DeFi dilemma: You can fork a currency, but it is difficult to fork a community

Just like when BTC and BCH first forked, DeFi is now facing the same problem: although "liquidity mining" is profitable, it is difficult to fork out a lasting community.

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The word "community" appears so often in cryptocurrency, what exactly does it refer to?

A community is a group of investors, users, and developers who all want to support and improve a cryptocurrency network. In an open source ecosystem, the community is the most important part of the project, because the community can help the project create value through usage, popularization and effective marketing.

If a project's technology gives it value, its community gives it life.

Community consensus is strengthened here where everyone has a similar identity. Chainlink's "Marine Corps" community, Synthetix's "Spartan Warrior" community, and Band's "Jedi Knight" community are some of the communities born through meme. (Note: meme is equivalent to "stalk" in the Chinese context)

yEarn Finance (YFI) is a great example of how the community can help grow a project.

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(YFI's market capitalization since its inception)

Several copycats have tried to replicate YFI's success, but with little success. Even though some projects are building community, there is still no match for it.

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In 2017, the Bitcoin community saw its first major split. One side is in favor of using the Segregated Witness scheme to improve the Bitcoin block size limit, while the other side wants to expand the Bitcoin block size from 1MB to 2MB.

Most of the community still supports the original small block, which means that the entire Bitcoin network will continue to follow the original version. Big blockers left the network and forked Bitcoin Cash (BCH).

At the time, many investors and analysts were unsure of how this would affect Bitcoin’s market cap. Raoul Pal, the founder of Real Vision and GMI, previously stated that he felt that the fork of Bitcoin would dilute the value of Bitcoin, so he chose to sell his Bitcoin at the time.

What investors simply don't realize is that users shape the value of the network.

When the small block camp won the consensus battle, many large block supporters finally gave in and returned to the small block camp, only a small number became full-time BCH community members.

Initially, the market was chaotic and Bitcoin Cash performed well. Soon, everyone had to face a problem: From a market point of view, there are now two options for Bitcoin.

It turned out that one of them had a very active community, and the other didn't have those characteristics, but had a large block. Which one to support and which one to give up, the answer is obvious.

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(Bitcoin Cash daily block size)

Let's take a look at the market value changes of BCH since its establishment. In 2017, the price of BCH peaked at $3,700 per coin, when the price of Bitcoin was close to $20,000. Since its peak in 2017, BCH has lost 94% of its value, while BTC has only lost 50% over the same period.

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3. DeFi forks: most of them fail

YFI is not the only DeFi protocol being imitated. Dozens of projects are imitating and forking AMPL and COMP.

SushiSwap is the most popular fork. At one point, over 70% of Uniswap’s liquidity tokens were locked in SushiSwap. Now, the project appears to have hit a dead end as its founders cashed out at least $6 million worth of ETH.

It's crazy to think that a Forked Dragon project will immediately grab the attention of mature players. However, SushiSwap is one of the few forks that actually built a community.

AMPL and YFI’s copycat YAM has also sparked community support, but it’s just 1 of more than 100 similar examples that emerged in the last month, most of the others have now collapsed.

Digging deeper into the changes made by these forks reveals their true value.

AMPL's token distribution only allocates 25% of the supply to ordinary users, which is very unfair. YAM was the first to launch a change in the way AMPL is distributed, the community will receive 100% of the tokens.

Looking at YFI again, it has a fair token distribution method, and there is nothing that can be changed at this level, but DFI still attracts the support of a group of people by calling itself "Oriental YFI".

When Uniswap decided to raise funds from VC funds, it made the DeFi community doubly frustrated. But this gave an opportunity to SushiSwap, which claims to be a copycat of Uniswap, 90% of the tokens are allocated to the community, and the remaining 10% is reserved for developers.

Therefore, SushiSwap has assembled a group of people who are disappointed with Uniswap’s financing decision, satisfying their mentality that they hope that the agreement can be managed by users.

If a fork makes meaningless changes, such as adjusting supply or liquidity pool weights, no one will be surprised. But when these projects say "we're going to give you all the tokens," the excitement is palpable.

A fork like SushiSwap does succeed in gaining attention, but in the long run, it's pointless if it can't build a DEX to compete with Uniswap. In addition, Uniswap is building a V3 version, which will introduce some new features to make it more capital efficient and bring better benefits to liquidity providers.

SushiSwap is a branch of Uniswap v2, so in terms of features, it cannot reach the level of Uniswap v3. As a result, SushiSwap's founders wanted a cut of the money from VCs, so they had the sole privilege of cashing out to the community.

Today, SushiSwap is still far from becoming a qualified Uniswap competitor, and when Uniswap v3 is released, traders will also be inclined to better solutions.

Building a strong community early on is useful, but keeping that community active for months or even years is not an easy task.