network participants and this process can be achieved through a ‘consensus mechanism’ that establishes the rules for transaction verification and validation.

Blockchain Stores And Processes Transaction Blocks Via Cryptographic Techniques

One of the most common approaches is ‘mining’, which relies on the Proof-of-Work (PoW) mechanism. With PoW, in order to add a block of transactions to a blockchain, network participants compete to find a solution to a complex mathematical problem based on cryptographic algorithms, and these network participants are commonly referred to as ‘miners’. When a miner finds the solution to the problem, and after validation from other participants, the block of transactions is added to the blockchain.

In Bitcoin Mining, Miners Compete To Solve Complex Algorithmic Equations To Validate Blocks And Receive Rewards For Doing So

While Proof-of-Work allows Bitcoin, Ethereum and other crypto assets to process transactions peer-to-peer in a secure and disintermediated manner, PoW at scale requires huge amounts of computational power which only increases as more miners join the network. But, on the other hand, a perhaps more sustainable solution exists, and this solution is Staking.

What Is Staking?

Staking can be thought of as a less resource-intensive alternative to mining. Its mechanism involves holding funds in a cryptocurrency wallet to support the security and operations of a blockchain network. In essence, staking is the process of locking crypto assets to receive rewards, which some liken to blockchain dividends. However, in order to gain a better grasp of what staking is, a brief analysis of the Proof-of-Stake mechanism is required.

Staking Constitutes The Foundational Layer Of The Proof Of Stake Mechanism

This is because Proof-of-Stake implements a consensus mechanism that differs completely from that of Proof-of-Work, and allows blockchains to operate in a more energy-efficient manner while maintaining a substantial level of decentralisation.

Proof Of Stake

While Proof-of-Work has historically proven to be a robust and efficient mechanism to facilitate consensus in a decentralised manner, the amount of computational power required for it to function correctly has turned into a growing concern across the space.

The Cambridge Bitcoin Electricity Consumption Index From January 2017 To July 2021 – Image via cbeci.org

In fact, the complex puzzles that miners are competing to solve serve no purpose other than making sure that the network remains secure, and while one could argue that PoW’s excessive use of resources is justified, this does not equate to the most optimal processing mechanism.

Proof-of-Stake (PoS), on the flip side, was created as an alternative to Proof-of-Work and was designed to solve some of the issues inherent in PoW. The idea with PoS is that network participants can lock their crypto assets into a staking protocol that, at particular times, assigns the right to one of them to validate the next block of transactions, resulting in a reward for doing so.

Proof of Stake Is Proving To Be Way More Energy-Efficient Than Proof of Work

In PoS, the probability of being selected to validate block transactions is proportional to the amount of tokens held by a participant. Thus, what determines which participants create a transaction block is not based on their ability to solve algorithmic puzzles, like in Proof-of-Work, but on the amount of staking assets they hold.

Proof of Stake arguably constitutes a more sophisticated and scalable blockchain solution due to the fact that, as opposed to Proof-of-Work that utilises excessive energy to solve hash challenges, a Proof-of-Stake miner is limited to mining a percentage of transactions that is reflective of their ownership stake.

In theory, this means that a miner who holds say 5% of the crypto assets available can mine only 5% of the transaction blocks, which greatly reduces the need for large amounts of computational power to validate transactions and inherently makes the network more efficient.

PoS’s scalability proposition is one of the main reasons why Ethereum is set to migrate from Proof of Work to Proof-of-Stake in the (hopefully) not so distant future with ETH 2.0.

Delegated Proof Of Stake (DPoS)

Delegated Proof of Stake (DPoS) is an alternative version of PoS that allows network participants to commit their token balances as votes, where voting power is proportional to the amount of tokens held. These votes are then used to elect a number of delegates who manage the blockchain on behalf of their voters, ensuring consensus and security.

Typically, staking rewards are distributed to these elected delegates who then distribute a part of the rewards to their electors, in a manner propositional to their individual contributions.

Basically, DPoS allows for consensus to be achieved with a lower number of validating nodes and, as such, it tends to enhance network performance and processing efficiency.

How Staking Works

As previously mentioned, Proof-of-Work relies on miners to validate and add transaction blocks to the blockchain. In contrast, Proof-of-Stake chains validate and produce new blocks through the staking process. Staking is an umbrella term used to denote the act of pledging crypto assets to a cryptocurrency protocol to earn rewards in exchange.

Moreover, when users stake their assets in a protocol they are inherently contributing to the preservation of the protocol’s security, and they receive rewards in the form of native tokens for doing so.

Consequently, the higher the amount of assets pledged, the higher the rewards received. These staking rewards are all distributed on-chain, meaning that the process of earning these rewards is completely automatic and disintermediated from any third party escrow.

Some staking coins and current yields. Image via Staked.us

This staking rewards mechanism, quite frankly, constitutes a brilliant value proposition for many digital asset enthusiasts as it allows for consistent asset compounding and brings life to the ultimate entrepreneurial dream of ‘earning while you sleep’!

How Are Rewards Generated?

Proof-of-Stake assets such as Solana, Cardano, Tezos and Polkadot all allow users to deploy their assets to their respective protocols and earn rewards via staking, as displayed in the image above. Specifically, there are two types of rewards that get distributed:

• Staking Rewards (Inflationary Rewards)
• Transaction Fees

For staking rewards, users stake their crypto assets with a Proof-of-Stake node to validate a block of transactions. If the node a user has delegated to successfully signs or attests to blocks, the user will receive staking rewards, thereby increasing their total crypto asset net worth. In case the node is unresponsive or malign, a portion of the node’s assets, and therefore the user’s assets, could be significantly reduced or destroyed completely.

Protocols Incentivise Users To Lock Their Assets To Gain Rewards And Contribute Towards Maintaining The Protocol Secure

Thus, staking rewards are beneficial for both individual stakers and protocol nodes as, on the one hand, they incentivise users to lock their assets in exchange for some kind of native token reward and, on the other, they improve the overall security of the protocol itself. When stakers are selected for block validation and receive freshly minted native asset rewards, these rewards are called inflationary rewards.

This essentially means that every time a block is validated, new tokens of that currency are minted and distributed as staking rewards, hence the term inflationary.

With regards to transaction fees, each transaction carries with itself a small fee making it easier for the node to prioritise the selection of transactions to be entered into the block. The set of accumulated fees from the underlying transactions also go to the node.

Transactions are the foundational layer of blockchain and cryptocurrency, and they play a variety of different roles depending on the protocol’s specific architecture. For instance, transactions may vary from token transfers to smart contract execution and, despite the dissimilarity in transaction types, the common thread is that these transactions always get ordered and are aggregated into a new block so that all nodes in a network can agree on the entire state of the blockchain.

How To Participate In Staking

Staking represents a fairly decent investment tool for anyone whose assets are just lying idle in a crypto wallet and not generating any passive income. When it comes to staking, one can perform two roles:

• Validation: Most suitable for blockchain companies and technical enthusiasts.
• Delegation: Appropriate for most crypto asset holders.

To become a validator node in a Proof-of-Stake (PoS) network, crypto asset holders are required to stake their tokens as collateral as opposed to spending electricity as is the case for the Bitcoin PoW network. As previously mentioned, validators are selected randomly to create and validate blocks and the probability of a validator’s selection is contingent on the amount of tokens staked. Participants in a PoS system can essentially vote in on-chain governance with their staked assets, and if PoS were a democracy a user’s stake would constitute their voting power.

In PoS Systems, Validators Are Selected Based On The Amount Of Tokens Held In Their Wallet – Image via Ledger.com

In fact, PoS validators vote with their assets on blocks of transactions that they deem valid. They receive staking rewards if the majority of the network agrees and risk losing their entire stake if they try to cheat, for example by voting on two different transaction blocks simultaneously. This system inherently creates a balanced infrastructure by encouraging a rise in the number of nodes and discouraging nodes from acting maliciously.

Furthermore, it is important to note that not everyone can become a network validator. This is due to the fact that validators need to meet specific requirements imposed by the protocol and, in most cases, the barrier of entry is rather high. For instance, in order to become a validator, one will potentially have to:

• Stake a minimum amount of tokens; In the case of ETH 2.0, a minimum stake of 32 ETH is mandatory.
• Set up a secure and performant infrastructure.
• Build a team of developers and engineers responsible for the continuous development and upgrade of the infrastructure.

Delegation

Owning a massive amount of just one digital asset may not be that appealing to many crypto aficionados out there. However, many PoS systems foresee this issue and implement ways to enable asset holders to stake their tokens with a validator that they do not run themselves. This process of staking assets through a validator is called delegation.

Validator And Delegator Intercommunication Process – Image via Ki Foundation Medium

Delegating assets to a validator entails contributing towards the count of the validator’s stake in return for a percentage of the staking rewards received. In practical terms, a delegator deposits tokens into a smart contract and specifies which validator’s influence in the network they want to increase. Consequently, as the rewards earned in the validation process increase, the staking rewards are automatically split between the validator and the delegator.

Staking Pools

A staking pool is a group of crypto asset holders aggregating their resources to increase their chances of validating blocks and receiving rewards. In a staking pool, holders combine their staking power and share rewards in proportion to their contributions in the pool.

Staking Pool Infrastructures Allow Holders To Pool Their Assets Together To Increase Their Chances Of Earning Higher Staking Rewards – Image via TopStaking

Setting up a staking pool often requires high levels of expertise and a substantial amount of initial capital and, as such, pool providers will most likely charge a fee from the staking rewards distributed to pool participants. Typically, the stake has to be locked for a specified period and usually has a withdrawal, or unbinding, time set by the protocol.

Furthermore, it is very likely that the staking pool will require participants to hold a minimum amount of tokens before they can be considered as potential contributors, which disincentivises malicious behaviour.

Liquid Staking

Apart from the traditional staking mechanisms discussed thus far, some DeFi protocols have started implementing an alternative staking format called Liquid Staking. The term Liquid Staking is used to describe protocols that issue token representations of staked assets, which creates the possibility to use these representations in other DeFi applications or gain immediate liquidity for the staked amount.

Effectively, Liquid Staking implies the creation of a new on-chain token to represent the staked amount, making staked assets essentially liquid and available for further trading. In addition, tokenised stake representation allows users to circumvent some of the limitations imposed by particular networks such lock-up and unbonding periods, for instance.

Liquid Staking And Tokenised Stake Representation Offer Crypto Investors The Possibility To Execute Additional Trades With Locked-Up Staking Capital – Image via Polkadotters Medium

Liquid Staking opens up a wide array of investment and trading opportunities for stakers as it allows for the creation of additional tokenised capital that can be redeployed in yield farming, high APY and liquidity provision protocols. Because of these advantages and functionalities, tokenised stake representation is proving to be a growing trend in the DeFi space, with projects such as Ramp DeFi, Kira Network, StaFi, Acala DeFi and LiquidStake spearheading the movement.

Staking VS Yield Farming

Given the incredible diversity of the crypto space, it is fairly easy to get caught up in all of its complexities and various definitions. Therefore, while staking and yield farming do in fact share some similarities, it is important to define the differences between them in order to avoid confusion when navigating the DeFi space.

Both staking and yield farming involve users providing liquidity to a protocol in order to gain rewards in return. Yield farming, also known as liquidity mining, is defined as the process of providing liquidity to earn ‘mining’ rewards. Liquidity mining, however, should not be confused with Proof-of-Work mining, which entails solving algorithmic equations to validate blocks.

Instead, when users provide liquidity to a decentralised exchange or protocol they provide assets such as ETH, for instance, so that when other users of the protocol want to exchange their USDC tokens for ETH, there will be enough of the quoted asset for the trade.

Staking And Yield Farming Are Quite Similar, However, Yield Farming Involves A More Active Process Of Searching For The Best Staking APYs On The Market

Consequently, the user making the trade will pay a fee to the protocol which, in turn, will reward the liquidity provider for supplying the asset in the first place. Yield farming, in a sense, is rather similar to staking but it actually involves the more dynamic process of actively moving assets around different protocols to essentially ‘farm’ the best rewards possible.

Generally speaking, staking is intended for medium to long-term investments, as the tokens are locked up for a set amount of time. In contrast to yield farming, staking is deemed the safer, less risky investment option and results in a fairly decent return on investment. Yield farming and liquidity mining, on the flip side, carry increased risks such as impermanent loss for example, and because of this they will usually result in some of the highest APYs in the crypto sphere.

A Visual Of The PancakeSwap Staking Protocol – Image via PancakeSwap.Finance

At the time of writing, providing CAKE tokens to the PancakeSwap protocol carries a yearly APY of approximately 95%, which is of course unheard-of in traditional financial infrastructures. Thus, while yield farming does indeed come with its risks, it also enables investors to gain access to unprecedented ROI percentages that they wouldn’t be able to find elsewhere.

In Conclusion

Staking is an umbrella term used to denote the act of pledging crypto assets to a cryptocurrency protocol to earn rewards in exchange. When users stake their assets in a protocol they are inherently contributing to the preservation of the protocol’s security, and they receive rewards in the form of native tokens for doing so.

Proof of Stake arguably constitutes a more sophisticated and scalable blockchain solution due to the fact that, as opposed to Proof of Work that utilises excessive energy to solve hash challenges, a Proof of Stake miner is limited to mining a percentage of transactions that is reflective of their ownership stake.

Therefore, while Proof of Work has proven to be a robust mechanism for validating transaction blocks, it is neither the most eco-friendly nor the most efficient processing method. Staking, instead, constitutes a less resource-intensive solution and allows users to validate blocks directly by becoming network validators or through delegation.

Network participants who have a substantial amount of initial capital can become protocol validators and receive staking rewards for verifying transactions, or they may even set up their own staking pool and open it up to potential contributors, charging a fee for their management services.

While the ROI inherent in most staking protocols could be deemed somewhat average for crypto, staking represents a great investment tool for people whose assets are just lying idle in a crypto wallet and aren’t generating any form of passive income. Thus, staking offers not only a more efficient processing mechanism but it is also a great way for investors to increase their crypto asset net worth over the medium to long-term outlook.

The post Crypto Staking: The Dividends Of Blockchain appeared first on Coin Bureau.

One of the metrics that clearly shows just how popular DeFi is and how much it’s grown is the Total Value Locked (TVL) in DeFi projects. You can see from the graph below just how much TVL has increased in 2020, and how it is holding strong above $40 billion in 2021.

One of the more interesting projects in Badger DAO and its BADGER token. The reason this project stands out is its use of Bitcoin in DeFi, which is something we haven’t seen in many projects, unless they are using wrapped Bitcoin.

Badger DAO has also taken its lead from Yearn.finance in some ways by following the “fair token launch” model when releasing the BADGER token. This model gives the community ownership of the project right from the start rather than selling tokens off to investors who really have no interest in the project other than its profit potential.

Also helping in this DeFi space is the increased demand that’s been occurring for Bitcoin on the Ethereum blockchain (the wrapped Bitcoin previously mentioned).

Just a few months after launch and Badger DAO has over $40 billion in TVL. Image via DeFiPulse.com

There are many blockchain proponents who claim that Bitcoin is the soundest form of money ever created. They believe it is both the soundest method of collateral and the best method of exchange. However Bitcoin usage in DeFi has always been confined to the small Bitcoin ecosystem, at least until it became possible to “wrap” Bitcoin in an ERC-20 token that can be used on the Ethereum network.

Since the invention of wrapped Bitcoin we’ve seen the amount of Bitcoin on the Ethereum network increase dramatically.

While this has been helpful in some respects it certainly isn’t ideal, and not least of all because the infrastructure currently in place for using Bitcoin on Ethereum remains new and quite undeveloped. That means minting wrapped Bitcoin remains dependant on centralized platforms and all the custody, trust, and KYC requirements that come with those platforms.

The good news is that you can use Bitcoin in DeFi as there are many borrowing and lending protocols that use synthetic Bitcoin as collateral, however the bad news is that there are very few large liquidity pools available to trade this synthetic Bitcoin.

So, with the increasing growth in DeFi and all the current challenges faced by Bitcoin holders who wish to participate in DeFi, the team behind Badger DAO was motivated to find a better way to include Bitcoin in the DeFi revolution. We’ll take a deeper look into how that works just below.

What Is Badger DAO?

You might already be familiar with the term DAO, which is an acronym for decentralized autonomous organization. So, the Badger DAO has been created with a decentralized governance structure that puts the community in control of the project right from the start.

And, Badger DAO is attempting to build out the infrastructure needed to accelerate the use of Bitcoin in decentralized finance, and across Ethereum and other blockchains.

Badger DAO wants to bring Bitcoin to DeFi. Image via YouTube.

The original Badger DAO development team designed it as a complete ecosystem that will allow projects from any DeFi protocol to collaborate and build joint products. Because Badger DAO was created with a DAO governance structure it’s possible for developers to align their incentives with the decentralized governance, no matter what project they are working on. The thought is to create a spirit of collaboration in the DeFi ecosystem rather than one of competition.

Also, one of the primary goals since the inception of the project has been to make sure that Badger DAO will be community led and governed right from the beginning. Community governance will make the decisions regarding new products, and the community governance will be responsible for ensuring fair distribution of BADGER tokens to all participants. All of this shows how committed the founders are to a community-first approach that is transparent and fair for everyone.

The key to success for the project will lie in how successful they are in attracting all the liquidity needed, not to mention the content creators and coders that will need to join the community to keep Badger DAO moving forward.

The greater numbers and broader diversity of skillsets will be of great benefit to the project and to everyone involved with it. Plus, the community members have the greatest stake in the success of the project as the revenues generated will create profits that will be distributed to those who contribute most to the growth of the DAO.

How DAOs are Meant to Work

A few years ago DAOs were quite rare, but their formation has increased as projects see that community led governance is preferable to centralized control. In a way this has led to the transformation of governance tokens to a type of new utility token.

How a DAO is Structured. Image via Dev.to

There’s an ideal when designing a community led DAO, however in the real world DAOs don’t typically attract much participation from their communities. There are lists of reasons why this is true, including the gas fees associated with voting on-chain.

In many cases the lack of participation is simply due to a perceived lack of ownership or responsibility to the DAO. Voting and community participation are a nice ideal, but become useless when most ignore them, or worse when proposed changes are dismissed and disapproved out of hand. If the vote doesn’t matter, and there’s little chance of change, people quickly lose interest.

Venture DAOs

The Badger DAO founding team believes that the most activity in DAOs can be seen in Venture DAOs. It seems clear why this might be the case since not only are such DAOs responsible for every aspect of the business and platform, but they also have an incentive to see that the protocol and products perform well. DAOs that are more product focused could learn how to maintain an engaged community and share the value created by their products by taking some lessons from Venture DAOs.

While creating a DAO is the “in” thing to do, Badger DAO didn’t decide to create a DAO just to be trendy. They have a real desire to build a community that will foster an environment of collaboration, and will be able to share their goal of bringing Bitcoin fully into the DeFi ecosystem. They want to be more than just a legally formed organization, and more than the usual DAO that claims to foster community, but never seems to be capable of building one.

Partial architecture of the DAO. Image via LinkedIn.

That’s why the team will be keeping shared ownership of the platform as one of the cornerstone’s, and why all of the products will be launched by community members. In addition, any value that is created through fees and revenue will also flow back to the product creators and to the holders of the BADGER token.

One issue here is that at times the split of rewards might not be entirely clear cut. For example, some questions might arise regarding which community members first proposed which ideas. Or suppose a product is fully funded by a DeFi protocol, including the provisioning of developer talent to the project. In this case there would need to be some accounting of the resources being allocated to the project, and a determination needs to be made as to the appropriate rewards.

It may not be clear cut now, but it is very early in the development of Badger DAO and it is likely that many of these issues will be resolved in a manner that is suitable and acceptable to the majority of the community.

Badger Builders

The Badger Builders are the lifeblood of Badger DAO. This is the group of community members who are collaborating with other developers and creating new products within the Badger DAO ecosystem. Badger builders don’t have to be individuals either, they can be a group of developers or even an entire company.

Anyone can be a Badger Builder. Image via Badger blog.

The great thing for the Badger Builders is the lack of participation requirements to benefit from being part of the DAO. Anyone who wants to can become a Badger Builder and help to create something great using their skills with open-source code and a handful of governance tokens

Pitching New Products

It isn’t just the building of products that’s open to anyone either. Any community member is free to pitch new product ideas in the Badger DAO Discord channel. They will get feedback on the idea, and can also find partners to collaborate with.

If a proposal is made and the community shows interest the proposal can be developed further, followed by an off-chain vote to determine if the idea should be put forward to the entire community. If it’s decided to move forward the final step in an on-chain vote to get approval for the project.

Whenever a project is approved the development team will get involved to help fund the project, build it, and then market it. Off-chain voting on the Telegram and Discord channels are used to determine solutions for any product or operations related issues. The governance was designed in this way to keep from isolating individuals when they make proposals. Instead it is hoped that contributors will join together and contribute some of the most amazing DeFi products ever.

Collaboration

The developers at Badger DAO are really waiting just to collaborate with anyone who has an idea for something that’s going to be cool and potentially profitable. As the project gains momentum they hope that not only individual developers will join in, but also entire DeFi protocols.

This type of collaboration is just what the DeFi ecosystem needs to discover the best products. And that’s why Badger DAO is kept open for any individual, developer, team, or company to participate. And every product released will be transparent and fair, and hopefully profitable for everyone involved in its creation.

Collaboration is expected to help Badger Builders make something great. Image via IvanonTech.com

The Badger DAO team has a sincere belief that a community can come together and build products that improve on anything a centrally controlled organization might make. Plus the Badger DAO treasury provides the funding for the new projects, and the BADGER token can be used to incentivize new users in the post-launch phase of any project.

BADGER Token Launch

Badger has taken the same direction as Yearn.finance when launching their token, making it clear that the BADGER token has no monetary value and that it is meant strictly for DAO governance purposes. And also like Yearn the BADGER token got started with a fair liquidity mining launch.

What that means is that at no time was there centralized control over the protocol. There were no early investors, no VC funds, and no anonymous backers who could cause the token to crash at a later date if they choose to dump all their holdings.

The BADGER token launch was truly fair. Image via Badger DAO blog.

All of this means that Badger DAO is avoiding the bad examples and mistakes of many blockchain projects that launched under sketchy circumstances, or gave control over 90% of the project token to the founders, advisors, and early investors. Plus all of the smart contract code and systems have been fully audited by the third-party auditing firm Zokyo to ensure that they are secure and with no hidden flaws.

There’s no anonymity to hide the team. They are fully transparent and publicly known. They are holding 10% of the token supply to maintain connection with the project. There is also 35% of the token supply that was held for the community to decide on distribution. These funds can be used for things such as partnership incentives, operations, more liquidity mining, or many other things, but only after the community votes and approves the use for the tokens.

Because control of the project and the tokens is being given to the community right from the beginning one thing you won’t find on the Badger DAO website are charts and tables showing the percentage being allocated to VC funds, angel investors, early advisors and such. Instead the community will determine how to use the Badger tokens right from the start of the project. Given that the token is up roughly 600% since launch that could have been the right decision.

Time-Locked Founder Rewards

As mentioned above there are 10% of the total BADGER supply that’s been allocated as founder rewards. These tokens are meant to incentivize success from the founding members, and they will be incrementally distributed to public wallets.

In addition, the founder rewards have a 1-year time lock that releases tokens on a weekly basis over the course of 52 weeks. This is to prevent the founders from dumping a huge amount of BADGER tokens on the market all at once, thus driving the price down significantly.

Badger DAO’s SETT Vaults

Badgers are animals that fiercely protect themselves and their loved ones from larger animals. That’s why Badger DAO chose the name to advocate for that same kind of fierce unity and the desire to create. The real badger builds homes out of leaves and grass and these homes are called Setts. They are built to last, and can provide a home to generations of badgers over decades of use.

Badger DAO wants to provide a home for its user’s crypto holdings too, and as a result the first product created was SETT, and automated DeFi aggregator. Because Badger DAO was created with a focus on Bitcoin products the SETT vaults are modeled after Yearn.finance vaults, but they exclusively use tokenized Bitcoin. SETT is also planned to be the only way for users to earn BADGER tokens, although that could change with a governance vote.

Sett automated Bitcoin yield strategies. Image via Badger.finance

As with any other DeFi vault setup, users can deposit assets and earn yield in return. These assets are put into smart contracts which then execute a variety of strategies that put the assets to work across the universe of DeFi protocols. This allows BTC holders to optimize the yield they receive for their tokens without engaging in the mental acrobatics and effort required to execute the typical yield farming strategy manually.

For an unspecified limited amount of time users can deposit into SETT vaults to earn both yield and BADGER tokens. Those who stake for an extended period of time enjoy the benefit of a multiplier being applied to their rewards.

At this time there is a 0.5% withdrawal fee for taking funds out of the vaults, but there is no lockup period. There is also an additional 4.5% fee levied on any profits made. These fees are meant to cover transaction fees and gas costs.

Launching Badger DAO SETTs

At launch there were five SETTs created. Four of these were for compounding strategies: Curve – SBTC, Curve – RENBTC, Curve TBTC, and Badger – WBTC. In addition to those four there was a fifth SETT strictly for staking BADGER to earn more BADGER.

Since that time an additional 6 SETTs have been added, including one to stake DIGG to earn more DIGG.

An increasing number of ways to earn staking rewards. Image via app.Badger.finance

The SETT vaults are only several months old and are understandably still in the very early stages of development. But it seems pretty sure that new strategies and innovations will be coming rapidly as the community continues to grow.

There’s no saying just what will be created next, but some possibilities are single asset vaults with multiple strategies, native BTC deposits, other compounding strategies, and strategies that will help to protect against Bitcoin price volatility.

Badger DAO DIGG

The second product launched by Badger DAO is a community project that’s called DIGG. It adds to the list of Bitcoin synthetics, but unlike other platforms it is non-custodial.

Digg – An elastic supply cryptocurrency pegged to Bitcoin. Image via Badger.finance

Basically you could think of DIGG as a stablecoin, since it is an elastic supply cryptocurrency pegged to the price of Bitcoin. Every single day the supply of DIGG is adjusted across all of the wallets holding the token. Those adjustments occur based on the value of DIGG versus the U.S. dollar and Bitcoin.

In practice this means that when DIGGs price rises relative to Bitcoin the amount of DIGG tokens in each wallet will increase. And conversely if the value of DIGG declines versus Bitcoin the amount of DIGG in each wallet will decrease. Also in play is a price oracle that’s summoned each day to determine whether the supply of DIGG should be increased to depress the price, or decreased to boost the price of DIGG.

The goal of the DIGG project is to remove centralized control over synthetic Bitcoin assets and deploy elastic parameters as an alternative means for maintaining the peg. And the protocol does far more than simply maintaining a peg. It can also add new incentives to influence price and send it higher or lower, and it is capable of rebasing each block.

The DIGG token also has a SETT vault where users are able to stake and earn more DIGGs.

Of the tokens that were not distributed during liquidity mining, 50% are controlled by the Badger DAO. With their first product, $BADGER token holders will govern things like the token supply, future smart contract changes, marketing decisions, and protocol parameters for present and future projects built by the DAO.

bBadger Tokens

When staking BADGER users receive bBADGER tokens which are a composable yield farming token. In addition, staking rewards are also delivered in bBADGER, making the rewards for staking auto-compounding. This should encourage even greater lockup for the token since no gas is required to stake, but is required to unstake. Indeed, BADGER is seeing a lockup rate in excess of 90% since the decision to make bBadger auto-compounding was passed by the DAO.

bBadger is a composable DeFi asset. Image via Badger DAO blog.

Currently the Badger DAO team is working on adding utility to bBADGER tokens by integrating them as a collateral type for other DeFi protocols. This will allow users to mint stablecoins on UMA and earn additional yield. It’s also seen the token added to the CREAM platform, where it will allow users to borrow assets using bBADGER as collateral. This effectively allows speculators to long/short bBADGER with leverage.

There has also been a proposal to create liquidity pools for CLAWS on the Sushi platform, and create additional Sett Vaults for SLP tokens that will be created to use as collateral for stablecoins.

Basically all of the proposals being made in connection with bBADGER at this time are ways to add yield on top of yield. The intention is using the composability of bBADGER to create passive income money machines with a wide variety of income sources.

CLAWS

While CLAWS has been described by some as a stablecoin, it is essentially a “yield dollar” rather than a stablecoin. Essentially, a yield dollar is a collateralized asset with an expiration date. Once the yield dollar expires, it can be redeemed on the UMA protocol for $1 worth of its collateral. Until expiration, the market determines the price of the asset — but generally it should approach $1 as expiration nears.

You’ll enjoy sinking your CLAWS into this new yield dollar. Image via Badger DAO blog.

Yield dollars like CLAWS are collateralized assets. That is, they are minted when a user puts up some collateral at a set loan-to-value ratio. In the case of CLAWS, there are two collateral types of collateral that can be used to mint tokens — bBadger and wBTC/ETH SLP tokens. This will be the primary method for obtaining CLAWS tokens, although they can also be purchased on the open market. Speculators will need to take care if purchasing CLAWS on the open market however, bearing in mind that the token will approach $1 as it gets closer to expiration.

One of the wonders of DeFi composability is the ability to earn multiple forms of yield with the same base assets — maximizing your potential returns. This is the case with CLAWS. Once a user mints CLAWS tokens, they will be able to deposit their CLAWS into a Sushiswap Liquidity Pool and receive CLAWS-SLP tokens in return. These CLAWS-SLP tokens can then be staked in a dedicated Badger Sett vault to earn additional rewards (in the form of additional UMA, xSushi, bDIGG, and bBadger).

In total, CLAWS Sett vaults have nearly 10 sources of income — making it a diversified basket of passive incomes unto itself. Ultimately CLAWS Sett vaults are going to change the yield farming game by providing a stable asset with multiple yield streams.

Badger DAO Team

Because the project is under the control and governance of the community there isn’t a huge spotlight put on the founding members. That said, there are four founding members who brought the Badger DAO project to life in an effort to include Bitcoin in the DeFi revolution. Those four are:

The four founders of Badger DAO. Image via Badger DAO blog.

• Chris Spadafora is the operations lead. He’s a serial entrepreneur who has founded a number of companies over the years. His latest project prior to Badger Dao was Alwayshodl.com. He is also a partner at Angelrock, a company that provides strategic consulting for long-term crypto holdings.
• Ameer Rosic is also part of the operations team at Badger DAO. Another serial entrepreneur he is the founder of Blockgeeks.com. He is also an integral part of Dollarcake, a browser extension that can be used to monetize social media networks.
• Albert Castellana is the co-founder and CEO at Stakehound.com and serves as the product advisor for Badger DAO.
• Alberto Cevallos is the technical advisor for the project. He also advises Travala and is the founder of Metl, a company engaged in creating the infrastructure for the internet of money.

BADGER Market Performance

As mentioned previously, the Badger DAO team was very clear in stating that the BADGER token has no value and is simply meant as a governance token for the network. Still, people will speculate, and after the token was released it soon had a price of $6-7. Over the next 5-6 weeks the price remained range bound, trading between $7 and $10 for the most part.

A breakout occurred at the end of January 2021, with the price of BADGER surging from roughly $11 in the final week of January to an all-time high of $89.50 on February 9, 2021.

Badger DAO price history. Image via Coinmarketcap.com

Since that time price has pulled back, finding support several times in the $39-42 range. As of March 12, 2021 the BADGER token is trading at $41.80, so we will have to see if support holds yet again for the token, or not.

The token has been listed on a number of major exchanges already, and the top trading volumes are occurring at Binance and at Huobi Global. There’s also good volume and liquidity at Uniswap, which is an improvement over the first few weeks of trading for BADGER.

Conclusion

As with any blockchain project the proof of whether it becomes viable or just another has-been will come down to adoption. In the case of Badger DAO much of this will depend on the community and the ability of the team to foster the collaboration that’s so important to the platform. It needs developers and content creators to publish apps and other content such as videos, memes, and art, but it also needs community to consume these products.

In looking at the growth of the token and the TVL for the project it seems to be succeeding, but it is very new. A few months of history is certainly not long enough to let us know what the long-term will bring. In the case of Badger and its fully decentralized DAO governance model you can’t even rely on the project leaders to make a success of the project, since there are no leaders.

Badger DAO is off to an excellent start, and if it can continue with the momentum its generated it could find itself as one of the top DeFi projects. Certainly there are enough users who can benefit from the platform that’s brought DeFi more fully to the Bitcoin ecosystem.

Featured Image Via Shutterstock

The post Badger DAO Review: The Bitcoin DeFi Platform appeared first on Coin Bureau.

Hailed as one of the most decentralized projects in cryptocurrency, the yearn.finance protocol aims to simplify DeFi while simultaneously providing users with the highest possible annual percentage yields (APY) on their deposited cryptocurrencies.

The dashboard on yearn.finance. Image via Yearn Finance

Yearn.finance’s YFI token is referred to by some as the Bitcoin of DeFi and is responsible for the face melting 2000%+ APY which early users of the protocol capitalized on. Couple this with nearly 200 million USD of assets locked in the protocol and you have a recipe for some serious hype. Thousands are tripping over themselves to get a slice of the YFI pie and by the end of this article you will know why!

Who made Yearn.Finance?

Yearn.finance was created by rogue programmer Andre Cronje. After dropping out of the college where he was studying law, he completed a 3-year computer science program in just 6 months which landed him an offer to teach at the institution which offered the course. Instead, he dove into the private sector, working in insurance, fintech, big data, and distributed ledger technologies (centralized blockchains).

While his colleague was away on honeymoon, Cronje started researching cryptocurrencies and claims that if his colleague had never gotten married, he would have never gotten involved in the crypto space.

Andre Cronje, the creator and lead developer of yearn.finance. Image via YouTube

Although Cronje believes most cryptocurrencies are too volatile and speculative to seriously invest in, he is nonetheless fascinated by decentralized finance protocols and the incredible yields offered for stablecoins deposited onto these platforms.

Cronje began investing his and others’ money into these protocols and would manually move the funds to the platform/stablecoin combination that provided the highest APY. He was in the middle of developing a program which would automatically switch between DeFi protocols to optimize yield when he realized he could scale it up and make it public. He began working closely with Curve Finance and Aave to create what would become known as iEarn.

An illustration of the idea behind yearn.finance. Image via YouTube

By this time, Cronje was well known in the cryptocurrency space for his in-depth code reviews on Medium. He became so influential that the reviews he did for Crypto Briefing were for a time considered to make or break a project in the eyes of many in the crypto community.

Cronje believes that DeFi has become so complicated that it has become nearly impossible for the average person to interact with, hence the focus around a simple and intuitive user experience which is central to the now rebranded yearn.finance (AKA yEarn) which was launched in February of this year.

Cronje also aims to make yearn.finance the safest DeFi protocol available, recently proclaiming that he was the first one to put his funds into it and he will be the last one to take his funds out.

The user friendly interface of yearn.finance. Image via Yearn

Cronje is passionate about open source technologies, refuses to shoulder any credit for the protocols he has created, is obsessed with dissecting the code of other DeFi platforms in an objective manner, and remains incredibly active in the community and the development of yearn.finance.

In his own words, this requires “hating yourself more than the thing you are building”.  Most importantly, when the YFI token was created, he did not keep any of it for himself as is often done in many cryptocurrency projects (though he did farm some of it as a regular user). Cronje also pronounces the YFI token as “waifu” and insists it has 0 value.

What is Yearn.Finance?

Yearn.finance is an ecosystem of protocols built on Ethereum which aims to simplify user interaction with popular DeFi protocols and maximize the annual percentage yields (APY) of cryptocurrencies deposited into DeFi.

The most popular protocol within this ecosystem is yearn.finance (same name) which automatically moves user funds between DeFi lending protocols such as Compound, Aave, and Dydx to maximize APY. The entire yearn.finance ecosystem is community developed and community governed via the YFI token.

The yearn.finance logo and icon

Other protocols in the yearn.finance ecosystem include: ytrade.finance, which allows users to long or short stablecoins with 1000x leverage, yliquidate.finance, which uses flash loans in Aave to liquidate funds, yswap.exchange, which acts as a single source from which users can manually deposit funds to and between various DeFi protocols.

Finally, you have iborrow.finance, which involves tokenizing debt in other protocols with the assistance of Aave so that it can be used in additional DeFi protocols. At the time of writing, only yearn.finance and yswap.exchange are live. The others remain in testnet phase.

What is YFI cryptocurrency?

YFI is an ERC-20 token used to govern the protocols within the yearn.finance ecosystem. YFI tokens can be earned by interacting with these protocols. There is a max supply of 30 000 YFI tokens and there was no ICO or pre-mine. You can earn YFI tokens is by providing liquidity to one of yearn.finance’s platforms (or buy the token from an exchange). The last YFI token was issued in the ecosystem on July 26^th.

The YFI cryptocurrency icon. Image Source

The yearn.finance community is currently in the process of releasing a new supply of YFII tokens (not a typo – there are two Is) as a means of further incentivizing users to provide liquidity to the yearn.finance ecosystem. YFII is a ‘fork’ of YFI and has a max supply of 60 000. The entire supply of YFII tokens will be distributed over the course of 10 weeks in the same manner as the original YFI token (more on this later).

How does Yearn.Finance work?

The perceived complexity of yearn.finance could be said to be due to the lack of available documentation about the protocol. The clockwork inside yearn.finance is actually remarkably easy to understand compared to other DeFi projects. Given that yearn.finance is commonly used to refer to the protocol of the same name within the yearn.finance ecosystem, this is the one we will focus on in this article.

As mentioned previously, yearn.finance moves stablecoin funds between Compound, Aave, and DyDx depending on which stablecoin asset pool is generating the highest APY. Yearn.finance currently supports DAI, USDC, USDT, TUSD, and sUSD. Since yearn.finance is community governed, the lending protocols it switches between as well as the list of supported cryptocurrencies may and likely will change over time.

A technical illustration of how yearn.finance works . Image via Twitter

When a user deposits a stablecoin into yearn.finance, it is converted into an equivalent amount of ytokens (e.g. DAI into yDAI). These are known as “yield optimized tokens” and can be used to earn YFI tokens.

Yearn.finance however, takes the original funds deposited into the protocol and automatically shuffles them between Compound, Aave, and DyDx pools with the highest yield. The protocol also takes a small cut which is deposited into the yield.finance pool which is only accessible to YFI token holders.

How to Earn YFI(I) cryptocurrency

Before we get into the 3 ways of earning YFI (and YFII), let us take a minute to examine what is going on behind the curtains. Recall the ytokens mentioned in the previous paragraph. These ytokens can be sent to the ypool in Curve Finance, which is a DeFi protocol that allows you to easily trade between stablecoins with low slippage (good exchange rates).

An illustration of how yearn.finance interacts with Curve Finance. Image via YouTube

Since Curve Finance incentivizes liquidity mining, this gives you a return in yCRV (yCurve) tokens which are generated for providing liquidity to the Curve Finance protocol. Initially, these rewards were “stuck” in Curve Finance.

The YFI token was created by Cronje to allow users to ‘trade’ the yCRV which their funds were accumulating in the yCRV pool in exchange for governance over the yearn.finance ecosystem.

There are three ways you can earn YFI (and YFII). The first is one was mentioned in the previous paragraph and involves depositing your yCRV into the yGov pool in yearn.finance. The second involves depositing a 98%-2% mix of DAI and YFI into the Balancer protocol in exchange for BAL (Balancer protocol) tokens. These BAL tokens are then despited into yGov in exchange for YFI.

The different protocols within yearn.finance. Image via DeFiRate

The third method involves depositing a mix of YFI and yCRV into Balancer in exchange for BPT (Balancer pool) tokens which are then deposited into yGov and accrue YFI tokens. When YFI was created, it was designed so that each of the 3 pools would have 10 000 YFI tokens up for grabs. As mentioned earlier, all YFI tokens were farmed by July 26^th, roughly 10 days after the token was introduced.

This might all seem confusing but should be easy to understand if you view it through a proof of stake lens. The difference is that instead of staking some cryptocurrency in exchange for the block rewards of said cryptocurrency, you are essentially staking the tokens being given to you by Curve Finance and Balancer in yearn.finance in exchange for governance over yearn.finance. If you are still having trouble understanding how this works, you can watch this useful video (we had to watch it twice).

Yearn.finance Governance

The elements involved in yearn.finance’s governance are a bit trickier to pin down, primarily due to the fact that the details about them are scattered across various yearn.finance Medium posts. For starters, 1 YFI token is equal to one vote.

The yearn.finance community governance board. Image via Yearn Governance

Proposals to the yearn.finance ecosystem can only be tabled if 33% of YFI token holders agree to do so. If this minimum requirement is met, it can be vetoed if more than 25% of YFI token holders oppose the proposal. If approved for voting, more than 50% of YFI holders must vote in the affirmative for the proposal to pass and for the changes to be made to the ecosystem or protocol.

This is where things get interesting. The only YFI holders which can vote are those which have deposited their BPT tokens into the yGov governance pool (the third way of earning YFI noted in the previous section).

This is perhaps why Cronje refers to this governance system as “meta governance” – it involves not only holding the YFI token, but putting yourself in a position of higher risk and vulnerability by having your assets custodied by about half a dozen DeFi protocols which interact with yield.finance.

A recent vote in yearn.finance. Image via Twitter

Perhaps the most interesting element about yearn.finance’s initial governance was that YFI token holders could burn their YFI tokens in exchange for the equivalent percentage of funds currently locked in the yearn.finance rewards pool (e.g. if they hold 30% of the YFI supply they can burn it in exchange for 30% of the accumulated assets in the rewards pool).

This was noted earlier in the article, but the actual process of withdrawing funds is a bit more complex. When a YFI token holder requests their share of the pool, the equivalent percentage of funds from the pool are sent to a vault contract which converts them into aDAI, Aave’s interest generating DAI token. These tokens can then be sent to Aave to be redeemed for regular DAI.

The Yearn.Finance Roadmap

Given that the yearn.finance protocol has only existed for a few months and that governance has only existed for about one month at the time of writing, there is not all that much to say regarding roadmaps. In an interview with Cronje, he describes his development of DeFi protocols such as yearn.finance as a sort of manic episode, with almost all of the groundwork for the protocol being created in the span of a few weeks.

The rapid succession of Medium posts relating to the protocol and the ecosystem is evidence of this – almost all of the information about yearn.finance was posted in the same week.

Yearn.finance has recently transitioned to yearn.finance v2 (AKA yEarn v2). Image via DefiRate

Cronje created the YFI token to usher in a new era of community governance not based on principle, but because he and the other core developers were “lazy and don’t want to [manage the ecosystem]”. Yearn.finance improvement proposals (aka YIPs) are what have been driving the development of the ecosystem since community governance was introduced.

A recent YIP to increase the supply cap of the YFI token failed to reach the 33% vote quorum and resulted in the ‘forking’ of the YFI token into another token called YFII. This was intended as a means to continue incentivizing users to provide liquidity to the protocols within the ecosystem (the assets deposited into yearn.finance dropped by over 60% in the day after the last YFI token was farmed).

In an amusing document created by the yearn.finance community, they explain that the YFII token will be distributed in a similar manner to YFI but will instead have a total supply of 60 000 and see the token emission halve every week, with 10 000 tokens being distributed to each pool in the first week and then seeing a 50% emission reduction on a weekly basis until all 3 pool distributes 20 000 tokens each.

The main image of the document announcing yearn.finance v2

The YFII token does not appear to play a role in the governance of yearn.finance, but this is something that the community could vote to change in the future.

The most notable changes in yearn.finance’s new stage, yEarn v2, involves adding more assets to the ecosystem and introducing a sort of gamification mechanism to incentivize the creation of more efficient yield farming strategies for yield.finance.

In short, anyone can propose a new strategy. If accepted by the community, the proposer gets a cut of the interest generated whenever their strategy is currently in use by any of the protocols within yearn.finance. You can keep track of ongoing YIPs via yearn.finance’s Twitter account and the yEarn governance forum.

YFI Cryptocurrency Price Analysis

The YFI token has not even been on the market for more than a month and has already hit an astounding price of 4900$USD. What is remarkable is that the price continues to appreciate even though all the tokens have been issued and are already in circulation. Besides a ‘slight’ pullback from 3900$USD to 2800$USD on the day before the last YFI token was issued, YFI has been in a visible uptrend since it was issued and does not seem to be slowing down.

The price history of YFI cryptocurrency. Image via CoinMarketCap

One interesting thing to note is that the circulating supply of YFI is almost equal to the total supply. Only 51 YFI tokens are not in circulation according to CoinMarketCap. It is worth noting that it is possible that these 51 tokens no longer exist since it is possible that someone decided to burn their YFI tokens in exchange for some DAI from yearn.finance’s bountiful asset pool/treasury before the burning function was voted away.

YFII  (bonus round!)

Since you have made it this far through the article, it would be a shame if we did not at least touch on the price performance of the recently issued YFII token. Introduced to crypto markets less than two weeks ago at a price of nearly 1000$USD, it settled down to around 130$USD per token within days.

The price history of the YFII cryptocurrency. Image via CoinMarketCap

The price looks to be relatively stable over the past week and shows no clear trend to the upside or downside.

Where to buy YFI Tokens

Given that yearn.finance is on the cutting edge of DeFi, it should come as no surprise that the best place to get YFI tokens is on decentralized exchanges. It appears that Uniswap is your best bet, accounting for more than 40% of YFI’s 24-hour trading volume with just the YFI/WETH (wrapped Ethereum) trading pair.

If you prefer centralized exchanges, Poloniex and CoinEx are the only reputable exchanges currently offering YFI token trading pairs. Note that the trading volume on the latter is quite limited.

YFI Cryptocurrency wallets

Since YFI is an ERC-20 token, you can store it on just about any wallet which supports Ethereum-based assets. If you like to keep your YFI super secure and do not plan on trading it any time soon, consider getting your hands on a hard wallet such as Trezor, Ledger, or Keepkey.

Get your Ledger Nano X From the official store

Software wallets are ideal if you plan on moving your YFI around or simply do not want the hassle of keeping track of a tiny USD device. Reputable software wallets for YFI cryptocurrency include Atomic Wallet (mobile/desktop), Exodus wallet (mobile/desktop), and Coinomi (mobile).

Our YFI connection (Our Ppinion of yearn.finance)

Yearn.finance may very well mark the dawn of a new era for DeFi. Cronje really hits the nail on the head when he says that DeFi has become too complicated for the average person to use, much less understand. Furthermore, the protocols used within DeFi are so complex that even if they are open source, it makes them practically impossible to properly audit.

Yearn.finance is bringing a much-needed level of actual community governance to DeFi while also providing some impressive returns on investment with (relatively) low risk. That being said, the risk within DeFi remains high, even in yearn.finance protocols.

The amount of funds locked in the yearn.finance protocol. Image via Defipulse

This is especially true when you consider how overextended your funds are when you interact with the yGov using BPT tokens. You are essentially playing with a derivate of a derivative of a derivative of an underlying asset. If anything goes wrong in that chain, you risk losing your funds.

In what may be a first for a cryptocurrency which has compared to Bitcoin, the price of YFI seems to be on its way to hitting a similar USD valuation. Whereas many other governance tokens could be said to be more speculative, the price of the YFI token might be dependent on the total amount of assets locked in the yearn.finance pool.

While the future of yearn.finance is fuzzy, it will provide what is perhaps the first real experiment in decentralized finance that the world has ever seen. While the likelihood that the DeFi protocols we see today may not be here tomorrow, yearn.finance will forever mark a watershed moment in DeFi for many and with good reason: it is a fully functioning proof of concept.

Here is to hoping yearn.finance will still be around for many years to come!

Featured Image via Shutterstock & Yearn Finance

The post Yearn Finance Review: DeFi Profit Maximiser appeared first on Coin Bureau.