Under the wave of DeFi currency issuance, can retail investors really make money?
Produced | Odaily (ID: o-daily)
Produced | Odaily (ID: o-daily)
Three months ago, DeFi products were still in a collective crisis of trust: the "3.12" sharp drop of coins, the liquidation under the chain reaction, the congested Ethereum network, and the DeFi protocol that was attacked by hackers one after another...
Unexpectedly, only three months later, as the decentralized lending protocol Compound launched the governance token COMP and launched the "loan mining" model, COMP rose from a price of US$18.4 to US$326.81, a nearly 20-fold increase that made the DeFi competition Dao ushered in an unprecedented bright moment (Odaily Note: On the first day of COMP excavation, the Compound team placed 2000ETH / 25000 COMP trading pairs on Uniswap, that is, the price on COMP was: 1 COMP = 0.08 ETH, according to the time The price of ETH would add up to $18.4).
On June 24, the decentralized trading platform Balancer took over Compound and deployed its governance token BAL on Ethereum. The price of BAL rose from $0.6 in the seed round to $22, an increase of nearly 40 times.
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DeFi projects start to issue coins, and small puddles blow into a new blue ocean
On July 1, Curve, a decentralized stablecoin trading platform, announced the distribution mechanism of the governance token CRV and the draft of its decentralized autonomous organization CurveDAO. Curve Finance is a fork of the decentralized exchange platform Uniswap that focuses exclusively on efficient stablecoin transactions.
CurveDAO was created based on the Aragon framework of the decentralized autonomous organization management platform. The previous governance mechanism was that one ANT (Aragon’s native token) had one voting right. Now Curve has changed this governance mechanism. The new voting governance is based on CRV The time weighting mechanism, the longer the lock-up time of CRV, the higher the voting weight. It is important to note, however, that the account that locks the tokens cannot be a smart contract (as it can be traded and/or tokenized), unless it is a whitelisted smart contract (e.g. a widely used multi-signature wallet).
According to the Curve token distribution model released by Curve developers on github, Curve initially plans to issue 1 billion CRV tokens, and gradually increase inflation to 3.03 billion CRV tokens. CRV tokens adopt a segmented linear inflation model, and the inflation rate decreases every year√ 2. The initial inflation rate is 59.5%, which is more attractive to early participants.
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CRV Token Inflation Model
Like Compound, Curve also adopts the liquidity mining model, and CRV tokens will be distributed to liquidity providers. It should be noted that users need to lock LP tokens to claim inflation rewards (Odaily Note: Users can only get LP tokens by depositing in the sUSD or sBTC pool on Curve. The more users deposit, the more LP tokens they get The more LP tokens represent the user's equity in Curve).
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Decentralized autonomous organization CurveDAO draft (Image source: Twitter)
The specific distribution time of CRV tokens has not yet been announced, and many wool parties have prepared ammunition and are waiting for the opportunity. Since the annualized rate of return of Compound and Balancer has fallen, Curve has become the next DeFi project that the market is most looking forward to.
In addition to star DeFi projects such as Compound, Balancer, and Curve, there are also some less dazzling DeFi projects that also took advantage of this wave of currency issuance to raise funds.
On June 22, the DeFi money market protocol DMM issued the governance token DMG, and 15.7 million DMG were sold. DMM is a DeFi lending platform that provides USDC, DAI and ETH backed by real asset (car) mortgages. After the public offering of DMG, DMM made a profit of $6.8 million. Well-known venture capitalist Tim Draper joined DMM DAO, the centralized autonomous organization behind the agreement, by purchasing DMM's governance tokens.
On June 8, the TRON-based synthetic asset platform Oikos initiated by TRON founder Justin Sun was officially launched. The governance token OKS is about to undergo an IEO. According to the official website of the TRON-based synthetic asset platform Oikos, Oikos Swap was launched in June. Launched on the 8th.
At the end of May this year, MakerDAO’s governance token MKR surged by 25%, detonating the collective rise of DeFi tokens, which has already indicated that DeFi projects are about to start a wave of currency issuance. The popularity of COMP’s lending and mining has made more and more project parties in the bear market Seeing hope directly accelerated the process of issuing coins for DeFi projects.
But there are also some DeFi projects that have decided not to issue tokens, believing that tokens may only complicate the protocol or introduce a bunch of speculative traders. Legal issues also play a role, with some tokens easily defined as securities.
For example, agreements such as Uniswap and dYdX, their smart contracts also carry funds, which seems to prove that building useful products and issuing coins in the blockchain is not a necessary and sufficient condition.
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How to calculate COMP mining income?
For individual investors, they are obviously more concerned about "whether the token is worth investing in" than "whether the project needs tokens".
For individual investors who did not participate in the early private placement of COMP, except for mining, they can only buy in the secondary market. Would it be a good choice for retail investors to participate in mining?
Next, let’s calculate the current COMP mining revenue. A total of 54,332 COMP have been released so far, distributed among 2,890 users, and the amount locked in Compound has also increased from US$90 million to US$624 million.
According to Uniswap data, 1 COMP=187.96 USDT, then the COMP income generated by investing 1 USD is: 54332*187.96/(624 million-090 million)=0.019 USD, plus the recent upsurge of "borrowing and mining" has caused the Ethereum network to Gas fees have soared, and many retail investors said that it is better to invest in mainstream digital assets such as Bitcoin than to mine COMP now.
According to the data from the PeckShield situational awareness platform, the GAS consumption saturation of Ethereum has been at a high level of over 90 in the past two months. In addition to the MMM, easy Club and other capital projects that have been in the forefront of the GAS consumption rankings, Unisiwap, 1inch, Kyber Other DeFi-related platforms are also on the list.
Moreover, the lock-up volume of Compound has also declined slightly:
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"Borrowing and mining" is mostly arbitrage by "giant whales". Is this healthy?
Now that COMP mining is not as "sexy" as imagined, who are mining these DeFi tokens? How did they deal with the mined DeFi tokens, and did they really participate in the community governance of the DeFi project?
Taking Compound as an example, according to TokenTerminal data, in about two weeks, about 340 million US dollars of funds entered and exited the Compound pool. Interestingly, most of the demand side (borrowers) appear to be institutional players. Look at the distribution of this user type across the platform. COMP's launch only attracted about 800 borrowers and over 5,000 new depositors.
Moreover, the COMP from mining is mainly concentrated in the hands of "giant whales". TokenTerminal data shows that about 20 addresses have received half of the COMP mining rewards, and the median number of tokens deposited in the wallet is only 0.07 COMP , worth about $20.
Centralized platforms like NEXO have also come to Compound for arbitrage operations.
According to DeBank data, on June 18, NEXO deposited 20 million USDT to Compound; on June 19, NEXO deposited another 28 million USDT to Compound; About 60 million USDT.
In addition, a week ago, large BAT households had almost monopolized COMP mining. Seven large BAT households first deposited BAT worth 170 million US dollars into Compound. These 7 large households accounted for 70% of the total BAT deposits. Interest rate 25.65%. The higher the deposit rate, the higher the efficiency of COMP mining.
Unilaterally increasing the scale of BAT deposits cannot increase the interest rate. The factor that directly affects the interest rate is the loan ratio. Large BAT holders deposit other assets in their accounts and continuously increase the mortgage scale until they can lend out all the previously deposited BAT. Among them, 0x3ba21b6477f48273f41d241aa3722ffb9e07e247, the largest BAT accountant, deposited USD 50 million worth of BAT and borrowed the same amount of BAT at the same time. Interest is paid on the left hand and interest is collected on the right hand. In this way, the capital utilization rate of BAT in Compound has reached an astonishing 88.71%.
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The community began to face up to the issue of "centralization of governance tokens"
Above, we mentioned the problem of BAT big players monopolizing COMP mining. The issuance of COMP tokens is beneficial to those big players with a lot of assets, and those big players with a lot of resources will earn most of the COMP, which is decentralized Governance has planted a ticking time bomb.
Moreover, most of the COMP is currently in the hands of the founding team and investment institutions. According to Feixiaohao, nearly 40% of the COMP is currently in the hands of investment institutions and the founding team. On Compound's official website, the top 10 voters are mainly Compound's early investment institutions and founders.
Compound community developers are also aware of the centralization problem of COMP. On July 1, the Compound community passed a patch proposal (011 governance proposal) specially designed for the token market distribution mechanism. The removal of the COMP borrowing rate is affecting COMP The weight of the distribution, and reduce the risk of griefing (griefing), focusing on solving two problems in the distribution of COMP:
Users taking advantage of "flash loans" may temporarily reduce the allocation of COMP across markets. After the upgrade, an externally owned account (not a smart contract) is required to refresh the allocation of each market.
Users always want to farm ("farm") in the market that can pay the most interest. After the upgrade, the distribution speed will be determined according to the market loan scale. The second point directly involves the distribution of COMP. Before, COMP was rewarded according to the amount of interest paid in each lending market (ETH, USDC, DAI, etc.). After the upgrade, COMP is distributed according to the amount of USD borrowed in each market. , which helps remove the incentive to push the market to extreme interest rate levels and removes the incentive for users to aggregate in a single market (BAT).
Cao Yin, managing director of the Digital Renaissance Foundation, commented on Compound’s 011 proposal: “It’s a great governance proposal, and it will be real users at both ends of the balance sheet who will be rewarded with COMP tokens, not those with high-risk, high-interest rate assets. Wool party, COMP distribution is fairer and more decentralized, and there will be less selling pressure from newly mined COMP.”
Hao Tian, Brand Director of PeckShield, a blockchain security company, told Odaily: “The market has a strong follow-up effect. When Compound governance tokens taste the sweetness, there will inevitably be many imitators who will flock to issue governance tokens. In addition, Compound’s lock-up mechanism and the newly implemented 011 governance proposal will serve as warnings and demonstrations for subsequent DeFi projects that want to issue coins.”
In addition, Hao Tian believes that everyone's expectations for the DeFi market are somewhat contradictory, fearing that it will not grow, and fearing that it will grow out of control. Because all DeFi products run on the Ethereum chain, too many wool parties on the chain at the same time will inevitably cause congestion on the Ethereum network, which will affect the experience of using the Ethereum network. The FOMO3D games and FairWin funds back then Disks are an example.
References:
References:
Fragile Defi, 80% of COMP is taken away by big BAT players
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