Zhang Yuanjie from Conflux deeply analyzes DeFi investment, mining and risk control strategies
foreword
foreword
In terms of mining, investment and risk control management, Zhang Yuanjie said in class that first of all, we must pay attention to the pioneering model and innovation of liquidity mining projects; secondly, we must study the economic model of the project; thirdly, we must pay attention to the security of the project and the team behind it; finally , choose the liquidity mining pool carefully.
Faculty Profile
Faculty Profile
The following is the essence of Zhang Yuanjie’s course content, which is hereby compiled by Huobi University.
secondary title
DeFi Aggregator Yearn: Maximize Liquidity Mining
Let me first tell you about Yearn, which achieves the ultimate in liquidity mining. Yearn is an aggregate financial management platform that supports multiple DeFi protocols. It will automatically move positions between protocols to help depositors obtain the highest financial returns.
Let me give you a small example to make it easy to understand. You bought Yu’e Bao, a currency wealth management fund in Alipay. In fact, you don’t know what kind of underlying wealth management product it bought. It may be allocated to housing loans, consumer loans, and bank deposits for work. Wait, it can be said that Yu'e Bao is an aggregator.
Yearn's first product is to aggregate USD stablecoin wealth management, and invest USD stablecoins into different underlying USD interest-earning agreements. It will help us automatically distribute according to the income level of USD stable currency in different lending agreements. For example, if you deposit a sum of money, it will help you deposit it in the place with the highest interest rate first. When you withdraw money, you will first withdraw the money from the agreement with the lowest interest rate, and everyone will share the interest income equally, so it is like you buy Like Yu'e Bao, you are the same as all investors who buy currency wealth management funds, and everyone shares the interest equally. It is equivalent to gradually letting the underlying interest-bearing agreement of the blockchain lending agreement reach the market, and the interest differences between different lending agreements will be evened out.
YFI is the governance token of yearn.finance created by Andre Cronje and his team. There is no pre-mining, no pre-sale, and no investors. Although it is a three-nothing claim, since YFI has no investors, all tokens are allocated to liquidity providers, and everyone soon paid attention to this project and became crazy about it. The funds of YFI wealth management once exceeded more than one billion U.S. dollars, but YFI only had 30,000, and it was quickly exhausted. Everyone felt that it was not enough, and proposed to continue to issue more, and the forum was very popular. There are some large households who dug up more YFI, and they used YFI to vote directly on the chain, rejecting the proposal of additional issuance.
Let's review the whole process of YFI. When YFI was traded on the first day, it was only three dollars. When it was distributed, it was pulled to about six or seven thousand dollars and then fell again. Because the second and third mining methods of YFI are equivalent to depositing hard currency (DAI, ycrv) in the market-making pool for mining, providing price support for YFI. After the mining ended, it dropped a little, probably from seven or eight thousand, six or seven thousand to three or four thousand. But it went up again later. The main reason for the rise was that everyone respected the founder AC very much. The founder did not reserve any shares and continued to make product iterations. At that time, everyone's recognition and admiration of his ability reached the peak, so the price of YFI rose to more than 40,000 US dollars when it was the highest, which was also the most brilliant time for this project.
AC later developed the NFT project EMN. At that time, he had just developed the product and it was not yet formed. Because his IP was very large, many people put money into it. Later, the contract had a loophole and was hacked by hackers for 15 million U.S. dollars, and ironically transferred 8 million U.S. dollars to him, meaning thank you, without you I would not be able to steal the 15 million U.S. dollars. You have half of the credit, and I will send you 8 million U.S. dollars. The hacker is very smart, causing the public opinion in the entire community to only scold him, and no one scolds the hacker.
In this social experiment, AC received great support from the community, because the founder did not keep shares for himself or investors, and everyone supported him very much. But in turn, if the founders are not benefited, how can the binding between the founders and the project be determined? Apart from generating electricity with love and supporting the continued development of this project with enthusiasm, what else can bind him?
In fact, when we reflect on this matter, we will find that if the time mechanism for token distribution can be extended a little longer, the stickiness to the economic model or participants may be better. There are elements worth thinking about, and it is a very novel logic that is completely different from the way traditional companies go public.
secondary title
Stablecoin trading platform Curve
Curve Finance is an automated market maker (AMM) designed to facilitate low-slippage substitutions of similarly priced tokens. It allows USD-pegged stablecoins like DAI, USDT and USDC or BTC-pegged tokens like sBTC, RenBTC and WBTC to be traded against each other at the best prices.
Curve went online in January 2020, and completed the initial pre-launch of CRV in early August. A total of about 9,000 addresses participated in the event. The tokens issued by the initial pre-excavation will be locked for one year. By the time of its official launch, Curve's lock-up volume ranged from $200 million to $800 million in two days, and the platform's transaction volume was also skyrocketing, even surpassing Uniswap at its peak.
In terms of economic model design, the total amount of CRV tokens is 3.03 billion, and the initial issuance is 1.3 billion (accounting for 43% of the total). %, released linearly within one year, and the official round accounted for 57%); 30% is allocated to shareholders (team and early investors), locked for 2 years, and linearly unlocked in the next 2-4 years; 3% is allocated to employees, in Unlocked linearly over 2 years; 5% allocated to community reserve pool.
On August 14, the three major trading platforms of Binance, OKEx, and Huobi announced that CRV will be listed simultaneously. CRV went from more than $10 when it was launched on the three major exchanges to a peak of $80, but its price plummeted by nearly 95% and is now floating around $0.5.
Swerve's annualized income was once very high, attracting many users. Swerve's locked position reached a maximum of over 800 million US dollars, and now there are only 34 million US dollars left. Swerve encourages everyone to make markets through a very radical token distribution method. You must not regard the fork project as a value benefit, because it is not an innovation, but a very short-lived, illusory high annualized return to attract You, when the initial high allocation is over, the price of the token will generally fall off a cliff, so the best strategy in the early stage is to mine, sell and withdraw.
secondary title
Sushiswap vs Uniswap: Mining dolls trigger a battle for liquidity
The liquidity war triggered by dolls is the competition between Sushiswap and Uniswap.
The essence of Uniswap lies in its mechanism that does not require access, and at the same time solves the problems of project parties listing coins and making markets. In centralized exchanges, it is necessary to list coins, and there will be a lot of processes and fees. Uniswap solves the problem of listing coins, and there are no restrictions on listing coins, so it is very popular. But Uniswap had not issued coins at that time, and then Sushiswap appeared.
At the end of August 2020, SushiSwap was officially launched and attracted $270 million in gold within 12 hours of its launch. The annualized income of SushiSwap's liquidity mining was as high as 9500%, and the liquidity was nearly 1 billion US dollars within 3 days. In other words, in just a few days, SushiSwap grabbed 80% of the liquidity on Uniswap. Later, as the three major exchanges listed Sushi, its price soared to as high as $11.
In September, the anonymous founder of SushiSwap dumped all Sushi, selling about 2.56 million Sushi, or about 18,000 ETH. The price of Sushi also took a big dive, plummeting to $2.
The price of SUSHI tokens plummeted 93% from around $10 when it was first listed on the three major exchanges, and is now floating around $0.7. In fact, Sushiswap has been famous for attracting a huge amount of traffic in a short period of time since its launch, and now it is lonely. In addition to the drama of the team, it has nothing to do with its economic model design.
Sushiswap does not limit the total amount of tokens. Each block releases 100 SUSHI tokens, which will be evenly distributed to all supported token pools. In the first 100,000 blocks, the SUSHI output is higher, releasing 1,000 SUSHI per block. Therefore, the selling pressure is extremely high. Calculated at the speed of mining a block in 15 seconds for ETH, SUSHI releases nearly 6 million pieces a day.
Stimulated by Sushiswap's liquidity competition, Uniswap finally chose to issue coins. The initial number of UNI is 1 billion, which will be released in 4 years. Among them, 60% is for the community, 21.51% for the team, 17.8% for investors (released in 4 years), and 0.69% for consultants (released in 4 years). After 4 years, additional issuance will be made with a permanent expansion rate of 2% per year.
Uniswap now has the best spot pool for ETH, surpassing all centralized exchanges in terms of ETH trading depth, and the pricing power of ETH is gradually shifting from CEX to DEX. In the future, it may become an oracle machine for mainstream tokens on Ethereum.
secondary title
GameFi: The combination of NFT and DeFi
On August 15th, ConsenSys developer Jordan Lyall posted a picture on Twitter to mock the mining/forking project, and quickly set up a telegram group, and the Meme air coin was born. The total amount of MeMe is 28,000. Contract deployers get 2,000 MeMe, of which 1,000 are added to Uniswap as liquidity for market making, and the other 1,000 are given to V God; the remaining tokens are shorted to 50 Telegram group members, each member 355 indivual. After MeMe’s highest speculation on Uniswap was $40, it has now fallen back to around $7.
24 hours after the birth of MeMe, members of the telegram group decided to make a funny project based on Meme Coin. On August 26, the project was officially launched. There are a total of 10 cards that can be exchanged by digging pineapples.
With the help of NFT, the price of MeMe tokens has risen all the way to 2,000+ US dollars, and is currently hovering at more than 400 US dollars.
secondary title
correct mining posture1. First of all, we must pay attention to the pioneering model and innovative projects, depending on whether the project is original or forked.
If it is original, the community will respect the original ability to a certain extent. Its market value is generally relatively stable, and the cycle of distributing tokens for original projects is actually relatively long. Because they are more confident, they will continue to iterate and innovation. If it is an imitation disk, although the early distribution of tokens is very fast, and the initial circulation is limited, the price is abnormally high, and the annualized rate of return for you in the short term is very high, but everyone should remember that the imitation disk is copying other people's code , It's hard to say whether the team is stable or not. In this case, if their tokens have a high annual rate, please be sure to mine, sell, and withdraw, and you cannot participate in mining in the second pool (that is, lock the currency of the project party and the LP token of eth).2. To study the economic model of the project, it depends on whether there is an upper limit on the number of tokens.
The upper limit of the number of tokens helps us to calculate the total market capitalization. In addition to the total number of tokens to calculate the total valuation, you can also calculate the approximate daily selling price, how many tokens are released every day at the current price, and whether the token market can take care of it. The total market value can be compared with the market value of Ethereum. Generally speaking, the total market value of DeFi projects on Ethereum should be lower than 1/10 of the market value of Ethereum. . The daily output can be horizontally compared with Bitcoin’s daily mining output of about 15 million US dollars, and Ethereum’s mining output of about 800 yuan. It is absolutely unsustainable to approach this figure.3. Pay attention to the security of the project and the team behind it, and look for a project that has passed the contract audit and the real name of the founding team.
The big V platform has certain advantages. The strength of the community depends on whether there are many currency holders in the community. Generally speaking, the more dispersed the shareholders, the more stable and strong the price will be.4. Carefully choose a liquidity mining pool. First of all, you must mine the top mine, because a person who eats alone will definitely eat the most.
The second best is mining based on mainstream currencies, that is to say, a single currency is the best, such as a single Ethereum, or a single dollar stable currency, then there is no risk of market making. At the same time, we should pay attention not to go to the secondary market in the early stage of the project, especially the centralized exchange, and be very cautious about participating in the secondary pool of mining liquidity. After the market value returns to rationality, investment can be considered according to the fundamentals of the project.
The above is Zhang Yuanjie’s lecture in the Global Blockchain Leader Course of Huobi University, hoping to give readers more thoughts on the exploration in the DeFi field.
