“Fair start” is not fair to developers, and fast-money forks are stifling DeFi innovation


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If someone can make $14 million in just one week through the fork, will there be developers who work hard to design projects and promote innovation in the DeFi industry?

Recommended Reading: ” Selected Good Articles from Chain News|Understanding the DeFi “Fork Movement” that is in full swing

Written by: Ashwath Balakrishnan
Translation: Lu Jiangfei

If community users are too eager to seize every income farming opportunity, it may eventually lead to the decline of DeFi from glory.

Content overview:

  • The SushiSwap project popularized the concept of ” fair start ” in the crypto community, but it caused many people to follow suit and fork some important DeFi protocols;
  • “Fair start” is a flawed concept that may severely weaken the momentum for the development of DeFi and encryption technology;
  • Compared with spending years and energy to innovate, forking a project only takes a few weeks. This approach obviously brings unfair returns and risks .
  • If DeFi investors begin to seek short-term opportunities and ignore long-term growth, then the field may be in trouble.

“Fair start” has now become one of the hottest trends in the DeFi industry, but if inappropriate incentives are given, it may have a negative impact on innovation in the entire industry.

Who is the “fair start” to be fair to?

You may find it hard to believe that a DeFi project can be launched in less than a month, but “Sushi” SushiSwap has done it-a project that forked from Uniswap has twists and turns, full of controversy and drama. The speed of the “Sushi” project is staggering, but at the same time the time from peak to trough is very short. (Chain note: At the time of writing this article, the locked-up volume of “Sushi” has fallen from a high of US$1.58 billion to US$480 million a month, which has shrunk by nearly 70% in just three weeks.)

However, the biggest impact of “sushi” on the entire DeFi industry is actually the popularization of the concept of “fair start.” Uniswap has raised $11 million in funds from a number of top venture capital funds. This behavior once caused great controversy in the crypto community. Many people felt that they violated the decentralization spirit of DeFi and pointed out that all DeFi protocols should comply with tokens. Principles of public offering.

The reason why members of the crypto community are attracted to “Sushi” is because the project allocates 90% of the token supply to the liquidity provider (LP). In contrast, Uniswap’s previous behavior has made the community very dissatisfied because they After the fundraising was completed, it was announced that the token issuance was postponed. The reason for the community’s dissatisfaction was actually very simple: Uniswap chose not to issue tokens because of greed.

Indeed, issuing tokens can allow community members to share the advantages of the DeFi protocol development. However, some people think that the matter of “confirming that Uniswap chose to refuse to issue coins because of greed” is also selfish, because the team is required to build Uniswap from scratch and develop it into a potential “Coinbase killer”, but in the end they are asked to give up what they deserve The share is not fair.

And what happened in the end must have embarrassed those who advocated “fair start” in the crypto community:

The so-called developer fund of “Sushi” eventually became the “Individual Retirement Fund” of the anonymous founder Chef Nomi. If it hadn’t been for his selfish cash out of SUSHI tokens to cause public outrage, the “chef” now has 1,400 in his hands. Ten thousand U.S. dollars. Fortunately, “Chef Nomi” later discovered that he had returned about 38,000 ETH. The community subsequently decided to repurchase SUSHI tokens on the market, but this measure still failed to prevent the token price from falling. The community’s confidence in the project It seems to have been lost.

So, what happened to Uniswap, which was criticized by the community before? Uniswap did finally issue the governance token UNI, and the distribution plan is more fair than most “blue chip” DeFi agreements. As the community’s support for UNI tokens continues to rise, the Uniswap protocol lock-up volume has soared to 2.18 billion U.S. dollars. At the time of writing this article, it ranks first in the DeFi protocol lock-up volume.

You will find that if you follow the current definition of “fair start”, it seems that the DeFi project will be introduced on a road to death that will never be restored.

If someone can make $14 million in just one week through the fork, will there be developers who work hard to design projects and promote innovation in the DeFi industry?

The reality of “fair start”

Of course, we are not saying that all “fairly launched” DeFi projects have problems. For example, Cream Finance is an exception. This project is a fork of the Compound protocol, but it has introduced many unique new features in a different way, so to a certain extent, it has made it faster and better to establish its DeFi market position.

Thanks to the implementation of a new interest rate model and the return of the fees earned by the agreement to users (Compound did not do this), Cream Finance quickly attracted a large number of DeFi community users, and the scale of its loan assets has exceeded that of Compound—in fact, this Forked projects are really meaningful. Although Cream uses the Compound source code, new features are added on this basis, and the forked projects become more powerful.

Extended reading: ” Online in August and now the top ten locked positions, Pantera partners in-depth analysis of Compound fork project CREAM

But the problem is that most of the so-called “fair start” fork projects in the decentralized financial industry cannot do the same as Cream. Their fork seems to have only one goal: to make more money from greedy investors. It is undeniable that the cryptocurrency market is currently in a bull market, which also makes many users pay more attention to how to make huge profits, instead of sinking into thinking about how to achieve real innovation.

Even more frightening is that the darkest aspect of “fair startup” is actually the impact on developers.

Let’s take an example:

There is a more advanced founder of the new DeFi protocol. He/she spent two full years injecting hard work, sweat and tears into the product, and finally decided to open source all code in the name of decentralization and transparency. In terms of token distribution, the founder hopes to issue 60% of the total token supply to the community through liquid mining rewards, and at the same time sell 20% of the tokens to a group of investors to pay employees and bear Project development, testing, auditing, marketing and operation costs incurred, and then the final remaining tokens (20% of the total token supply) are allocated to the founders and core development team.

One month after the main network of the project went live, the operation was very stable. But at this time, an anonymous person suddenly appeared on the Internet. He/she announced that the project would be forked because the anonymous person believed that it was unfair to only give the community 60% of the token supply. Instead, their fork project will allocate 95% of the token supply to the community, and then put 3% in the inventory, leaving only 2%.

We can imagine how the community will react: everyone must be praising the “anonymous person” for achieving true decentralization and complaining that the original protocol founder is too greedy.

So, you might ask: Even if the forked project is a marketing game, the forked project itself only leaves 2% of the total supply of tokens, and those who have spent a long time investing in the original project The protocol founder himself can get as much as 20% of the total token supply. What is the difference between the two?

Assuming that the market value of the project in the example is 50 million U.S. dollars, it means that the “anonymous person” who forked the project made 1 million U.S. dollars (5,000 2%) in just one week , while the original protocol founders spent In a few years, I only got 10 million US dollars (5000 20%), not to mention that there are various costs incurred in starting and running the project in this 10 million US dollars, and “anonymous people” are almost zero when starting the fork project. Cost-now, which one do you think is more “cost-effective”?

Innovation costs more than money

“Fair start” conveyed the concept of DeFi project/protocol founders: Don’t raise funds from investment entities (such as institutions and investors), but should raise funds to operate the project, because if you don’t do this , Then for some reason this is unfair.

There is nothing wrong with forking a DeFi protocol and injecting a new design into it. At least this approach helps to test whether the new version of the same protocol works in the market, and also evaluate whether the related services have sufficient market demand. However, if a forked project is just to allow the community to obtain a larger share of the token supply, and the forked project itself does not make any optimizations and improvements to the native protocol, then it can be said that the forked project is only for a few users To become richer without any real meaning.

If DeFi community users turn to the so-called “fair start” fork project to make quick money, the final result will lead to a large loss of developers in the decentralized financial ecosystem. At this time, the DeFi industry will face one of the biggest problems: no BUILDer !

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