Text | Edited by Joy | Produced by Tanya | PANews

From behavioral mining to yield farming (Yield Farming), from IC0 to ID0, DeFi, which has been dormant for more than two years, has unexpectedly brought a new way of playing, and it has increased several times at every turn, attracting a bull market in one fell swoop.

The market has been carnival for two months, and now it is even more necessary to be reminded of hidden mines. There are constant risks of contract loopholes; fraudulent projects emerge in endlessly on decentralized exchanges (DEX); some centralized exchanges that want to take the train of DeFi also ignore the strict screening of projects due to the rapid listing of coins; the market value of projects is inflated, The bubble burst and the user's investment was damaged....

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DeFi is on a rising "rocket"

Two months ago, on June 15, the lending product Compound began to distribute its governance token COMP, and introduced an incentive plan, where both lenders and borrowers can receive token distribution rewards. Such liquidity incentives have been sought after by the market, and investors deposit and loan a lot in order to obtain incentives. Overseas communities call this liquidity mining Yield Farming.

Encouraged, Compound's market value and lockup amount surpassed the DeFi veteran Maker and became the first in the DeFi market on that day. At the same time, the Pandora's Box of DeFi was also opened.

Compound is just one of the typical applications in the DeFi market. Users put mortgageable assets into the lending platform, and then use mortgage loans to lend other assets, and can also obtain interest income by lending funds. DeFi is different from traditional lending, lending and lending behaviors are automated in the form of smart contracts.

In addition to lending, DeFi also includes automated market makers (AMM), decentralized exchanges (DEX), decentralized derivatives and insurance, oracle machines (Oracles), and prediction markets. Most of the DeFi protocols play an automated matching role. For example, lending products match borrowers and lenders, oracles match price sources and data demanders, and DEX matches traders and liquidity providers.

In fact, before Compound, Balancer, an automated market maker (AMM) project, distributed BAL tokens to its platform’s liquidity providers since June 1. Compared with the previous currency-holding and interest-generating products such as Staking, users only "reap melons", but now they can "reap melons and add beans". Under the incentive of such liquidity mining, DeFi, a fire It was quickly ignited, and then many DeFi products such as Curve, Aave, and dForce launched Yield Farming one after another. Since the launch of liquidity mining in June, the total lock-up amount of DeFi projects has broken the original pattern of slow growth, and it has risen in a straight line like a rocket.

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Figure: The total lock-up volume has risen rapidly since June 2020

There are actually a lot of "revolving mortgages" behind the increase in locked positions. For example, users mortgage their lent assets and lend other assets, and put the new assets back into the lending pool to obtain higher returns. . Therefore, behind the high amount of locked positions in DeFi, the actual amount of funds involved is not that much. Damir Bandalo, founder of Encode Club, recently counted the top 15 DeFi protocols. The actual total lock-up value of DeFi may only be 3.5 billion US dollars, which is about half of the total lock-up amount in the market.

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Exchange "plants grass" DeFi overweight layout

While the amount of locked positions in DeFi is increasing, the market value and token value of projects are also growing rapidly. DeFi projects have been on the rise in the past month. As of August 18, 16 projects have doubled in the past month. JST, which has the highest increase, has increased by 936% in the past month. According to the past three months, AKRO achieved the highest increase of 1743%. DIA, which was newly listed on KuCoin and other exchanges, rose by 312.4% in just 14 days.

The oracle concept is even more gratifying. Chainlink, the leading oracle machine, has continuously exploded short positions and "killed" it into the top 5 in the market value. Band has increased by as much as 1266% in the past three months, and Tellor has also increased by as much as 822% in the past three months.

Under the wealth creation effect, investors quickly voted to increase their positions in DeFi with their feet, and the trading volume of Chainlink on Coinbase even surpassed that of Bitcoin for a time. Exchanges are also speeding up their deployment in the DeFi field, launching DeFi tokens, and KuCoin and other exchanges have also launched DeFi trading zones.

According to the data from Coingecko, PANews counted the listing of DeFi tokens on well-known exchanges in China. At present, there are more than 7 mainstream DeFi tokens listed on Binance, OKEx, KuCoin, Gate and MXC exchanges.

In addition to DeFi leaders, various exchanges are also digging potential stocks. Take KuCoin, which launched the DeFi project zone above as an example. The zone includes the DeFi market page zone, the DeFi trading market zone, and the DeFi news announcement zone. At present, a total of 36 trading pairs have been launched, and 7 of the top ten DeFi projects have been launched, and the projects with the highest growth rate in the previous statistics, such as JST and ORN, have all been launched. In addition, the DeFi zone also includes AMPL, which has the highest increase of more than 800% this year, AKRO, which has the highest increase of more than 600%, and LUNA, which has the highest increase of more than 200%. Recently, DIA was newly launched, and it achieved an increase of 86% in only 3 days after its launch. The DeFi projects launched by KuCoin fully cover various tracks such as oracles, pledged lending, decentralized exchanges, and synthetic assets to meet various investment needs of users.

It is worth mentioning that another DeFi project, Orion (ORN), a liquidity aggregation protocol, listed on KuCoin through voting for listing. In mid-July, KuCoin launched the Chioce DeFi session where ORN won and listed on KuCoin. At the same time, in order to support the on-chain governance and node construction of DeFi projects, KuCoin’s Pool-X platform has become the core node of Orion and provides ORN’s staking service.

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Investors "weeding" need to be cautious

However, not every DeFi project is a Gem (gem). For investors, if they are not careful, they will encounter dirt dogs. DeFi itself is still in the early stages of development, and there are various hidden dangers such as security attacks and contract code vulnerabilities, and many projects that have been launched in a hurry to take advantage of the popularity of DeFi have magnified the risks. Some exchanges blinded their eyes and only focused on quickly listing coins to gain user attention, but let users step on the thunder and make a big mistake. Yam, which died shortly after its launch recently, is a very typical case.

From the mining frenzy to the failure of Yam Finance due to a loophole that could not be fixed, this DeFi project only survived for 37 hours. Although Yam Finance stated in the project introduction that this is only an experimental project and has not been audited, but combining the characteristics of the popular projects YFI and AMPL, Yam Finance quickly set off a mining frenzy to obtain the token YAM. Even the founder of BitMEX couldn’t resist becoming a YAM “farmer”. Six hours after it was launched on August 12, the locked-up amount reached 200 million U.S. dollars, and it tripled to 600 million U.S. dollars a day later. Centralized exchanges such as Bibox, BKEX, Biying, and CoinPark quickly launched YAM, but they did not expect that the risks of ignoring experimental projects ended up harming users.

Soon after mining, Yam Finance discovered that there was a loophole in the smart contract, which would cause an additional 10^18 tokens to be issued during elastic supply. And if you want to submit a governance plan to modify the loopholes, you need 1% of the total amount of tokens to vote for support, so a voting campaign called by exchanges and big players quickly started, and when everyone reached the number of votes, they found that This may have been a governance vote that was doomed from the start. Because of the number of additional tokens issued, the number of voters will never reach the governance ratio, falling into an endless loop and unable to achieve governance.

On the afternoon of August 13, Brock Elmore, the founder of the Yam Finance project, tweeted, "Sorry everyone, I failed, thank you for your active support today." Yam announced the end, and the price of YAM plummeted from $109 to $0.9 , a drop of more than 99%.

At the same time, the exchanges that listed YAM also collectively lost their voices, and most of them suspended deposits, withdrawals or transactions. CoinPark even directly delisted YAM. For a project that has just been launched online and has not been audited, the exchange may have given up its professionalism and responsibility for the current heat. I have to be reminded that users still need to be cautious when "weeding" DeFi projects, and they should not rush into it in vain. If you participate in investment, you must choose a long-term stable professional exchange.

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Rationality is needed under the liquidity mining carnival

The operation of liquidity mining is no stranger to domestic users. Some people compare it to FCoin, but unlike FCoin, the data of DeFi projects is publicly available on the chain, and there will be no scams of FCoin. But this is the same as the subsidies of domestic Internet companies and the private interest discounts of small local banks when they purchase savings, all of which are to motivate users to participate. In essence, it is still a means of operating growth to increase customer acquisition.

The wealth-creating effect of DeFi has inspired more and more people to learn to use DeFi products such as decentralized exchanges, learn to participate in on-chain governance, and have a deeper understanding of the charm of decentralized finance. Unlike the IC0 bull market in 2017, which relied on white papers to issue coins, today's ID0 has allowed users to experience and participate in real products, rather than talking on paper.

While it is lively, it is also necessary to beware of many hidden risks, such as code loopholes, systemic risks, and the authenticity of assets on the chain. For the vast number of investment users, DeFi is still a niche toy. Its high threshold blocks some users, while its high returns make participants "run blindfolded".

How to let more users participate in the DeFi ecosystem, and how to remind users to pay attention to the risks of DeFi. At this time, more market participants are needed to strengthen user education. Among them, the community will play a huge role as the most direct communication channel. For example, KuCoin recently launched a program to find DeFi leaders. Through these DeFi leaders, knowledge popularization is carried out, and fair and objective research and sharing of projects to be launched is conducted. Correspondingly, these DeFi leaders will receive airdrop funds and transaction rebates.

Inside and outside the walls of DeFi, there are two worlds. Liquidity incentives make DeFi continue to expand, and the safety alarm bells keep ringing to make DeFi go further. The wealth effect makes users flock to it. Similarly, risk awareness can only last forever if you choose a reliable trading platform.