DeFi token pledge pool, “98%/2%” liquidity pool, dumping pool, guess which is the deadliest?
Written by: TokenBrice, head of the Monolith community of Ethereum wallet, co-sponsor of French DeFi
Translation: Lu Jiangfei
This article is a quick start, which allows players who want to enter the ” food ” DeFi wealth game to understand the basic business model (we will assume a “wine coin” project), and will also help them assess the risks so that they can stay safely Live your precious tokens.
Come on, I think you must be hungry
In the decentralized finance (DeFi) industry, DeFi wealth games based on “food” are becoming more and more popular-such as sushi (SushiSwap), pasta (PASTA), shrimp (SHRIMP), tacos (TACO), etc. Wait. Now, I want to write an article that provides some background knowledge to provide some help for those who are eager to enter this field, but I will not give ethical judgments on such projects. This issue needs to be decided by you.
Yearn Finance, launched last month, may be the most important thing in the DeFi industry in 2020. If you are not familiar with this project at all, you can actually read this article first: ” YearnFinance-is a deployment on autopilot DeFi project on the Internet? “(YearnFinance-DeFi on autopilot?). After reading it, it may help to better understand this article.
In fact, Yearn Finance is extremely innovative: they allocate all token supply to users, with the goal of providing liquidity for all fund pools related to the agreement. Today, Year’s startup framework has become a “copy template” for many similar projects. These projects have been similar after seeing the great success of Year (and some projects are forked from Yearn Finance), such as: YFII, YFL, YAM, SHRIMP, PASTA, BASED, etc.
On top of the basic components of ” cooperative farming ” provided by Year, many DeFi projects also add other economic elements to their basic assets in order to be more sticky and more attractive to users. These “economic elements” include:
- Use a token deflation model (although this method seems a bit stupid), such as PASTA (rest in peace PASTA).
2. Rebase mechanism (token supply can be adjusted, although it will be interesting to do so, but it will also increase the risk of information asymmetry), under this mechanism, the most important thing is to find the relevant price target and ensure that the reorganization code has no errors / Will not cause problems with other parts of the agreement (such as the liquidity pool). But unfortunately, the Rebase mechanism will turn the DeFi protocol into a behemoth, and eventually become a “farmer” frantically plundering investors-even though they have little experience, and the Rebase mechanism makes the calculation of income more complicated and tricky. - Social- based mechanisms, such as giving daily/weekly rewards to top-ranked mortgage token holders. Taking TACO as an example, they will provide double rewards every Tuesday because “Taco Tuesdays are the most realistic!”
- For some DeFi projects, the core value actually comes from a community perspective rather than an economic perspective. For example, Shrimp is more inclined to build a community-driven project, rather than other projects (everyone can create a high-level liquidity pool, and then Provide incentives through SHRIMP tokens).
Tip: If you want to find a general solution to filter noise, then governance tokens may be a good choice. It is also a necessary condition and final key element for the success of most DeFi projects, but you need to determine the type of governance, governance process, and Determine who is responsible for optimizing the project, etc.
After reading this, I believe you already have a basic concept, DeFi, a wealth game, looks very simple and supports plug-and-play. Therefore, let us create a “food money” (foodcoin) to find some fun:
First, we assume that this fictitious token is called ” Wine Coin ” (WINE), allowing users to farm “Wine Coin” by locking other DeFi tokens in the first week, and then we can build a WINE/ETH liquidity pool to provide long-term Incentives (this liquidity pool is likely to become a dumping pool, which will be explained in more detail later).
Next, “Red Wine Coin” will gradually become a community meme, and will even have its own emoji emoji, which is a good starting point! However, we still need to do more and find some fun and stickiness, so let’s design such a strategy:
- The person who holds the most “Red Wine Coins” has a 20% chance of getting ” Drunk ” (Drunk) every day. If this happens, and it happens that the alcoholic is also very generous, he may put his 20% Tokens are randomly donated to 100 daily active addresses;
- Slight boiledness is the best, but don’t indulge: every “wine coin” transaction has a 1% chance to transfer 50% of the value to the reward contract, aiming to increase incentives for “farming farmers”.
In fact, you will find that the above strategies are not instructive, but they can let you know that you can easily understand those seemingly complex DeFi concepts. Not only that, these strategies can actually be implemented quickly due to code blocks (such as mortgage contracts) forked from standards (such as Synthetix mortgage contracts).
Special warning: The “WINE coin” mentioned above does not exist, just to give an example, don’t buy “wine coin”, but you can buy red wine🍷.
Now, your industry background and theoretical knowledge are almost mastered. For the DeFi community dimension issue, I will discuss in depth in the next article. For now, I hope to share some practical knowledge about DeFi fortune games:
If you have already walked into those “food” DeFi wealth games, here are some practical tips
First and foremost, pay attention to the gas cost! Because when farming those “food” DeFi tokens, you are usually required to pledge ETH, regardless of whether you place an order or withdraw, you may be charged a handling fee for each transaction. Depending on the liquidity pool you are farming, you sometimes have to go to a decentralized exchange to add liquidity. These practices will make the position more complicated and the cost will become higher.
Second, never buy those “food” DeFi tokens-just farm these tokens. Purchasing such DeFi tokens requires huge risks, because you may need to fight against a large group of “farmers” who farm income, and they will sell these tokens anytime and anywhere.
Finally, there is a more practical method, that is, to understand the risk scenarios of each type of farming liquidity pool by viewing actual examples, let’s get started.
Risk level = 1 (low risk): ERC 20 token pledge pool, if the code can ensure the safety of funds, you can
In the ERC 20 token liquidity pool, you can pledge a DeFi token (usually MKR, COMP, SNX, LEND, wETH and YFI) in exchange for “food” DeFi tokens, such as YAM.
If you want to minimize the risk, you can compare the mortgage code with the existing code to ensure that there is no “ghost trick” in it. Since you are only collateralizing rather than providing liquidity, you will not bear any economic risks. Just make sure the agreement Security, then your income farming capital will not be threatened.
When the security of the funds is confirmed, the main risk you need to bear at this time is: as time goes by, the value of the DeFi tokens you have cultivated may become worthless. So what you need to do at this time is to choose the most reasonable project to avoid eventually falling into the “death spiral”. The following picture shows how a meme coin enters the final stage of survival:
The ending of Pasta is really sudden
Risk level = 2 (high risk): 98%/2% liquidity pool
Such so-called “98%/2%” liquidity pools are usually “cunning”. After all, they mainly provide liquidity for decentralized exchanges, so they will naturally prefer to choose tokens with good reputation, for example : 98% YFLink/2% YFL liquidity pool.
Here you may encounter a new type of risk: impermanent loss. When the prices of two assets in the designated liquidity pool move rapidly in opposite directions, the impermanence loss will reach the highest point. It should be pointed out here that a liquidity pool with a ratio of 98%/2% will be relatively better. Although this type of liquidity pool is not completely immune to impermanence losses, it is relatively safer.
After the 98%/2% liquidity pool model, YFV has become another wealth game
Risk level = disaster level: dumping pool
This type of liquidity pool is the most dangerous! I suggest that investors and traders in this field should avoid using them-the game is too risky to play. The PASTA yyCRV / PASTA Uniswap pool is a good example.
Let’s put it this way: if some people can lock up some DeFi tokens to farm PASTA tokens for free-why don’t they just sell these tokens for yyCRV? After all, yyCRV is already one of the most profitable tokens in the industry. In fact, this is how people do it.
As soon as the PASTA incentive pool was launched, a large number of PASTA farmers began to dump. Everyone wanted to exchange for more precious yyCRV tokens. The result was obvious. The price of PASTA tokens instantly dropped from US$1 to US$0.04. The people with high hopes are all dumbfounded.
So, how do we distinguish which liquidity pools are potential dumping pools? Here, we will list some key features of dumping pools to help you avoid putting more valuable DeFi tokens into these pools:
- The liquidity ratio of dumping pool tokens is usually 50/50, half of which are shitcoins, and the other half are relatively high-quality assets such as ETH, wETH, or yyCRV.
- Dumping pools usually provide high budget incentives-after all, these liquidity pools have no real value, and they have no other means to attract liquidity providers except to use the incentive of such high returns. Of course, once these dumping pools collapse, liquidity providers will lose most of their funds, and those “food” DeFi token revenues will also enter a “death spiral”, and no good returns will be obtained.
- Dumping pools usually do not “sell” all at once, but will continue for a period of time. After all, you need to spend a few days for farmers to accumulate liquidity.
Of course, you can also don’t believe me, I’m just a simple “farmer”, chasing after legendary figures like @DegenSpartan (this man is really good, he will open the news every time he sells).
After understanding the risks in this area, all I can say is to wish you good luck. Please keep in mind that if you have just entered this field recently, you must bear in mind one thing: Those who share this “food” game with you are “veteran traders” with many years of experience in the crypto industry.
Finally, you also need to understand that most of the cryptocurrency market is a “zero-sum game”: no value is created, but a complicated “3-4 layer” value transfer mechanism. Do you have enough confidence in your industry experience? Do you have the guts to rush into the lions den? If not, it is best to stay away from the pledge pool.
Clarification: I am not a financial adviser, and all investment decisions need to be made by you. Regarding investment, I have not undergone formal training or certification. I’m just sharing some of my personal experience in the field of decentralized financial services. The purpose is to help my peers better understand the value provided by such services.
I am not responsible for your investment decisions. Any decision may cause you trouble and even bankrupt you.
Source link: tokenbrice.xyz
