Detailed Explanation of Liquidity Mining——Road to Riches or DeFi Mistake

Produced | Odaily (ID: o-daily)

Produced | Odaily (ID: o-daily)

On the afternoon of August 6th, Odaily held the second online debate of "The Quibbler" - [DeFi Liquidity Mining Boom - Brilliant Prospect or Flash in the Pan].

The debate was hosted by Mandy, the founder and CEO of Odaily, and 8 guests were invited to participate in the discussion.

Among them, the positive party believes that [the flow of the protocol layer has brought new opportunities, and the future can be expected], and the guest team includes: OKEx CEO Jay Hao, YFI-yip8 proposal initiator Lao Bai, Multicoin Capital executive director Mable Jiang, and The Force Frotocal & ForTube founder People David Lei.

The opposing side believes that [the liquid mining model is unstable, and the road is long and long]. The guest team includes dForce founder Yang Mindao, NestFans forum 12, Axia8 Ventures founder Wayne Lin, and FTX COO Constance.

The entire debate lasted for about two hours, and the debaters from both sides fought with each other with golden sentences frequently. Odaily hopes that readers can get some market inspiration through the brainstorming of the guests, grasp the wealth opportunities brought by this DeFi liquidity mining, and learn to avoid the risks in it at the same time.

Yang Mindao: Every day, the Ecology of Compound burns 250,000 US dollars of useless subsidies to these pure arbitrageurs. Of course, for us, we are happy to see the results. We help everyone dig COMP and tear down the walls of capitalism.

Jay Hao: From an economic point of view, liquidity mining is essentially a "user subsidy", because the project party rewards the income farmers who provide liquidity for DeFi with tokens issued at almost zero cost.

Mable: The core of the liquidity mining design of many DeFi projects is that arbitrageurs are needed to balance the system. Only with liquidity providers can the market be developed.

Lao Bai: In my opinion, liquidity mining is a marketing method used when new projects are cold-started, and it is a growth hacking technology specially customized for DeFi projects. Whether Yield Farming can continue depends on whether the long-term value brought by the business can cover mining costs.

Twelve: It is not recommended to buy DeFi Token in the secondary market, because it is difficult for the early DeFi Token to have a balanced market price; if you are really optimistic, you can participate in liquidity mining to obtain the Token.

Wayne Lin: I think DeFi subsidies are subsidizing "equity", so unlike Didi, ofo, Luckin, etc., long-term sustainability is important.

David Lei: DeFi has obviously gained incremental users in the past month, and has broken away from the stage of zero-sum game and entered a period of growth.

Constance: DEX's current high transaction costs, lengthy confirmation time, and pseudo-decentralization of key information nodes have prevented DEX from being popularized on a large scale so far, nor can it give users a good experience.

Mandy asked the affirmative: 1. Why does DeFi need liquidity mining (liquidity mining) and yield farming (yield farming), and why is it so popular recently? 2. What value does liquidity mining bring to the DeFi ecosystem? Is this value sustainable? Why?

Jay Hao: First of all, the first question, because liquidity is the foundation of DeFi's survival and development. If DeFi wants to survive and grow, it must provide liquidity to it. Liquidity mining and income farming inject a huge amount of liquidity into DeFi projects through economic incentives. From the current point of view, this is very successful.

From an economic point of view, liquidity mining is essentially a "user subsidy", because the project party rewards the income farmers who provide liquidity for DeFi with tokens issued at almost zero cost.

Similarly, income farmers continue to trade in the DeFi system for higher returns, indirectly providing liquidity for DeFi. It can be said that liquidity mining and income farming are complementary to each other. "Providing liquidity--- Obtain token income”, as the price of tokens rises, people are more motivated to provide liquidity, thus forming a positive cycle, making DeFi show explosive growth.

The recent popularity of DeFi and liquidity mining is largely caused by the Compound project. As the price of COMP tokens continues to rise, and the locked-up market value of Compound once surpassed that of Maker, the former DeFi overlord, liquidity mining has shown great power, so it has been favored by the market.

Regarding the second question, in fact, as mentioned above, the greatest value of liquidity mining is to bring a huge amount of liquidity to the DeFi ecosystem. The sustainability of this value depends on the token distribution scheme in liquidity mining. For example, Compound will distribute about 2,880 COMP tokens every day for the next four years until the Compound protocol stops providing tokens. . When token distribution stops, liquidity mining ends.

Lao Bai: In my opinion, liquidity mining is a marketing method used when new projects are cold-started, and it is a growth hacking technology specially customized for DeFi projects. Similar to Airdrop or Lockdrop, it attracts community users for new projects by diluting the interests of the project development team, and at the same time initializes a reasonably distributed network of token holders.

Since June, DeFi projects represented by COMP, BAL, and YFI have started to carry out liquidity mining. These projects have been put on the shelves through DEX, and within a short time after being put on the shelves, they have been bought at more than 10 times the issue price. After exporting the market price Gradually build up trading depth. The sudden wealth effect has caused the DeFi sector as a whole to attract the attention of cryptocurrency investors.

As for liquidity mining or yield farming, this is not a new concept, everyone should know Fcoin. Liquidity mining has brought a lot of hot money to the DeFi ecosystem. The demand for stablecoins continues to strengthen. The increased demand for Dai has driven up the prices of various mortgage assets, especially the price of Ethereum.

Whether Yield Farming can continue depends on whether the long-term value brought by the business can cover mining costs. In various DeFi projects, I personally think that liquidity mining can improve the quality of AMM more significantly.

In order to subsidize the impermanent losses of market makers, Balancer provides about USD 1.45 million worth of BAL token compensation every week, attracting more funds to settle in, increasing the depth of the fund pool, effectively reducing the slippage of users when performing token swaps, and improving the user experience. In the DeFi ecosystem where TVL is king, Balancer's ranking has risen rapidly after starting mining, making its business more competitive.

Mable: Let me answer the first question first: firstly, liquidity mining directly serves the functions of token distribution and incentive users; many new generation DeFi tokens have not experienced public offerings or ICOs, only a bunch of private offerings. Holding tokens, which is not conducive to motivating users. Only when users take the tokens (the logic of the platform currency), will they be more motivated to use the product.

What follows is to attract more liquidity into the system and incentivize liquidity providers to join the system. A teacher on the opposite side once famously said that the primary use case of DeFi is arbitrage. Many people may not have understood it at the time, but in fact this is indeed a natural need. The core of the liquidity mining design of many DeFi projects is that arbitrageurs are needed to balance the system. Only with liquidity providers can the market be developed.

Furthermore, from a macro point of view, hot money needs to look for income and outperform inflation. Naturally, the hot money will go to the place with the highest return until the large amount of funds entering evens out the return. DeFi money can flow very quickly, and it is not restricted by geography, so when hot spots arise, it can gather into an agreement the fastest.

Regarding the second question, as the previous two teachers said, liquidity mining actually serves as a key leverage point for growth hacking. The most direct value is that because of the high returns, everyone is motivated to study how to obtain high returns. Balancer liquidity provision + mortgage, which is usually very complicated and has a high threshold, has been seriously done in order to make money. Try to understand the impermanence loss and how to see the impermanence loss in the pool is high, when it enters the death spiral. That's great progress. So it is the wealth effect that motivates everyone to learn.

Secondly, after you have experienced some hackers stealing coins (and possibly running away), you will be more cautious about the choice of protocol, and will evaluate whether the administrator key has been destroyed. If it is a fork, you will see where the contract is. It has been changed, as well as whether there are changes in the distribution mechanism, which protocols it interacts with, and so on. This is a relatively healthy trend. Although the purpose is for the safety of funds, it does prompt many people to have a deeper understanding and thinking about the security of DeFi. I think that's already good value.

Of course, some users will reflect that the product experience is not intuitive enough, which actually indirectly drives the creators of the DeFi ecosystem to seriously think about how to provide a better user interface and product experience.

David Lei: Why are liquidity mining and income farming so popular? This brings up a series of complex reasons such as marketing and human nature. First of all, users do not need to spend additional funds to buy coins, but only need to use existing assets to get free mining token rewards, which is an irresistible benefit for any rational user. Secondly, for the project side, the increase in users and locked positions brought about by liquidity mining or income farming is real. Take my ForTube platform as an example. On Tuesday, we launched the Liquidity Mining Mining incentives, in just two days, the amount of assets currently locked on the ForTube platform has exceeded 8.9 million US dollars.

As the previous guests said, whether it is liquidity mining or income farming, the benefits brought to users are real, and it is also in line with the business characteristics of the project, not hype. Widely adopted by projects in the DeFi circle, this is also the dividend of the era of DeFi in the early days of its explosion. I am here and encourage everyone to actively participate in it.

As for whether the value brought by liquidity mining and yield farming is sustainable, I think this is a sure thing. The reason is very simple. The emergence of DeFi is to reduce the intermediate links as much as possible, "reduce the middleman to make the difference, the borrower saves more money, and the lender makes more money." Moreover, through the DeFi lending platform, for the first time in history, people can obtain low-cost funds from countries with cheap funds such as the United States, and then lend them to users in developing countries to achieve efficient global allocation of funds. This is of great significance. The advantages of Uniswap, such as concise pages, no KYC, and simple operation, are now gradually being recognized by users. More and more users are transferring from CEX to DEX, which also allows us to see the potential of DeFi. In the future, this market will will also increase substantially. Therefore, I am optimistic about the long-term development of DeFi after user subsidies.

Mandy asked the opposite: 1. Behind the popularity of liquidity mining, what are the biggest problems and challenges? 2. Which current projects, models, and phenomena make you feel that there are certain hidden dangers? Why? What risks should general investors be wary of?

Yang Mindao: Good and bad are mixed, and bad money drives out good money.

In particular, we have seen exit scams of several YFI-based forked coins recently, and ran away with money. Forked coins generally attract retail investors through ultra-high returns (very little circulation in the early days and easy to be manipulated). Especially for AMMs like Uniswap that can freely list coins, there are also many fake tokens of various fake well-known projects. I think it is very similar to the crazy time of ICO in 2017. All kinds of ghosts and snakes come out. If the industry itself does not practice self-discipline , may affect F2Pond just like the bubble burst of ICO at that time. In a recent meeting in Shenzhen, someone pitched me no less than ten ideas for forked coins in one night...

In fact, China's overall market has not yet fully emerged from the bursting of the big bubble in 2017. As a practitioner, I still cherish this opportunity now. In addition, for the project side, in fact, liquidity mining can really attract users, and how to attract continuous participation is a key issue. There are also many innovations in this market, but the effect has yet to be tested.

For example, the model of Compound, which was highly respected by the previous guest, is very problematic. The side effects of this model have already been manifested. Compound’s administrators and arbitrageurs are catching mice, hiding and hiding, and now the entire Compound’s balance sheet has also been seriously distorted. For example, DAI accounts for the entire balance sheet, 61% of the asset side is DAI, and the borrowing side is even more outrageous, 88% is DAI.

Looking at the balance sheet above, it feels like a high-end casino.

In other words, most of the incentives for Compound are given to DAI arbitrageurs rather than real protocol demanders. This is the biggest side effect of hard-coding incentives at the protocol level at one time. It can be said that the Ecology of Compound will burn 250,000 US dollars of useless subsidies to these pure arbitrageurs every day. Of course, for us, we are happy to see the results. We help everyone dig COMP and tear down the walls of capitalism.

Suggestion to investors: For liquidity mining, everyone should pay attention to the counterfeit currency of Uniswap, which is a pure scam. When you want to invest in such a token, you must pay attention to whether it is an official token. tokens.

The other is the risk of various forked coins. For example, there have been multiple YFI-based forked coins running away recently. In addition, we also heard that the market is now queuing up fork AMPL and Uniswap, etc. The capital pool ratio of this type of project is generally the most extreme 98/2. If investors do not understand the risks of providing liquidity on Uniswap and Balancer, it is not recommended to participate.

Most of the projects run faster than anyone else, and the projects that ran before have preset back doors. For this kind of forked currency, everyone should be extra careful about the project of the anonymous team. The anonymization of this type of project is often a pavement for running away.

Twelve: I think there are several important issues as follows:

The first is the code security issue of the DeFi protocol itself; the newly launched DeFi has not been verified by the market, and liquidity mining is immediately started, and some security issues at the code level may arise. This is very fatal. Once a code loophole occurs, it will usually involve financial security issues and cause significant asset losses to participants.

The second is the design of the incentive mechanism of the DeFi protocol; is the design of the economic model correct? Is it an effective incentive? Because most DeFi developers are not professional financial players, they may be more inclined to solve the problem of project cold start in the early stage, while ignoring the long-term development of the protocol itself.

The third is the high threshold for user participation; DeFi is built by smart contract codes on the chain, and ordinary users need to have a certain understanding of the attributes and characteristics of smart contracts in the process of participation, and there are some learning and cognitive thresholds inside.

My advice to ordinary investors: Be cautious when operating assets or interacting with smart contracts, and don’t make mistakes; before participating, you must do a full research on the target DeFi protocol itself, including the protocol code , and mechanism design; at the same time, you have to ask yourself whether there is such a need for DeFi. If not, then it is not recommended to participate, and you must not be fomo; finally, it is not recommended to buy DeFi Token in the secondary market, because the early DeFi Token is very popular. It is difficult to have a balanced market pricing; if you are really optimistic, you can participate in liquidity mining to obtain the Token.

Wayne Lin: I personally think that the problem behind the popularity lies in this "subsidy". New projects directly come up to get token subsidies, and old projects (even suddenly switch to DeFi) launch liquidity mining subsidies to gain attention. The market and marketing gains are definitely possible, but I think DeFi subsidies are subsidizing "equity", so with Di Unlike Didi, ofo, Luckin, etc., long-term sustainability is important.

Of course, many great and successful companies will rely on subsidies to promote their start-up in the early stage, but you can’t see these companies giving out “shares” to their users and customers to subsidize, which is equivalent to treating their own equity as “cash red envelopes” or “transactions” Improve the "given", then the market's awareness of your "shares" and relative "functions" for a period of time are like this.

In the future, I personally think that there will still be liquidity mining, PNL mining, etc., but this model is currently over hyped, and the difference in liquidity mining between different projects is also very small.

As for the risks that investors should be alert to, of course, it is their own height of cognition and motivation cognition. Investment depends on the future value of a product/protocol and its outlook. For investment, you are welcome to go to each tele to study and discuss a bunch of IUOs every day (then we may be mutual friends). After studying the rules and rhythms, you can make your own decisions. The key points Still be responsible for yourself.

Constance: First of all, I don't think liquidity mining can be regarded as mining in the true sense. Different from computing power mining that we are familiar with, liquidity mining refers to rewarding users who participate in lending (fund flow) at the smart contract level.

We know that computing power mining uses resource consumption as an endorsement, and then obtains token income, but for liquid mining, the tokens obtained by users through liquid mining are usually officially issued, and their value is endorsed by the project. own reputation.

Secondly, liquidity mining will largely generate bubbles. The total value locked in DeFi is billions, with Compound alone exceeding $100 million. The Compound project has received wide attention and remains hot, and the value of its tokens has also been rising all the way. But at present, the source of these enthusiasm is mostly speculators wanting to get a piece of the pie, so behind this superficial prosperity, the real value generated through lending may not be much, so liquidity mining will largely lead to bubbles.

secondary title

tit for tat

Jay Hao asked Yang Mindao: Good afternoon, Mr. Mindao, my question is that dForce also issued its own token DF, but you represent the opposite side, it should be because the incentive model of DF is still somewhat different from most current projects, right? As a "DeFi OG", which incentive mechanisms do you think are more desirable for liquidity mining? Which ones do more ecological harm than good?

Yang Mindao: There are several modes of mining in DeFi. From the distribution mode, such as Compound, which is written at the protocol level at one time, modification and adjustment need to be completely governed on the chain, which is very troublesome. Side effects, I mentioned earlier.

The distribution of another system is similar to Sythetix's phased and phased flexible mining mode, which is now adopted by dForce. The advantage of this model is that it is flexible enough to link multiple pools and protocols.

dForce is doing protocol matrix, this stage is mainly to motivate USDx, GOLDx, dToken. DF’s mining distribution will come from our gravity pool. We are now divided into three pools to encourage different protocols. For example, the “Champagne Tower” pool mainly motivates our interest-earning asset agreement (interest-earning assets help users mine COMP); The No. 2 pool is GOLDx/USDx, which mainly encourages the minting of our gold tokens and USDx; the No. 3 pool is the DF/USDx pool, which stimulates the liquidity of DF and USDx and at the same time encourages minting.

Let me just say that the data is easier to understand:

In the mining mode, multiple pools strengthen each other. Judging from the effect of the current mining incentives, it is still very obvious. In more than a day, the contract lock-up has exceeded 20 million US dollars, and the global lock-up ranks 18. Our GOLDx coinage has exceeded 1 million US dollars, ranking 7th in PAXG's reserve holdings; it is the third largest gold token after XAUT and PAXG (as you know, GOLDx has not been released for a month).

Moreover, the size of GOLDx's liquidity pool on Uniswap is 20 times that of PAXG, which means that the slippage of trading GOLDx on dex is the best among all gold tokens.

The multi-pool rotation in the mining mode, mutual value enhancement, and multi-point detonation are the biggest differences between us and most of the mining incentives in the market.

You can see that the returns of the above three pools are increasing step by step.

Therefore, to answer the questions heard by the previous guests, I think that if liquidity mining is only to drive the minting of assets outside the system, such flow is difficult to retain, and priority should be given to encouraging the accumulation of assets in your own system. From the perspective of the entire DeFi industry Look, the biggest beneficiaries of mining are asset agreements, such as DAI/USDC/USDT. Some of our experience also hopes to give China's DeFi entrepreneurial team a perspective of observation.

Yang Mindao asked Jay Hao: Since the launch of COMP on Coinbase, many exchanges have been actively launching DeFi tokens, but in the short term, the results are not satisfactory. Recently, the media counted more than 30 DeFi tokens listed on an exchange. More than half of them broke badly after rushing high. Many people also think that the addition of fuel to the exchange may make the fire burn out faster. How do you think the exchange should choose and support DeFi projects?

Jay Hao: When exchanges choose DeFi tokens, they look at whether the DeFi project has real application value and whether it has potential for future development, rather than judging by the temporary currency price of DeFi.

I think the current support of exchanges for DeFi should not be limited to the option of listing coins. Take OKEx as an example. As the world's leading trading platform for encrypted assets and derivatives, OKEx has a huge user base and traffic, which can be used as a new traffic entrance for DeFi projects.

For example, OKEx is currently the world's first trading platform that integrates Dai deposit interest rates. By integrating OK Mining Pool with Dai, users can directly deposit Dai into Dai deposit interest rates on the OKEx platform to obtain real-time interest and the interest rate provided by OKEx. Exclusive 1% bonus.

As shown in the figure above, in the future OKEx will also strengthen cooperation with its existing DeFi star projects in business sectors such as listing, mining pools, and Yubibao. Finally, it will focus on DeFi infrastructure and development tools. Currently, we are also working with ChainLink , BNT, etc. to cooperate.

Twelve Questions: The price of YFFI, another fork of YFI, plummeted on Monday, from a maximum of 501.14 US dollars to 5.85 US dollars, a drop of 98.3%. Many analysts say that they are a professional "exit scam". What do you think of this situation? How should users judge the risks of these endless projects?

Lao Bai: According to various sources, YFFI is a project initiated by a member (OG) who is close to the YFI community. It has been officially endorsed by yearn, and it may be a measure to check and balance YFII’s liquidity siphon on yCRV (YFII’s yCRV The mining pool attracted a maximum of 200 million USD in yCRV, and the Dai mining pool attracted a maximum of USD 60 million+ in Dai).

Liquidity mining is a growth hacking method. If a project lacks the support of the community and actual business, it will fall to this point and become a pure fund.

In addition to the three officially endorsed projects, there are more projects such as YFIII, YYFI, and YFX that have implanted backdoors in the mining contract, specifically to harvest novices who do not understand technology.

The early method of fraud was relatively primitive: without destroying the additional private key, a large number of tokens were issued directly to exchange the user’s DAI in the balancer pool; later, a more advanced one added the function of the project side to withdraw funds in the mining pool, and the money charged will be taken away.

If ordinary users want to obtain high returns, they need to conduct a comprehensive investigation of the project, including the development team, community atmosphere, code review, etc. This is undoubtedly a high threshold that prevents public participation. In order to solve this problem, YFII developed the Vault DeFi wealth management agency protocol, which provides interfaces for wallets and exchanges, and participates in DeFi mining with one click.

The YFII project itself is positioned as a public-oriented DeFi financial management agreement, which can eliminate the complicated contract operation link of Yield Farming, save high Gas fees, and facilitate the participation of small assets. Users only need to recharge assets to the YFII Vault agent to obtain the best returns in the market.

I heard that many users spent more than 0.5 eth in handling fees when participating in YFI. If you use YFII Vault, you only need one recharge + one withdrawal, and you can complete it.

The following are the advantages of YFII:

1. YFII Vault is code audited by a number of contract engineers in the YFII community to ensure contract security to the greatest extent possible. In the future, strategic insurance will be applied to decentralized insurance services such as NXM to further ensure the safety of funds.

2. Community members can submit Yield Farming strategies, and the YFII governance mechanism will vote for the best strategy and deploy multiple strategies in Vault.

3. YFII Vault adopts a strategy closer to the characteristics of the Chinese market to help ordinary users optimize the yield of DeFi financial management.

For more details, please refer to YFII's YIP-1https://yips.yfii.finance/YIPS/yip-1。

Old White Question No. 12: Brother No. 12, you should be the first to write an article comparing liquidity mining with FCoin. Later, there were many opinions discussing the ineffectiveness of the current incentive model. So what do you think is considered What about effective incentives? Are there any examples?

Twelve: Professional players in the NEST community have written such an article, which is indeed very exciting, but it was not written by me, and it is worth learning.

If the incentive itself is not to solve the mismatch between supply and demand, but to motivate the entire transaction closed loop itself. Then it is easy to have a problem, that is, the transaction is for the incentive itself, not for the transaction demand; that is to say, the person who gets the incentive needs to complete the closed loop by himself, so once it joins the incentive, it does not care about the real demand at the beginning. At this time, most of the incentives are speculators.

Because speculators swiping orders theoretically also provide a certain amount of liquidity, and because the benefits of the entire system are evenly distributed to participants (excluding operating costs), as long as the entire system can maintain a positive value, traders will gain more than no incentives. better earnings.

But this benefit is just a spillover effect of incentives, and more speculators are chasing an "illusion of income", that is, early participants get a higher distribution due to the increase of later participants.

If an enterprise, project, product, or system does not create unique value, no matter what incentive mechanism is adopted, it will be impossible to bring real prosperity and stability. Everything will be temporary, and someone will always subsidize others.

In the incentive mechanism, it is very difficult to minimize unnecessary incentives and ensure the compatibility of each incentive. The pursuit of explosive incentives is doomed to be wishful thinking and will collapse sooner or later.

The core of incentives is: there is some uncertainty in the value creation process, and the cost of current certainty is exchanged for a bright future in which uncertainty is gradually eliminated. For example, the gap between supply and demand. When the supply is not stable enough, the demand cannot enter the market. At this time, supply incentives are used, or when the demand is not strong enough, the supply cannot be invested (the scale is too large), so as to subsidize a certain demand. is meaningful. It is only reasonable that the incentive provider should be compensated through the market value of stable supply and demand.

Wayne asked Mable: V God also criticized Yield Farmer recently, and said that high interest rates are "unsustainable in the long run". How long do you think the current high interest rates in DeFi can last? Speculators retreat and the bubble bursts. Will the situation happen? From what dimensions will you judge whether the DeFi target is reliable and invest?

Mable: Before answering this question, let me make a digression. I did a statistic on both Twitter and WeChat before — “Where will the DeFi bubble go?” The highest vote on Twitter was ETH, accounting for 36%, followed by Bitcoin — 30%, and stablecoins — —18%, and “staying in DeFi” accounted for 16%. According to WeChat statistics, stablecoins accounted for 41%, ETH and “stay in DeFi” accounted for 22% and 20% respectively, and BTC only 17%.

This comparison of votes is more interesting and can explain a lot of problems. You can make a lot of interpretations on your own.

Although the interviewees were definitely biased, one of the things I felt at the time was that the domestic groups participating in the statistics had a higher preference for profit realization than long-term belief in decentralized finance and Bitcoin value storage.

Then back to the question just now, high interest rates are indeed unsustainable in the long run, but I think the money behind many bubbles will stay in the ecology, and I personally agree with the result of twitter. So there is no such thing as chicken feathers all over the place.

When Ethereum rose sharply a few days ago, it was visible to the naked eye that many DeFi profits rolled directly into Ethereum instead of selling and withdrawing funds. As long as Ethereum is relatively stable and healthy, the current situation is fine. The core point is that many funds for head mining are relatively smart at present. Those who will participate in the future may be attracted by the high interest rate, but they see that the mining income is not ideal, the gas fee is too high, Or when impermanence loses a lot, they usually choose to withdraw.

The most notable difference between DeFi mining and the ICO craze is that there is no private equity lock-up, and everyone can enter and exit at any time. Of course, even under the premise that capital mobility is easy, spreading flowers by drumming or spreading flowers by drumming will essentially have a group of victims. To put it a little further, it is not just liquidity mining, but the topic of blockchain as a financing tool. Now as the new model on Uniswap is becoming more and more common, as I said just now, compared with the previous ICO, there is a significant difference that everyone will find that the cycle of "issuing coins-pull-sell" has become more and more The time is getting shorter and shorter, and the speed of returning funds (or losing money) of many people involved in speculation is very fast.

It is undeniable that there have been some zeros, such as pure forks of some DeFi mining projects (the name will not be mentioned), but the private key of the administrator has not been destroyed, and ran away, but this is in any hot market environment are unavoidable.

Every investor should still make a risk assessment of their own odds to allocate how much to participate in liquidity mining, how much to participate in IDO new creation, and so on.

If we invest by ourselves, we will carefully examine whether the design of a mechanism motivates the part of the system that should be encouraged (for example, the purpose of the balancer is to encourage lp to come in, and the incentives and results match accordingly), or whether these incentives/subsidies have caused False prosperity. A good liquidity mining mechanism design should be able to better help the cold start of the project and attract participants who can provide value in the ecology for a long time. Another very important point is to consider the composability risks of DeFi and the superimposed risks caused by the interaction of different contracts.

What I have seen recently, such as the design of some improved automatic market makers, have indeed used other protocols to increase depth and reduce slippage very effectively, but the risk that comes with it is the introduction of external lending pool liquidity Sexual risk, short-term liquidation risk, and so on. Or some DEXs have a design similar to BancorV2, which introduces an external oracle machine, which makes the market-making curve smooth within a certain price range, theoretically eliminates impermanent losses, and greatly improves the capital utilization of market makers. Risk of front running attacks by arbitrageurs. I think these explorations are very good, but we need to pay attention to the fact that good fortune depends on misfortune, and misfortune depends on good fortune.

Mable asked Wayne: In fact, speculation is a very normal behavior in the financial market. Yield Farming not only helped some early DeFi projects to complete the cold start, but also brought a huge wealth effect to "early bird farmers". In contrast, the centralized encrypted trading market is more likely to be "caught" because of problems such as opacity and centralization. So how do you think investors should choose reliable investment targets?

Wayne: In my opinion, regardless of whether the subject matter is centralized or not, we should still pay attention to 1. the underlying logic of the project/product; 2. your investment strategy/evaluation ability.

For the yield farming category, the teacher above has also analyzed it, and I agree with it. When we invest in projects, we need to know what we are investing in, which is the speculative income from IUO's PND appearance. Or, for example, the value of a DeFi project's future token use. If it is the latter investment, then such as the originality of the code of the project, the robustness of the protocol, etc., all the way to the market entry, the overall market development strategy, and the quality and structure of the team will be very important.

The imagination space of DeFi is indeed quite large, but I hope that everyone can look a little farther into the future. Finance covers many subdivided fields. Taking Injecgive Protocol, which we personally serve as consultants, as a hope to introduce traditional financial funds and transactions Amount of layer-2 derivatives DEX. Then we will look outside the so-called "currency circle" and "DeFi" circle for things that can expand the capacity of the encrypted asset field.

For example, we have confirmed the participation of universities such as MIT, Columbia, University of Chicago, Duke, Stanford, etc. in the IDEA Derivatives Design Contest, so such outreach can allow us to see incremental value (escape from zero-sum) is also a good investment target.

Constance asked David: According to statistics, from May to June, the transaction volume of DEX has increased by 70%, but the number of users has dropped. At the same time, the transaction fee of Ethereum has recently broken a new high, and it is still being pushed up by DeFi. The voice thinks that this wave of upsurge has brought about a lot of fluff, but the number of real users has actually decreased, and the projects are all vying for the same group of people, which is likely to be a zero-sum game. What do you think? ForTube has just launched liquidity mining, what are your expectations for the market?

David: If we only look at the data in June, we will indeed come to the conclusion that DeFi is just puffy. However, if you add the data for the entire month of July:

From the perspective of the number of users, it was at the end of June that the number of Uniswap users began to increase explosively, from about 3,900 to a maximum of 13,865. The current data is 12,583 users in 24 hours, bringing in transactions of 84.99 million US dollars This data has blown up many second-tier exchanges.

So, let’s use the data to speak. DeFi has obviously gained incremental users in the past month, and has broken away from the stage of zero-sum game and entered a period of growth. As for how many users will develop in the future, ForTube has just recently released a forecast in conjunction with Nova Research Institute. We expect that by the end of this year, the locked-up volume of DeFi will reach 15 billion US dollars.

Speaking of the liquidity mining that ForTube has just launched, we have adopted a flexible mining model. This time, ForTube revenue mining is divided into four rounds of "wind, forest, fire, and mountain", each round is a week, according to product data and market changes , to dynamically adjust the asset pool in the ForTube protocol.

For example, the current "wind" round supports deposit and mining of HBTC, USDT and BUSD. After the start of this round of mining, I will provide you with the latest data:

This round of ForTube’s liquidity mining started from Ethereum block 10591168 (12:36 on August 4th, Beijing time). Up to now, ForTube’s locked assets have reached 8.96 million US dollars, and it is still increasing. The response has also been very positive so far.

So the conclusion is: First, DeFi has broken away from the zero-sum game stage and is expanding the market pie. Second, I am personally optimistic about the market prospects in the long run, and I will work with the team to serve users well.

David asked Constance: FTX CEO SBF tweeted not long ago that "DeFi's fiery bubble may burst, leaving an embarrassing mess, but it may also mark the beginning of real decentralized finance. Recently FTX also released DEX entered DeFi, how do you think the bubble will burst? Where should the real decentralized finance start?

Constance: In fact, what SBF wants to express is that the ultimate goal of any project should be to build a product that people really want to use that can solve user needs, rather than a product that just gives users monetary rewards to stimulate their use. However, many DeFi products on the market now rely more on money to motivate users to use them. Assuming that these products can acquire enough customers through monetary incentives in a short period of time, and eventually form a healthy closed loop, then they may survive.

Otherwise, when liquidity mining cannot generate high benefits and the product cannot meet the real needs of users, this bubble may burst.

There are several hidden dangers in the current popularity of DeFi: 1. The security of smart contracts; 2. Whether the actual demand for DeFi exists; 3. Whether the demand for DEX itself is sustainable.

When we entered DEX, we also saw some long-standing pain points in the DeFi ecosystem that needed to be resolved. DEX's current high transaction costs, long confirmation time, and pseudo-decentralization of key information nodes have prevented DEX from being popularized on a large scale so far, nor can it give users a good experience. These problems actually lead to the poor liquidity of DEX, and then the user's trading volume is small, which is a vicious circle.

This time we launched Serum to solve these problems together, to launch a fully decentralized exchange with a centralized exchange experience for users, and to provide strong liquidity. Serum will be very focused on providing the full experience of a central limit order book on the blockchain: with the throughput and capital efficiency of a CEX, and the minimal trust requirements of a DEX.