DeFi mining coins are cut in half and then cut in half, why are they still "farming" happily?

Editor's Note: This article comes fromHot Wheels Community (ID: FHBT18), Author: Pepe, reproduced by Odaily with authorization.

Editor's Note: This article comes from

Hot Wheels Community (ID: FHBT18)

Hot Wheels Community (ID: FHBT18)

, Author: Pepe, reproduced by Odaily with authorization.

Liquidity mining will exist for a long time, but whether so many swaps can exist for a long time is a question.

Hello everyone, I’m Pepe. I recently saw an interesting emoticon package, as shown in the picture above (Special note: This picture does not represent any views on any of the following projects. We hope that every swap and every dex can live out their own Features, to help the ecological construction of the currency circle)

I think many children are thinking now, after a collapsed weekend, why are those defi farmers still looking for farmland for planting? Where is the risk here? Today we are going to break and break.

Let me talk about today's market situation first. At present, the second half of this DeFi has become pure mining. Various exchanges are gearing up to start their own "photographing cats and tigers" actions - by mortgaging their own platform coins to obtain new currency.

In order to retain users, it can be regarded as a struggle. Maybe they think that for leeks, as long as there are new coins and yields, everything else is not important.

However, I think it is still necessary to bring up the matter of liquidity mining again.

In fact, no matter what these are now called swap, or something else, as long as two coins are put in to make a market and give interest to tokens, you can understand it as an exchange.

Traditional exchanges rely on order book transactions to set prices. Market makers are also needed here. A certain amount of buy and sell orders are formed through the work of market makers (here are generally robots) to give leeks a better trading experience. Without them , many small exchanges may be in the state of "ghost town". The situation, because his family clearly stated that they would not engage in market makers.

I remember that we once told a story about a college student who made a market in the encryption industry. The market maker may lose money, so the market maker that this kind of project party or exchange finds is charged.

Now the story of these swap-type exchanges is that we hope that it will be a decentralized platform, and no one will pay to find this market maker. What should we do if there is insufficient liquidity and no users when it opens?

So I found another way and thought of a way. Since all transactions are A is replaced by B, and B is replaced by A, then we will make two fund pools of A and B, and the total product of these two fund pools is set as a constant.

If Pool A increases, according to the ratio of the total amount constant, Pool B will decrease accordingly. This ratio of increase and decrease is equivalent to the instant exchange price between two assets. The logic here can be seen in the following picture:

For market makers, there is no payment from exchanges or project parties, but they can share the transaction fee of 0.3% of the platform according to the proportion of funds. With the beginning of the liquidity mining boom, this has evolved into, mortgage Assets to the fund pool, in addition to transaction fees, you will also be given another incentive token.

Then your market-making income = 0.3% commission sharing + tokens received * unit price

Of course, at this time, there is no such thing as lying down and earning an annual income of tens of percent easily. Otherwise, everyone in the currency circle will become Buffett in a few years. There are several risks here:

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1. Impermanent Loss

We have mentioned this a little bit before. This is actually a defect of this trading mechanism. For the trading pair A/B, if the ratio between them is maintained in a range, it is fine, but if A is strong and B is weak, long-term market making Afterwards, it will appear that more of your redeemed shares are B, and it may even be possible that the value of the assets you withdraw is less than the value at the time of investment, even after the handling fee is collected.

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2. The price of the trading pair fell

Whether it is purely for market making or for mining those sushi salmon, two different assets need to be locked. During this period, the currency price is fluctuating, and you need to bear the risk of price decline, and there will also be mining years. The profit from the transformation cannot offset the asset loss caused by the fall of the locked-up currency.

An overseas sister started her journey as a TRON farmer last Thursday:

Since trx fell by 23%, salmon fell by 90%, pearl fell by 75% and tai fell by 80%, she initially invested 5165U, not only did not make a profit, but also lost 1965U in the end.

Therefore, whether it is market making or mining, the cost of your tokens and the timing of entry are very important. If the timing is not selected well, it is also a farm with an annualized rate of several tens of times. If others earn so much, you may not be able to pay back the capital.

Here, to reduce the risk, one is to choose a stable currency trading pair, such as eth/usdt, which is relatively less exaggerated than the decline of the farm currency, and like eth may rise back at some time, of course, such trading pairs are generally , more funds are added, and the income will be much less.

There is also some hedging and hedging to reduce the risk loss caused by the plunge.

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3. Platform reliability and hacker risk

Now the funds are all stored in the contracts of these exchanges, and there is an unknown risk of funds. Personally, I do not recommend that all positions be placed on a single platform.

The above is the basic situation of a large part of liquidity mining today. It should be said that being a liquidity market maker in dex, or liquidity mining, will exist for a long time, because this is a kind that is suitable for on-chain and small projects Growth transaction model.

For users, if they hold assets for a long time and don’t care about short-term fluctuations, they can consider using a certain position on the top platform to do this kind of liquidity market maker for a long time to earn coins. This is similar to grid trading, even more The grid is also more convenient. If you have done the grid, you should know that you need to set a very fine trading range.

If you are a price-sensitive player, you may pay more attention to the mining yield or choose to make a market when the market is volatile or when the trading volume is strong, and leave the market when there is a unilateral market trend.

Back to today's title, why many DeFi mining coins have been cut in half and then cut in half, but the "farmers" are still farming happily.

First, as we said above, liquidity market makers will exist for a long time. As long as the platform is in good condition, there will always be funds staying here.

In addition, there are still many yields that are considerable, such as sushi/eth. Although it is currently in a range of capital outflow and income decline, its daily interest rate is still 3.21%:

That is to say, if the asset's single-day decline is within 3 points, or there are other hedges, sufficient profits can still be guaranteed.

So why do you say that some people are still digging it.

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And why can a certain rate of return be maintained here? (Note: The following factors cannot be maintained for a long time). One is that some of the large early mining investors may not sell directly, which locks up the large amount of selling pressure, like Sushi’s own Take 20,000 eth to enter the site to dig, I think other projects can be used in the same way. The other is that when the price drops, it will attract some speculative funds. This is the same as when the ampl drops below 1U and someone buys the bottom. At this time, not only can the game rebound, but mining also has a compound interest income.

Of course, the risk of speculation is still very high, so there is also a way to play is to find this kind of high-end early stage, dig in for a day or two, and withdraw before the price drops. Generally, you can earn dozens of points, and then go Find your next target.

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