The recent liquidity mining boom brought by uniswap on Defi has become a sudden hot spot in 2020. Even at the beginning, few people were discussing uniswap, ampleforth, compound, YFI, Curve, Sushi and other various gameplays with potential. With the gradual increase in the number of participants, the number of people asking questions is also increasing. Today we will analyze where are the fundamental stakeholders in Defi liquidity mining, and who earns whose money? Who took whose plate? Here we go:
1. First of all, we need to understand a concept, what is liquidity mining (Liquidity)?
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Mining such as ASIC mining machines and graphics cards such as ETH provides computing power for the network to maintain the network and obtain block rewards. Due to the increase in the computing power of the entire network in recent years, the difficulty has increased, and the proportion of personal equipment in the computing power of the entire network has dropped sharply, resulting in a decrease in mining efficiency. Therefore, a mode of making money together with centralized computing power such as mining pools and hosting has emerged (pay attention to understanding here, Liquidity mining actually has a similar revenue model curve)
PoC such as Filecoin maintains the network through the computing power of the hard disk graphics card and the storage capacity of the hard disk, so as to obtain block rewards. Its logic is similar to PoW mining, except that the computing power is changed to storage power, and other hardware is used to increase the performance of the equipment.
Therefore, in the same way, liquidity mining is to provide transactional liquidity (the volume of LP tokens mortgaged) for the entire ecology to make the transaction exchange smoother and smoother, so as to obtain rewards, which can be simple Understand it as a kind of market maker.
Therefore, the essence of the three is to provide greater help to the network ecology, so as to obtain rewards. From this point of view, it can also be seen that in the ecology of BTC, ETH, and PoC, very early individuals and large-scale The participating miners and large institutions may be the biggest beneficiaries of benefits.
This model is actually the original intention of the founders of YFI, Curve, etc., to select the optimal interest pools through aggregation and provide liquidity for these pools, so as to obtain rewards such as transaction fees and corresponding tokens. However, the inexplicable madness of these Defi tokens has gradually evolved into a feast of joy and sorrow that has skyrocketed and plummeted. It really temporarily closes your eyes, a toast to freedom and a toast to death, the atmosphere begins to heat up, and the danger And charming, really wanna dance tonight, feel a little bit dangerous.
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2. Steps to participate in liquidity mining:
Taking Uniswap built on Ethereum as an example, the basic and simple steps are as follows:
Buy ETH tokens on centralized exchanges (Huobi, etc.)
From the exchange to the online wallet supported by the platform, metamask (little fox), coinbase wallet, etc.
After connecting the wallet with the Uniswap platform Connect, click on Liquidity, select the currency you want to participate in, and look at the proportion you want to participate in and the number of tokens required (take Sushi as an example in the figure below)
Through uniswap, exchange ETH, etc. into the corresponding amount of the currency that you want to provide liquidity (Sushi, USDC etc.), if you can’t find the currency, then enter the contract address of the currency
After success, click on Liquidity to participate in liquidity mining according to the proportional demand, and deduct handling fees and the like.
After the liquidity is successfully added, the so-called UNIV2-LP token is generated, and after Approve these LP tokens in sushiswap and other corresponding platforms, participate in mortgage staking, and the configuration of liquidity mining is completed.
We can see that the steps are not particularly complicated, but there are often minor problems on the way, such as congestion pending, and the handling fee is expensive to about 15$ for a small step. Decentralized platform, very little guidance information, etc. If you make a wrong step, you may not know where your coins are transferred. After a process goes down, the handling fee is estimated to be deducted around 100$ at present.
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3. Analysis of the benefits of participating in liquidity mining:
From the above table, we can clearly see the role of each different role in liquidity mining and the source of profit. Basically, the biggest profit point lies in the fact that the large households and large institutions that mine the head mine may have started secretly Dig the project side here. As for the source of profit, it must be the cash flow brought by Houlang’s takeover. The taker actually knows that he may be buried when he takes over the deal, but he also participates in this feast with a speculative mentality and the mentality that I am not the last wave. .
If we look back at the examples mentioned earlier in our article, market makers actually earn stable spread fluctuation fees and win by volume, so why does Defi liquidity mining produce such a large appreciation and fluctuation of currency prices? In my personal opinion, it is mainly because of the following points:
Good story, the concept of Defi is indeed a brand-new concept with a lot of room for imagination, and it is difficult to value it if you can imagine it
There is a cognitive threshold, even a 13-year-old leek may not necessarily understand how to play liquidity mining. The leeks and newcomers in the secondary market are even more confused, and the FOMO mentality begins when they look at the currency price
Promoted by centralized exchanges, major exchanges have basically launched a Defi observation section, which has promoted investors attention
The Swap spread is relatively large and not very obvious. The profit and loss of direct flash exchange is not as intuitive as the K-line, which leads to more spread swaps
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4. Risk Analysis of DeFi Liquidity Mining
Liquidity mining is interesting but also very risky, because the cost of issuing DEX coins is very low, many imitation disks and garbage coins can attract many investors to participate in mining with a good story, and then run away within 24h-1 week. This is even more serious than the ICO event in 2017, because Defi couldnt find the team, and they didnt know who was doing it. The person who pressed the send button behind his back might be Erha. The basic moral hazard is gone.
The essence of liquidity mining is to attract funds to increase the depth and volume of transaction targets, so that swap and transactions can achieve smooth and low spread effects. People who provide liquidity come with the purpose of making money, and they will also attract more profitable projects. After that, it will be the rhythm of the Ponzi scheme, because the profits given can already be annualized completely based on their brains. . Anyway, if you attract a wave and run away, so what if you get 10,000 times the annual rate.
Master of PNU, comprehensive fan of value investment and quantitative technology speculation; blockchain value analyst, special author of mainstream media organizations and US stock brokers, winner of BK21 prize in South Korea, has worked as a cooperation project for Tesla, GM, FF and other new energy product research and development Head of CFT. Help consult and analyze the value of applications and landing projects such as multi-type blockchain public chain exchanges, with cross-field and cross-department comprehensive judgment experience and value judgment logic.
But, do what you want, hope is a good thing.
▌Brief introduction of the author: Brother Future (Gengche)
Master of PNU, comprehensive fan of value investment and quantitative technology speculation; blockchain value analyst, special author of mainstream media organizations and US stock brokers, winner of BK21 prize in South Korea, has worked as a cooperation project for Tesla, GM, FF and other new energy product research and development Head of CFT. Help consult and analyze the value of applications and landing projects such as multi-type blockchain public chain exchanges, with cross-field and cross-department comprehensive judgment experience and value judgment logic.
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