The Most Powerful Guide for DeFi 2.0 Newbies: How to Get Your First Gold Point in Liquid Mining?

The world of DeFi is changing rapidly. As the global financial industry continues to evolve with digitization, DeFi has the potential to grow exponentially and attract over 3 million subscribers globally. However, as with all real estate, it is important to understand assets, markets and investments.

Data source: Footprint analysis - TVL ranking of the DeFi project by protocol (TVL)

In a previous article I explained the basics of DeFi, in this article I dig deeper and deeper into the three essentials of DeFi and how Trade entrepreneurs can join DeFi investing activities to earn income. Evaluate DeFi activities through the current risk points of the DeFi project and 7 assumptions.

01

DeFi investment modes

Depending on the type of investment, it can be divided into legal models and currency models.

- In fiduciary currency:Similar to investing in stocks, if digital currency (also known as tokens) is considered a commodity, the CEX centralized exchange or DEX decentralized exchange is a commodity exchange. Alex traders can buy and sell digital currencies on CEX or DEX, selling high and low to get a difference and make money or what is called "coin speculation". In this regard, Alex is concerned about the rise and fall of digital profits and the return on investment (ROI) of coin speculation.

Image source: zoni@Footprint.network

- Currency:When investors have long-term patience for a digital currency, the easiest idea is to "align" it, but the smartest idea is to use it to generate more income. For example, trader Alex can loan digital assets to a for-profit lending platform or put them in a fundraiser called Idle to raise money. In this regard, entrepreneur Alex was concerned about the increase in digital profits and APY received from Yield Farming.

Image source: zoni@Footprint.network

This section describes three key components of DeFi, most of the currency models.Apple Trading DEX, lending platform, yield aggregator.

02

Liquidity activity DEX represents the Uniswap platform

Uniswap is an Ethereum digital exchange token that supports all digital token exchanges on Ethereum. Unlike traditional trading orders, Automated Market Maker (AMM) mode allows users to trade multiple ERC-20 tokens.

In the Uniswap AMM model, financial service providers (LPs or financial service providers) are required to establish a portfolio of resources that traders can redeem for desired benefits.There are two cases.

- Commercial exchange :Assuming 1 ETH equals 4315 DAI and trader Alex wants to change his hold DAI to ETH, he will have to pay 2220 DAI for the trade (all cases in this sentence ignore the price of fuel) to get 1 ETH. .

Image source: zoni@Footprint.network

- LP provides full functionality.As an LP, Endy must provide a currency pair (such as DAI ETH) to the liquidity pool at a total rate of 1: 1, in return it will receive a trading price paid by the trader. At the same time, you receive similar holdings in LP Tokens which generate income and represent your holdings in all financial resources.

Image source: zoni@Footprint.network

How does the automatic rate work? That should be said about the “constant maker” AMM model behind it. The standard calculation for this model is x * y = k. x and y represent the values ​​of two different characters, and k is the constant.

Image source: zoni@Footprint.network

Note that the model does not change linearly. In fact, the greater the relative magnitude of the order, the greater the inconsistency between x and y. In other words, the cost of large orders increases exponentially relative to small orders, resulting in spreads increasing further.

Figure: Uniswap price change line

In the process of providing liquidity, LPs must also be careful of permanent loss.

Is it a permanent loss? For example:

Assuming Endy has 2000DAI and 1ETH (1 ETH = 2000DAI), there are 2 options.

Option 1: Provide liquidity:Provides 2000 DAI 1 ETH to create currency pair and contribute to income pool

- In case of exchange rate: ETH = 4000DAI (excluding DEX)

- During this time, the arbitrage trader buys ETH with Uniswap (cheap) and sells other DEXs at a high price, so that the number of ETH in the pool goes down and the price of ETH reaches 4000 DAI (lost arbitration time))

- Currently, Endy's LP Token = 2828 DAI 0.71 ETH, which is equivalent to holding 5657 DAI.

Option 2: Keep these parts and do nothing

- In case of exchange rate: ETH = 4000 DAI, Endy's assets are equivalent to holding 6000 DAI.

In similar circumstances, "providing liquidity for option 1" is a "reduction of 343 DAI, or a reduction of 5.72%, beyond the assets of option 2". like "not always". Loss. This is because the permanent drop will disappear once ETH returns 2000 DAI.

0Three

Borrowing platform: representing the Compound platform

At DeFi lenders, investors can earn interest by donating crypto assets to a group of funds, and when those deposits are received, investors can borrow other types of crypto assets. Currently, DeFi lenders generally accept "over-the-counter" products, that is, the value of the collateral offered by the cryptocurrency lender is greater than the actual loan amount.

For example:

- Businessman Alex has the DAI in his hands and doesn't want to sell it, so the lender puts the DAI in the pool to lend to people in need, benefiting.

-Bob sees DAI as a good investment opportunity, but doesn't want to sell ETH in his hands, so he uses ETH to trade 60% of his DAI.

- In this process, Alex and Bob can benefit from the tokens of the COMP platform.

Image source: zoni@Footprint.network

0Three

Income number: Income calculator "Income"

DeFi projects are now popping up all the time. As an entrepreneur, faced with multiple platforms, there are also many concerns.

Many platforms have different interest rates. How to choose ?

- Tools: LoanScan, DeFi rate

Interest rates change and rates change

- As a borrower, what should I do if I make a mistake?

- As a lender, I find that the interest rates are higher and the rates are higher for the exchange rates.

Not robotic and cannot see the store 24/7.

Yield Aggregator, DeFi revenue aggregation, can solve the above problems, machine gun technology is a complex business strategy that mixes up loans, finance, business printing, etc. to get good results. The following uses two platforms as examples.

Lazy:

It is the Ethereum protocol that allows users to invest in a token and always get the best return.We are currently providing financial support to Designer, Compound, dYdX, Aave, Fulcrum and other contract providers. When depositing Idle, it is based on IDLE or COMP tokens, not on tokens selected according to the APY instruction.

sympathize:

This is an Ethereum consensus, and its main goal is to generate maximum returns for digital rewards deposited by users.It offers comprehensive asset management processes and visual feedback only. Investors simply deposit money into the vault of the year, where the year can find the best performance based on the assets in the vault. Each chest has a different idea.

Take the concept of ETH as an example.

- ETH depositors in ETH Vault and ETH Vault depositors receive ETH under the responsibility of MakerDao and guaranteed DAI loans.

- The DAI loan is deposited in the Curve Finance pool, and the DAI is exchanged for LP tokens to establish value, and this LP token is secured in the Curve CRV loan facility.

- Convert CRV income to ETH, secure it in an ETH safe, etc.

- Traders will end up receiving interest on ETH and of course will have to pay the appointment fee.

Image source: zoni@Footprint.network

04

Highlights of DeFi projects

The wide range of investments in the DeFi world and the continued growth of the market make DeFi attractive and capable. However, just like investing, there are risks to investing in DeFi.

Weaknesses in smart contracts:Hacked (despite checking you will be attacked)

- Vulnerabilities of a contract

- Aggregator dependency thiab configuration vulnerabilities

dangerous platform

- Running Dust and Mines: Usually uses a very high APY (eg 500%) to attract humans.

- The value of the currency returns to zero. Currency prices rose sharply and the great whales were sold out of fear.

Profit risks:

- Loan: easy to liquidate (with late position)

- LP: free poo

hazardous work

- Sack seed phrase and key theft

-DeFi Verification: Make sure to remove the certificate for items you don't play and don't deposit large sums of money in a wallet.

05

How to measure a DeFi project

Buyers are likely to call whatever seems appropriate, if there are only a few DYORs. You can start with these 7 things:

Important platform information:

- Type, public channel, search

- Online time, classification of TVL information, number of users in 24 hours

Does it include brands like Coiningecko, CoinMarketCap, etc. ?

Fundraising problem (known investors): usually extras

Presentation of the project (github job site)

- type, benchmarking platform, different

- Listen carefully to bad news, good news and publication support

- Business model (although the proportion of groups is too high: within 15% it's the same)

-Github send frequency

Pay close attention to currency changes and other metrics (see Footprint Data Platform)

- In the short term, we can say that the exchange rate will skyrocket and take the market.

- Big sellers, resulting in a reduction in the value of the currency (AMM rule)

Be careful if the APY is too high.

-Many landmines use it to attract users.

- You can dig, but run fast and be careful.

community activities

- User questions (I always ask for airdrops or rainbows, but usually wool)

- The leader responds in a timely and responsible manner

DeFi has more freedom and is more secure than an investment, and its success is exciting and cannot be ignored. We hope to create an open and transparent financial environment with the participation of more and more entrepreneurs, organizations, investors and manufacturers.