Although a week has passed since the epic cryptocurrency market crash of October 11, the market remains in a state of pain and reflection. Investors have come to a deeper understanding that, in addition to the significant market volatility caused by macroeconomic uncertainty, the centralization and "man-made" nature of exchanges further amplifies risks. Concealing liquidation data, unexplained technical failures, and arbitrary K-line manipulation—these "black box" practices, whether true or false, spark investor suspicion and panic, ultimately triggering a large-scale migration from CEXs to DEXs.

The FTX debacle in 2022 sparked the first wave of migration from CEXs to DEXs. However, due to the then-outdated infrastructure and user experience of DEXs, users returned to CEXs. Since then, the gap between DEXs and CEXs has become negligible in terms of performance and user experience. However, DEXs have also become increasingly centralized, relying blindly on subsidies and points incentives to attract new users, deviating from the original purpose of DeFi.

Loop Finance is a DeFi investment protocol on the BSC blockchain, designed to provide users with secure, stable, and sustainable returns. Loop Finance's strength lies in its focus on SysFi (decentralized institutional finance), integrating responsibilities, budgets, and redemption paths into smart contracts. This truly embodies the blockchain values of openness, transparency, and "code is law." It also establishes a sustainable circular economy, creating long-term value for investors rather than relying on short-term subsidies and incentives to attract users.

This article will introduce Loop Finance’s open and transparent circular economy mechanism and explain the significance of its institutional innovation experiment based on real economic problems.

Replacing “black boxes” with contracts

The DeFi space has seen the emergence of numerous pseudo-decentralized projects, blindly pursuing hype and high returns while magnifying security risks. Even Hyperliquid has abandoned decentralized principles for its own benefit. In March of this year, Hyperliquid forcibly delisted the JELLY contract, a meme token, from its platform to avoid losses. If a DeFi protocol lacks security, transparency, and decentralized governance, then even the best performance and highest returns will fail to earn true user trust.

The difference between Loop Finance and the vast majority of DeFi projects that claim to be decentralized is that it truly practices the concept of SysFi (decentralized institutional finance) and productizes the "decentralized system" itself.

Loop Finance truly puts everything on-chain, including the source of protocol fees, transaction details, transaction volume, weighted average transaction price, and token destruction certificates, all of which can be tracked on-chain.

In addition to making every transaction detail transparent, Loop Finance's governance is not a "black box" or centralized, but rather is transparently defined through smart contract terms. Loop's governance employs a three-pronged structure, encompassing NFT holders (who stake 2,000 LOOP tokens, locked for 180 days), LOOP token holders, and active LOOP participants (who earn LOOP points through a 1:3 redemption of LOOP tokens). Any proposal requires the participation of at least two of these three groups, and only with a 75% majority vote can the community fund or rules be used. The proposal is automatically executed by the contract, with the execution publicly announced on-chain.

Loop Finance's "Fixed Deposit Financial Management Contract" module has been completed and passed the CertiK smart contract audit. The remaining core modules (DEX, financing platform, LCASH) are also in the development/pre-audit preparation stage.

Furthermore, Loop Finance has completely relinquished management rights to all core contracts, including fund management, voting systems, revenue distribution, and fund utilization. These are all automatically run by smart contracts, preventing tampering or interference. This is extremely rare in the current market environment and significantly enhances the security of users' assets.

To reassure users, Loop Finance has also issued a $1 million market betting agreement, making an irrevocable commitment to the global market, users, and auditors. If any centralization is discovered outside of the dividend data statistics contract and the three-power governance voting module, the bet will trigger a payout. This demonstrates Loop Finance's confidence in its decentralization and its commitment to its users.

Circular economy mechanism

Security, transparency, and decentralization are merely the cornerstones of Loop Finance. What truly attracts users is its circular economy mechanism based on real income. Loop Finance's core product consists of four modules: a fixed deposit investment protocol, a decentralized exchange (DEX), a RWA project financing platform, and an algorithmic stablecoin, LCASH. The fixed deposit protocol is currently live, while other modules are still under development.

Loop Finance's fixed deposit investment agreement is a 7-day cycle, automatic interest-bearing investment chain. Users can start with a minimum investment of 100 USDT, with a daily interest rate of 0.5%, and the user's credit limit will be increased by 15% each cycle.

However, to participate in a fixed deposit, users must first convert LOOP tokens into points at a 1:3 ratio and add a 1/3 position to the LOOP/USDT liquidity pool. A 33.33% LOOP slippage tax will be added to the pool during the conversion. For example, if a user wants to deposit 15,000 USDT, they must add at least 5,000 USDT to the LOOP/USDT LP (a 50%:50% ratio).

This mechanism requires each deposit participant to add a certain proportion of liquidity to LOOP, which not only brings real buying power to LOOP tokens, but also improves token liquidity and trading depth, and reduces the risk of LOOP.

At the same time, users' actions such as redeeming points and adding LPs to obtain fixed deposit qualifications will directly drive the generation of protocol income. The income generated by the protocol will also be directly deposited into the treasury as funds for distributing rewards and repurchasing LOOP tokens, creating real buying for the LOOP token price and supporting the continuous rise in the token price.

Once Loop Finance's DEX goes live, a tighter circular economy will be formed. 85% of the transaction fees generated by market making will be distributed to the LPs within the pool, and 15% will be deposited into the treasury as protocol fees. Furthermore, LOOP tokens will be activated in different LP pools based on governance votes, providing users with more rewards.

Fuse insurance measures

Even the best mechanisms must be prepared for black swan events. Loop Finance also incorporates circuit breakers. In traditional finance, a circuit breaker refers to a temporary trading halt in exchanges to prevent the spread of fear, fear, and over-the-counter (FOMO) when the market experiences short-term volatility. In Loop Finance, however, the platform triggers circuit breakers and suspends USDT interest payments when large, sudden capital flows or large withdrawals from LPs occur.

However, this doesn't mean Loop Finance is no longer responsible. When a circuit breaker is triggered, the system switches to a linear repayment mode based on the number of days of financial management, allowing each user to receive their due compensation at a controlled pace and ensuring that the system is protected from short-term arbitrage or malicious exploitation. This circuit breaker mechanism also reflects Loop Finance's integration of the principles of the Austrian School of Economics (discussed in more detail below).

RWA Financing Platform Helps LOOP's Economic Flywheel

While Loop Finance is still in its early stages, currently only offering a fixed deposit investment agreement, it has already demonstrated strong growth potential. According to the project's developers, the fixed deposit investment agreement has accumulated over $1 million in deposits. In addition to the DEX currently under development, Loop Finance will also launch a RWA launchpad, which will first conduct a structured review of project legal and operational qualifications before allowing them to raise funds on the platform. Projects that fail to meet the fundraising requirements will automatically receive a refund, while RWA tokens that meet the requirements will automatically enter the Loop Finance DEX pool.

RWA has always been a hot topic in the crypto industry, but it seems out of reach for ordinary investors, who often struggle to find ways to participate. Loop Finance's upcoming RWA project financing platform will not only address the challenges of financing and launching RWA projects, but also provide opportunities for ordinary investors to participate.

At that time, on the one hand, users will obtain income through the Loop deposit agreement and bring capital deposits and agreement income to the platform; on the other hand, the RWA project party will complete the entire process of fundraising-issuance-trading on the financing platform, attract user participation and transactions by "creating assets", and further increase agreement income.

Ultimately, the Loop Finance Treasury recaptures this excess value back into LOOP tokens through a repurchase process. These repurchased tokens are then deposited into a destruction address, creating a supply deflation for LOOP tokens. This interconnected cycle further solidifies Loop Finance's circular economy.

Leveraging Web3 to Conduct a Great Experiment in an Institutional Republic

Ultimately, the most important factor in determining a project's longevity lies in its scale. From a Web3 perspective, Loop Finance is a secure, transparent, and decentralized DeFi project with reliable returns. However, a closer look at the mechanism design within Loop Finance's circular economy reveals a clever blend of Keynesian and Austrian economics. In short, Loop Finance is leveraging Web3 to conduct a grand institutional republic experiment.

The total supply of Loop Finance's official token, LOOP, is 21 million, with no pre-sale, private placement, or team reserve. This means the project does not make money by selling tokens, nor does it follow the old path of "issuing tokens is the end point." Instead, it is truly aimed at creating a sustainable, governable, and advanced token system.

LOOP's token distribution system

Keynesianism and the Austrian school have opposing economic propositions. Keynesianism regards fiscal policy as the main tool and emphasizes active government intervention; while the Austrian school advocates free markets and "sound money". For a long time, modern economics and policies have been unable to perfectly balance the two.

Over the past decade, the traditional macroeconomic policy framework has increasingly exposed structural flaws. Whether it was the 2008 financial crisis or the 2020 global pandemic, governments have repeatedly resorted to extraordinary monetary tools and continuously expanded fiscal deficits to address crises, turning short-term bailouts into a routine reliance. While long-term, large-scale monetary injections have indeed played a role in boosting asset prices and easing debt burdens, they have also spawned significant side effects, such as significant inflationary pressure and a further polarization of wealth.

Modern economics and policy favor Keynesianism. Only when Keynesian economic policies become unbalanced do people turn to the free market of the Austrian School of Economics. By then, however, shifting gears is as difficult as turning an elephant around. However, Loop Finance is an experimental model tailored to the economic challenges of our time. Its economic mechanisms demonstrate its emulation and sustainable integration of both schools of economics.

On the one hand, Loop Finance actively utilizes "short-term fiscal policy" to stimulate growth. For example, by attracting USDT investments with high interest rates and formulating a policy of +15% fixed deposits per round, this essentially simulates the economic strategy of "stimulating effective demand." Using NFT governance cards and incentives to drive community participation also emulates "government use of safeguard policies such as public works." The protocol stores 50% of tax revenue in a treasury to prepare for the risk of recession, fully embodying Keynes's "inter-cycle budget balance." Furthermore, because everything occurs on-chain and within contracts, it eliminates the interference of "rule by man" and the inefficiencies of bureaucracy, making Loop Finance a more perfect implementation of Keynesianism.

On the other hand, Loop Finance also incorporates the free market principles of the Austrian School, addressing the shortcomings of Keynesian economic policies. For example, the circuit breaker compensation and restart mechanisms effectively simulate the "market self-healing mechanism," automatically triggering when the market fails. Deposit participants are required to provide liquidity for the token, respecting the market and reducing the reliance on artificial intervention with unlimited subsidies. The total supply of LOOP tokens is set at 21 million, with no additional issuance and an institutionalized deflationary burn mechanism, implementing the economic principle of "sound money." The protocol uses revenue from the treasury to repurchase tokens, forming a self-reinforcing value support mechanism and avoiding the inflationary spillovers caused by relying solely on external money-printing stimulus.

In summary, Loop Finance weaves these two well-known economic schools into a complementary and mutually supportive system, making it itself a practical economic experiment. Combined with its established separation of powers (NFT holders, LOOP token holders, and points participants), Loop Finance has become a participatory, governable, compounding, and exitable institutional experimental republic built on-chain with code.

Therefore, we should view Loop Finance as a technological and institutional supplement to the existing policy dilemma. With the help of Web3, in an era of currency flooding, policy trust crisis and centralized governance defects, Loop Finance not only provides a verifiable, traceable and rule-based path to constrain power, but is also a directional and innovative social financial experiment, contributing measurable data and experience for possible future institutional alternatives or compromise solutions.