Has liquidity mining become a new trend in DeFi?
Editor's Note: This article comes fromCrypto Valley Live (ID: cryptovalley)Editor's Note: This article comes from
Crypto Valley Live (ID: cryptovalley)"Crypto Valley Live (ID: cryptovalley)", Author: Citadel.One, translation: Liam, reprinted by Odaily with authorization."Decentralized finance (DeFi) has become a hot topic in the past few weeks, and there is some speculation that we will see a 2017-like ICO rally. The users and transaction volume of the DeFi market are growing rapidly, especially in the field of lending. A new trend has emerged -"Liquidity mining (yiedl farming)
——Lend tokens on DeFi protocols, or become part of a market-making pool to earn high returns, often many times higher than the interest rates of general commercial bank savings accounts. This trend has attracted a lot of attention, and there are already some guidelines on how to
rent
Different assets, for example, Maker, Compound, Curve, Ren Protocol, Curve, Synthetix, Balancer, etc. DeFi liquidity mining uses the leverage of multiple protocols to obtain rewards through the lending of the platform's native tokens, thereby compounding interest.
With the rapid growth of tokens in some projects, the interest rate in the DeFi field looks very attractive. In some cases, users can participate in multiple DeFi platforms to further increase their APY (annual interest rate). Of course, the rates we're seeing now are a result of the immaturity of the market, which will come down over time as the market grows in size and volume.
Since mid-March, the DeFi market has grown steadily.
Coinbase announced that it will support many DeFi projects in the future.
Compound (COMP) token issuance.
secondary title"market growth"Over the past few years, decentralized finance (DeFi) has become an important and highly regarded direction in the blockchain community. According to DeFi pulse, the total value locked (TVL) of DeFi projects topped $1 billion for the first time in February, but the value fell back the following month after Bitcoin plummeted. However, in the past month, DeFi TVL broke the previous record and now stands at $1.67 billion. While this is a relatively small amount by the standards of the traditional financial industry and the crypto market, it is also a clear indication that the market sees potential in the DeFi industry.
turbulence (flippening)
（source:coinmarketcap.com）
Event, that is, DeFi transactions surpass ordinary ETH transfers.
image description
As can be seen from the table above, Kyber Network, 0x, Synthetix, Aave, Loopring, Bancor and other DeFi projects performed significantly better than Ethereum and Bitcoin in the weekly, monthly and 3-month periods.
DeFi has always been a fast-growing field in the encryption world. Although the market share of the DeFi ecosystem is far less than that of the general encryption market, new ways of lending and making profits have attracted much attention. The interest is reflected in the explosion of several new and old projects in this field.
secondary title
Coinbase announcement"On June 10, Coinbase revealed that they are exploring the possibility of adding 18 new cryptocurrencies. Aave (LEND), Bancor (BNT), Compound (COMP), Numeraire (NMR), Keep Network (KEEP), Ren (REN), and Synthetix (SNX), are all part of the decentralized finance space."While the exchange’s announcement stated that they were only evaluating whether to list those tokens, all of the aforementioned assets experienced gains following the announcement. On the day of the announcement alone, some tokens rose by 10%, and the trading volume increased rapidly."These tokens benefit from the well-known"——Currencies mentioned or listed on the exchange temporarily rise (because listing on Coinbase often leads to an increase in trading volume), which also reflects the enthusiasm of investors in the market
mood
. Although the trading volume of the coins listed or mentioned on Coinbase will be in line with other coins in the industry after the hype subsides, and there will be a correction, but this is still one of the stimulating factors for the market.
secondary title
A few days later, after Coinbase gave DeFi a small boost, Ethereum-based Compound and Balancer publicly released their native tokens. The launch event generated considerable transaction volume and further publicity around DeFi projects. Investors jumped on the proclaimed “train” and started participating in the protocol in an attempt to squeeze as much profit as possible from this booming market.
Compound became the most popular DeFi lending protocol and surpassed MakerDAO in total locked value, which surpassed $100 million (Compound’s TVL was $624.5 million, Maker’s was $510.4 million on 7/3/20 ). By the time the protocol’s governance and reward token, COMP, launched on June 16, Compound’s TVL had skyrocketed. On June 23, the price of the token skyrocketed from $90 to more than $400 on Coinbase Pro, but has since fallen back to around $180.
Compound’s circulating supply accounts for about 25% of its total supply, and even that is enough to surpass MakerDAO in market capitalization ($464 million vs. $450 million, respectively)."secondary title"Differences from 2017
A large number of people in the industry are now expressing concern that the hype of DeFi this time is different from that of 2017.
ICO bubble
Real assets are involved in the DeFi protocol. Although they are digital assets, they are still locked in smart contracts, representing collateral for loans, just as locked assets provide liquidity. They are not purely speculative incentives to generate income, but they are necessary "cogs" for the operation of the project.
Ethereum
DeFi products generally do not attract unqualified investors, as most of them have utility tokens, which are generally not considered speculative asset types.
secondary title
Ethereum
What can we learn from the current situation?
The more DeFi projects are launched on Ethereum, the more we understand that PoW can be an obstacle for such projects.
Over the past month, we have seen transaction costs rise dramatically, which is native to the blockchain industry. As users and their transaction volumes grow, so do transaction costs, which can slow adoption considerably. Low-value transactions become simply too expensive. As you can see from the chart below, June 10th and 11th are extremely expensive days.
Ethereum 2.0 will be able to solve these problems, make financial-oriented DApps more capable, and remove the limitations of block time and high Gas Price.
Since 2020, the gas volume of the entire network has been increasing steadily, and there has been a substantial increase in June.
While much of the DeFi hype has involved ETH-like projects, transaction volumes are also steadily increasing, though they still haven’t reached their ATH of 1,349,890. The sharp increase in transaction volume in June was mainly attributed to the growth in the number of DeFi users."text"There are some unusual use cases in the market: it is possible to use one asset as collateral, lend another asset, and borrow that asset again after the exchange, with a negative real yield, but at the same time a positive yield due to a sharp increase in COMP price. This is a rather weird situation where users can create complex schemes with certain risks to make money, because
high risk high reward
text
financial attractiveness
If the trend of crypto adoption continues and currency-to-crypto gateways develop further, DeFi projects will be extremely attractive compared to traditional financial markets. Lending platforms like Compound offer much higher interest rates than most tier-1 banks (even somewhat better, given that borrowers are overcollateralized), while offering the same service.
text
Balancer Vulnerabilities
According to Coindesk, DeFi liquidity provider Balancer Pool admitted in the early hours of June 29 that it had become a victim of a hacker attack that exploited a loophole to trick the release of $500,000 worth of tokens.
In a blog post, Balancer CTO Mike McDonald said the attackers flash-borrowed $23 million worth of WETH tokens, an Ethereum-backed token suitable for DeFi transactions, from dYdX. They then transact with Statera (STA), an investment token that uses a toll model that burns 1% of its value with each transaction.
The attacker conducted 24 transactions between WETH and STA, draining STA's liquidity pool until the balance was almost zero. Because Balancer thinks it has the same number of STAs, it releases WETH equal to the original balance, allowing the attacker to obtain a larger margin for each completed transaction."In its blog post about the breach, 1inch said,"
what's next
The man behind this attack is a very sophisticated smart contract engineer with extensive knowledge and understanding of leading DeFi protocols."secondary title"what's next
ICO bubble"Liquidity mining"Same, leading developers to create DeFi projects in order to create?
Liquidity mining"Liquidity mining"some negative consequences? The systemic risk threat of hacking is higher than ever, and we may see something similar to the DAO's disruptive consequences. If the smart contract of a lending platform is hacked or exploited by a major hacker, it may trigger a chain reaction, causing a series of liquidation of positions in different DeFi protocols, leading to a high degree of jealousy and caution in market sentiment towards DeFi.
Another interesting topic is how the DeFi sector will compete with the Stake sector, because part of DeFi is centered around passive yield, it mainly involves Ethereum 2.0 plans, because most projects are based on ETH. It will all depend on the incentives offered by the project as most investors will go after the higher APY which makes me doubt DeFi's
