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The DeFi ecosystem needs to retain value as a whole and continue to grow.
Written by: ivangbi, founder of LobsterDAO Compiler: Perry Wang
Note: Degenerate Finance, “Degenerate Finance”, this is a new definition of DeFi by some investors. The author of this article refers to these free-rider investors as “degenerates” and “apes”. This tax is also called “apes” tax”.
To maintain and grow any system, it needs a positive feedback loop. Why do venture capitalists sprinkle various benefits with the founder? Obviously, it is necessary to fight for the lead and go straight to the subject. But besides that, they also realize that they must allow the surrounding environment to flourish-this can help improve the environment they live in, their own safety, and so on.
“Ethics is a long-term greed.——Anonymous”
The same is true for cryptocurrency investments: when you start copying the practices of others and make a lot of money, you should consider donating to gitcoin . why? Because this is a rational and selfish approach that allows more people to participate in the work and innovate to promote the development of the overall ecosystem. In this way, like 99% of human beings, as participants in the zero-sum game, they will consciously contribute.
But for the problem of free-riding, this is a self-enforcing solution…
How to tax not only free-riders, but also value extractors?
Currently, there is no encryption ecosystem “system tax” that allows the ecosystem to sustain itself. For example, the design of Bitcoin is too simple in a sense, just a pyramid structure: early adopters become rich. Hey, I’m not spraying Bitcoin, please keep holding coins! I mean, in order to make the engine run faster and longer, you need to use more subtle methods.
Let’s briefly look at a few.
But before that, what are the methods for project parties and developers to take advantage of the bull market and gain more attention so far? Raise more money and then issue subsidies; or sell part of its holdings-then subsidize or self-sustain to innovate…boring.
Bull market -> skyrocketing prices -> sell tokens -> grant subsidies ->…?
In both cases, this is done at the expense of the health of the ecosystem. The central bank (the “team”) sells tokens (of the foundation or founding team) to community members when the price of tokens is high. Earning the premium is actually ruining the community members. Choosing when to sell, how much to sell, how quickly to sell, or to whom to pay allowances are all super subjective and not really in the interests of the holders. Can we do better? Oh yes!
In the weeks since the bull market this summer, DAI has been hovering above its anchored price of $1. In order to maintain a pegged exchange rate, MakerDAO has been reducing the fee to 0% (easy to issue more Dai, you can buy and sell at a premium). But it still didn’t help. So what did they do? They just increased the handling fee. Since it cannot be changed, then make money from it.
Therefore, MKR revenue is currently one of the highest in the DeFi agreement. This can be regarded as a bodily honest acceptance of speculative behavior, and it says “We accept the status quo. Anyway, this is a good thing for MKR holders in the long run”, rather than fighting against speculation. Collusion with degen to benefit the system. Basically in this case, the holders of the currency retain all their shares and earn fees from the ecosystem, following the trend and not fighting it.
There has always been a debate about the 100-130% MCR ratio of NXM (MCR over 130% will enter the insurance pool, and less than 100% will not be able to withdraw NXM). Yan Liberman of Delphi Digital made a very clear argument on November 13th: “When MCR drops below 100%, users will no longer be able to withdraw ETH, so they can only rely on wNXM’s secondary market liquidity.” What he said is true. In this way, the idea that the price of NXM is supported by mathematics (joint curve) is useless. Is that harmful to people?
Not so. Degen seeks to make quick profits and toss when MCR exceeds 130%, which actually promotes the growth of the fund pool. If you are aiming for long-term gains, just wait to see if the MCR of the ecosystem will exceed 130%. If not… then you can wait, or just take the loss on the side of wNXM. Thank you NXM for making insurance better and cheaper!
So you can toss a similar pattern, in which tossing is actually good for long-term value.
As for the expected annualized income APY (insurance paid for insurance) of the solution,
Hugh Karp, the founder of Nexus Mutual, answered the idea of how to redistribute funds to meet many other needs. In this way, the APY of the basic fund pool is increased, because it is obvious that APY is currently about 2% of the “insurance” cost of the entire fund pool. , The performance is mediocre and other ways are needed (they are working hard).
Except for work points, KP3R does not supply inflation. Suppose I am a company: I post a job and bind the liquidity for 14 days with the ETH-KP3R asset pair. Someone got the job and got KPR job points. They can cash out U.S. dollars at a ratio of 1:1.
First, why not use another token? The company that posted the job looks better with liquidity bound on its balance sheet. Moreover, if workers sometimes do not honor their work points, the company can release liquidity. Then who pays… Basically, degen sells the order for the adoption of the agreement. In essence, sometimes certain companies release liquidity and degen pays for work and products.
Yearn.finance founder Andre Cronje launched the project, and seed funding (more than US$5 million) plus Uniswap transaction fees entered the initial balance sheet.
No need to introduce this! The new fee structure is conducive to long-term construction and welcomes ecosystem innovation. No longer just sending money to shareholders (coin holders), but also sending money to stakeholders (builders + token holders).
KeeperDAO entered the flash loan arbitrage game by using the fund pool. But this has also caused a common tragedy, the total lock-up value (TVL) is too high = capital utilization is low = the cost of the agreement itself is low APY.
Hedge funds that implement the same investment strategy do not need more and more funds, because the opportunities are sometimes very limited, and capital beyond a certain point is actually not good. It’s like a cryptocurrency VC with USD 50 million and having to invest in a shit project just because you have to do it.
In any case, new deposits have to pay a 0.64% “Ape Man Tax” to the previous liquidity provider (LP), which creates a small pyramid for the normal operation of the system. This is not a brand new model because it has been used many times. Then you can think of it as a zero-sum “ape-man tax”, because unlike the MKR case, it does not necessarily help the system. Here it just gathers people to join, and does not improve the vitality of agreements or long-term solutions. This is more like a pyramid tax than an “ape-man tax” because only degen profited from speculation, not the system.
In all these cases, degen will not be hit hard by default. degen can still make a lot of money. But regardless of whether they are profitable or not, when all the rules are on the table, the system can use mathematical methods to generate value organically. This is different from fundraising and granting allowances, because granting allowances is very subjective. This is the default function of the system.
Programmable currency…a programmable system? Yes
You can also say that the loan agreement is similar in this respect. For example, I have to pay a 5% interest rate for my position and at the same time lend out new assets at a 3% interest rate… I am stupid to do this, right? Well, yes, but when I mine COMP or other tokens, I can actually offset the aforementioned interest rate difference. Therefore, the short-term price may be at a loss, but the system will continue to charge the cost to the treasury. My idea for doing this is: long-term alignment!
“Ape-man tax” is efficient ->
- It is not necessary to sell tokens in the upward trend of currency prices, but continue to hold the tokens to retain ownership;
- The ecosystem as a whole retains value and continues to grow, and its assets also grow;
- Long-term developer innovation is organically motivated;
- The tax game is known and clear, and everything is transparent. No team decision is required.
The idea of this article is inspired by the article CRV ape tax vault, the native token CRV of Curve. But frankly speaking, I don’t think this is a kind of “tax.” This is a donation that shows non-parasitic nature, not a tax.
We should give it a name!
“Ape-man tax” refers to the commission that is automatically obtained from fallen investors and beneficial to the ecosystem (or from another similar market participant). Commissions can be viewed as transaction losses, fees paid to the system, slippage or other forms. It mainly occurs in the case of “fear of missing the opportunity to get on the car” FOMO and berserk, because degen does not have time or care about the specific situation. Usually because of money.
Let’s talk about a few other things…
Fuck the brainless forks and the endless “fair start” meme.
YFI No. 17 fork… Curve No. 5 fork… It’s boring. It is purely value extraction, zero innovation, and no real competitiveness. It is more or less the story of “zero-sum pre-mining”. Just like the Bitcoin forks of the past.
Well, without consistent incentives, things cannot continue to innovate, so it is not wise to expose developers to huge financial risks without paying them. If the development is smooth sailing and growth is maintained, then everyone is happy to pay the “Ape Man Tax” and further encourage the continued development of this machine.
Different “fair” distribution does not make the product better. Yes, it can attract attention, but unless it is truly unique, it is worthless.
Although 99% of anonymous projects motivated by profit farming are rubbish, some projects are pretty cool. I am definitely not here for its token platform. I do think that CORE and Dracula have at least done interesting experiments and gamification design.
Then got the following interesting development: