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Category: Decentralised Finance (DeFi)

Decentralized Finance (DeFi) is a sector within the cryptocurrency and blockchain space which aims to provide a decentralized version of the products available in traditional finance- without central control and at a lower cost with potentially higher returns. These products include loans, interest-bearing deposits and borrowing services.

The advantages of decentralized finance are that it addresses the problems we have with the traditional banking system. For example, decentralized finance protocols are controlled by multiple people, and all participants are required to abide by the rules written into the smart contracts underlying the protocols.

  • Curve Finance ($CRV) guide

    Curve Finance ($CRV) guide

    Curve Finance is a decentralized exchange (DEX) for trading stablecoins. As with every other Decentralised Finance (DeFi) project, Curve Finance has its own token known as Curve DAO token ($CRV). The Curve Finance DEX has already been up and running since January 2020, and yield farmers have already been making gains off of it. However, it was the abrupt listing of the $CRV token on 14th August 2020 that really turned heads in the cryptocurrency space, and not necessarily in a good way. In this article, we take a look at the background and features of Curve Finance and the controversial launch of its $CRV token.

    To learn more about Curve Finance and specifically $CRV yield farming and how to see if YOU may have any $CRV, check out our latest video:

    Curve Finance ($CRV) Yield Farming

    Background

    Michael Egorov CEO of Curve Finance, also worked with the NuCypher team as Co-founder and CTO for five years. Egorov has served Curve through his expertise in software development, thanks to his managerial stints at different tech companies in the past.

    The team behind Curve Finance officially began working on the exchange back in December 2019, and they launched it in January 2020. Even then, Curve was already being used by several arbitrage traders, but its popularity shot up after it recently (and surprisingly) launched its governance token this August 2020.

    Interestingly, it appears that even after the launch of the CRV token, some members of the Curve team did not know that it was already out. It was so abrupt that the team had to adopt it after having no option but to just review its codes following the deployment.

    What is Curve Finance?

    Curve is a decentralized exchange liquidity pool built to support the efficient trading of stablecoins. At present, Curve supports BTC pairs, as well as DAI, BUSD, sUSD, TUSD, USDC, and USDT.

    And through the help of AMMs (automated market makers), Curve makes low slippage trades possible while keeping transaction fees low. Most arbitrage traders prefer Curve compared with other liquidity pools like Uniswap simply because of the savings in trades.

    With only a few months in existence, the platform has already beaten other exchanges in terms of trading volume. With Uniswap at the top of the ranks, Curve performed stronger than projects such as Aave, Compound Finance and Balancer.

    What sets Curve apart from other DEXs?

    The problem with DEXs like Uniswap is the cost that users incur for token trades. If you look at other DEXs, they can’t facilitate direct token trades. In Uniswap’s case, for example, stablecoins still have to be traded for ETH, before they are traded with the stablecoin that the user wishes to get (Uniswap V2 might have already eliminated this drawback). Given that the transaction involves two trades, the transaction fees are also doubled for every user.

    Curve functions differently. The platform’s liquidity pool allows direct token trades among listed pairs. With a direct swap function, users save more by paying lower trading fees. And as of now, the fees are still set at 0.04% per transaction. This means that users have the opportunity to execute more efficient trades without having to pay much in fees for every transaction.

    The algorithms for both DEXs are also different. Uniswap focuses on maximizing available liquidity, but Curve’s algorithm puts more importance in minimizing slippage. Because of this, high frequency and large volume traders save more by using Curve.

    Compared with the order book systems, Curve uses an AMM model that maximizes on-chain liquidity pools to provide the necessary funding even before trades are executed.

    Making Money Providing Liquidity in Curve

    On-chain liquidity pools refer to funds held in exchanges to facilitate trades. With Curve, users can freely deposit any supported token in the pool and become a liquidity provider. This is what we mean when we talk about funding specific pools for Curve’s trading pairs.

    And in turn, liquidity providers earn fees from the swaps that are performed in the exchange.

    Thanks to Curve’s composability, its liquidity pool is also accessible to many other protocols. In fact, the platform experienced increased trading volume after the introduction of liquidity mining from yEarn.

    yCRV

    In liquidity mining, miners help run an exchange’s market-making bot to help it run its trades. This trend enticed miners to provide additional liquidity in yEarn’s yCRV token because it appeared to be quite profitable.

    The yCRV token is a wrapped token composed of Curve’s supported trading pairs and represents its liquidity pool. Additionally, since Curve’s liquidity pool is available to other protocols such as Compound, liquidity providers also earn additional income from their interest fees.

    While supplying liquidity in Curve’s pool appears profitable, it also entails some risks. These are some of the uncertainties that Curve’s liquidity providers are likely to face.

    DeFi Ecosystem Vulnerability

    Since Curve is already integrated with some other DeFi platforms, users have to be able to monitor ongoing issues on these other protocols. Looking after security issues in other projects will ensure that liquidity providers are well-knowledgeable about the risks of depositing their assets in Curve’s pools.


    Yield Volatility

    Curve’s yields fluctuate a lot. Although high yield pools entice users to provide liquidity over time, it also ultimately becomes low or medium yield pools over time.

    To combat this, users can opt to supply liquidity to all Curve pool, a diversification strategy. And this would give out the average yield of all pools. Unfortunately, it also raises slippage and gas fees, as well as exposure to smart contract vulnerability.

    Calculating Profits after Gas and Fees

    One hurdle with supplying liquidity on the Curve protocol is calculating your profits after gas and slippage fees are deducted.

    The platform splits liquidity across various pools and is linked to external protocols. As a result, gas fees are relatively high. And depending on tokens you supply, you may encounter significant slippage as well.

    This makes it rather difficult to do yield-hunting — the chasing of high yields by changing of pools. It is recommended that liquidity providers deposit tokens to pools for long enough periods in order to make a profit after slippage and gas fees are paid.

    $CRV Token

    $CRV is Curve’s native token, it is generated when you deposit and stake cryptocurrencies on the platform. It is awarded to liquidity providers proportional to their share from the yield which their pools make. And since CRV has just been released, those who have contributed to Curve’s liquidity pool will receive a prorated amount of it.

    With Curve’s transition to become a DAO, CRV tokens also represent the holders’ rights to take part in its governance mechanism, so they can make proposals and vote on them. And with CRV, governance will follow a ‘time-weighted’ voting system. It simply means that the longer they hold CRVs, the greater their voting power in the DAO becomes.

    What yield-farmers also do is to take advantage of the popularity of DeFi to speculate on tokens such as $CRV. So what they would do is after depositing and earning the $CRV token, they would sell $CRV on the market for profit.

    What happened with the $CRV token launch?

    Prior to the launch, $CRV was one of the most anticipated and talked about tokens, and the team saying it would launch in “early August 2020”. On 14th August 2020, the $CRV token was suddenly launched by an anonymous developer without anyone, including the Curve Finance team knowing. The developer was able to do this because the code of the $CRV token and DAO was available on GitHub, so all the developer had to do was to put the two together and launch the smart contract.

    Of course after the initial launch of the token other cryptocurrency enthusiasts started posting on Twitter about the news. This meant the Curve team had to go around clarifying the situation and saying it was a scam. The Curve team also scrambled to confirm that the contract deployed by the developer had the same code and that there were no significant changes or backdoors added i.e. there was nothing malicious in the contracts.

    So Curve ended up declaring that this was their official token and DAO launch, and needless to say, the cryptocurrency community were not happy about it. This was made worse by the fact that in the hours between the time the developer launched $CRV and Curve declaring it was an official launch, 80,000 CRV tokens were already mined by some users. This led many others to say that it was unfair to others considering the Curve team had previously announced there would be 24 hours between the contract being deployed and the first token being issued.

    Curve team declares their DAO and $CRV was launched

    Following this announcement, other major exchanges such as Binance, OKEx etc. also began listing $CRV.

    $CRV is highly volatile, prices were at an all time high of $54.01 on 14th August 2020, and went to an all time low of $4.17 on 17th August 2020. Also being a mined currency, the initial supply will be extremely low and only increases over time after more has been mined. This results in prices being highly volatile as we can see because with more tokens will be mined, these miners will quickly sell their tokens on the market. This is especially the case during the initial launch phase where there is a lot of hype, but very little supply.

    So those speculating on $CRV really need to exercise caution because it is very risky.

    How to Use Curve to Trade

    In order to use Curve Finance, simply go to their web portal at https://www.curve.fi and connect a web3 wallet like MetaMask.

    Choose which cryptocurrencies you want to trade. Then, click “Sell” at the bottom. You will then be prompted by your web3 wallet to confirm the transaction.

    Once confirmed, it means that your trade is successful.

    Conclusion

    While Curve can also be a profitable alternative against Uniswap in terms of high frequency and large volume trades, everyone still has to consider how to effectively balance potential earnings from its corresponding risks.

    And if the Curve project continues its run successfully in the months and years to come, it might even become one of the best performing DEXs in the DeFi space for offering low slippage trades as compared with its competitors.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Fuse Network ($FUSE): What is it?

    Fuse Network ($FUSE): What is it?

    Fuse Network is a Decentralised Finance (DeFi) project launched in 2019. They are a finance company that tries to connect everyday payments to the blockchain through leveraging a DeFi infrastructure to create a platform for entrepreneurs and allow them to turn their communities into valuable economies. With the platform, anybody can easily build their own applications where they can digitize and automate traditional financial transactions and processes.

    The project’s primary focus right now is to establish an ecosystem that can merge financial transactions on top of the blockchain. They are developing this in a way that does not trigger too much cost for the users while enabling a system that secures data privacy.

    In this article, we will look at how the Fuse Network designed a way to link different blockchain models (smart contracts, consensus mechanisms) and traditional business transactions without compromising its platform’s user-friendliness and affordability.

    How fuse works
    How Fuse works

    What is the Fuse Network?

    The Fuse Network is a permissionless and borderless public ledger designed for easy integration of day to day payments. The Fuse Network is anchored to Ethereum via a bridge, so any token can move freely between Ethereum and the Fuse-chain. (aaplumbingsa.com) The function of this is so that when tokens are minted on Ethereum, they can be moved to the Fuse-chain which it can access a huge range of features and plugins that brings out different functions and opportunities.

    Functions of Fuse Network

    Integrate digital payments with crypto – Fuse makes it convenient for companies and enterprises to integrate digital payments on their platforms through its simple user interface. With digital payments, businesses can easily offer their goods and services even to other customers worldwide.

    Ease business operations – Because of smart contracts, business operations can be automated. Just by linking your business data with the Fuse network’s smart contracts, you can easily lower the cost of having complicated IT infrastructures.

    Fuse Studio

    The Fuse Studio is a decentralized application (dApp) that handles the whole interface which the user works with. It runs on top of the Ethereum and Fuse Network.

    The Fuse Studio allows the user to launch and operate their own communities and set some conditions through the help of smart contracts. Smart contracts refer to self-executing codes that can be infused in a program to perform certain functions if some standards are met.

    They can find great use cases for users especially since they do not have to monitor their communities 24/7. Therefore, they can update their conditions based on their own agreements if needed. Additionally, Fuse does not own or control any user data that goes through these contracts.

    Through the Fuse Studio, users are also given the ability to mint their own tokens. They can distribute these tokens for use in their own networks. For instance, someone can choose to distribute a stablecoin of their preference, another ERC-20 token supported by the platform, or create a new one for the communities that they will build on the Fuse Network.

    Fuse Studio also has a built-in contract store to allow the easy launch of new features and integrated services. As a result, there have been numerous developments that the community have come up with for the Studio. Some of these are plug-ins that let users:

    • Manage their communities, add members, admins, and designate roles for each;
    • Establish transaction costs;
    • Integrate white label wallets; and,
    • Access local dApp stores, among others.

    To access the Studio DApp, users just have to download the Metamask wallet plugin on their browsers.

    Fuse Wallet

    The Studio is linked with the Fuse Wallet to help transfer the processes from real-world transactions into the blockchain. The Fuse Wallet is based on Ethereum and supports any ERC-20 token, and it allows for easy onboarding, speedy verification times, merchant support and other functions aimed at regular customers. It is a mobile app available on both iOS and Android. It is also non-custodial, so users can feel assured that they do not have to provide their private keys in order to use it.

    What is Fuse Token ($FUSE)?

    The network’s utility token is the Fuse Network Token ($FUSE)- an ERC-20 token. It can be used as a medium of exchange, as payment to the Fuse Network to approve transactions or to participate in the network’s staking mechanism. Currently, there are 300,000,000 FUSE tokens in supply.

    Utilities of FUSE token

    Validation: Users must stake a minimum of 100,000 FUSE to become a validator and help validate transactions on Fuse Network.

    Voting: The Fuse Network works under the Delegated Proof of Stake (DPoS) consensus algorithm so Validators can vote on protocol changes and important decisions concerning the project. This means that the maintenance and governance of the network are largely community-based. The weight of a users’ vote depends on the amount of FUSE staked.

    Fees: Users pay FUSE as fees to the network to approve transactions capped at 1 cent per transaction. This creates circulation between network users looking to validate transactions on the network and validators who invest their computing resources and power to maintain the same.

    Delegation (coming in Q3 2020): Once this function is activated, any FUSE token holder can delegate their owns to a validator in exchange for rewards. and validators with the most tokens are elected to validate transactions on Fuse Network.

    Inflationary value of FUSE token

    Every block which is created on the fuse chain creates new FUSE tokens which are rewarded to the validators for their work. 5% inflation in the network is distributed between the validators. In each 48 hour cycle, the validators with the highest amount of FUSE tokens staked will be entitled to a distribution of the rewards based on their stake.

    Fuse network utilises this fixed inflation rate to help stablise the token price. In phase 2 of the network, there will be an upgrade to a different inflation schedule which will be proposed and voted on by validators.

    How to become a Fuse Validator?

    Validators secure the safety and security of the Fuse Network. Just like mining on Bitcoin or Ethereum, they work to keep the network updated and validate the state of the network by confirming blocks for every cycle.

    There are more than 50 validators in the network. Network transactions are charged at a maximum of 1 cent $ per transaction and these payments go to the validators. Validators also vote on network upgrades and governance changes.

    To be a validator, you need specialized software and hardware that can run 24/7, and as mentioned above you need to stake at least 100,000 FUSE tokens.

    If you don’t have the technical capability to be a validator but have the minimum staking amount, you can instead delegate it to another third-party validator. The delegation process is intended to be activated in Q3 2020.

    Partnership with Rupia Token

    Fuse and Rupiah Token (IDRT) announced a partnership in July 2020, with the goal of widening the reach and adoption of digital assets in all economies across the world. Rupiah Token is the first Ethereum-based stablecoin pegged to the Indonesian Rupiah (Rp).

    Indonesia is the 4th most populated country in the world, but suffers from financial exclusion. According to the Asian Development Bank’s report- “Financial Inclusion in Asia”, around 78% of Indonesians do not have a bank account. Yet, they are becoming mainstream cryptocurrency holders, with 11% of survey respondents saying they hold cryptocurrencies according to the Statista Global Consumer Survey. This puts them in as the 9th country with the most cryptocurrency holders according to the said Survey.

    With Rupiah Token on board, Fuse will have access to this growing Indonesian cryptocurrency market, providing an option to trade and utilize IDRT in the Fuse Studio and wallet app interface.

    The integration of Rupia token will enable individuals, as well as organizations, businesses, and communities to send and receive IDRT globally.

    Rupiah Token (IDRT)
    Rupiah Token (IDRT)

    Fuse partners with Elrond

    On 14th August 2020, Elrond announced that its assets can be used on the Fuse Network for payments, business and community incentives, and loyalty programs. The partnership will involve the integration of the Elrond mainnet with the Fuse Network. Users will be able to create and manage their business incentives, custom rewards, payments, and other related scenarios using eGLD, BUSD and other tokens issued on the Elrond mainnet. And assets issued on the Elrond blockchain will be usable on the Fuse Wallet.

    Learn more about Elrond

    Conclusion

    Digitization is more important now than before. And with the boom of e-commerce to replace traditional business transactions at present, making businesses more technologically updated is essential.

    The Fuse Network makes it easier for businesses and communities to integrate traditional business transactions into digital processes, saving them more time and resources.

    The innovations provided by the Fuse Network is helpful even for small entrepreneurs and big businesses. And given that the network is maintained by its community, we can expect that its developments will continue to be responsive to the demands of the people participating in the network.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Orion Protocol ($ORN) explained

    Orion Protocol ($ORN) explained

    Orion Protocol ($ORN) offers a unique liquidity aggregator that connects major exchanges into one simple platform. Orion sees traders having difficulty in performing profitable transactions from popular exchanges. And while there are many exchanges to choose from, the liquidity in these exchanges remains an issue and not everyone has the time to research which exchange offers the best returns. Hence Orion wants to set itself apart, not by competing with exchanges, but by aggregating their order books into one simple terminal.

    Background

    Alexey Koloskov, CEO and Co-Founder of the Orion Protocol, launched the project in 2020 in a bid to deal with the problems of large exchanges monopolizing the cryptocurrency exchange market. In his view, both centralized and decentralized exchanges have their fair share of issues. Centralized exchanges are vulnerable to hacks, whilst decentralized exchanges are still relatively underdeveloped.

    Hence accordingly to Yanush Ali, CSO of Orion Protocol, their project is exactly what the cryptocurrency industry needs today as it is a truly decentralized platform that meets the demands of businesses and consumers alike.

    What is Orion Protocol?

    Orion Protocol is an open-sourced, decentralized finance project mainly created to aggregate liquidity from different major liquidity providers i.e. exchanges. Primarily, Orion helps users get the best return out of their funds while lowering the risks associated with going onto multiple exchanges (both centralized and decentralized).

    Orion operates by collecting the liquidity offered across multiple exchanges in the cryptocurrency market into a single, universal API. This API combines multiple order books from exchanges in order to make it easier for users to make trading calls whenever they wish to.

    For example, when the user makes an order and a single API call is made, Orion itself will split and route this action to multiple exchanges at once. This leads to them being able to find lower buy and sell spreads and eventually the best exchange prices for users.

    With Orion, traders do not have to bother themselves too much with APIs from different exchanges, data formats, modes, and order types. They can just focus on executing their trades or managing their assets.

    In addition, Orion seeks to address another risk from centralized exchanges — hacking. Hot wallets usually provided by online cryptocurrency exchanges are susceptible to hacking. Recent reports already revealed how vulnerable centralized exchanges (and even decentralized ones) are. And users have no option but to deposit their cryptocurrencies there for trading, which inevitably puts them at risk. Orion’s non-custodial solutions try to solve this by letting users freely manage their assets on the platform, whenever and however they want, without ever giving up their private keys just to do so.

    Along with Orion’s multi-currency wallet, it is easier to keep track of your portfolio’s overall performance as they can easily be found in just a single API. The hassle in using and maintaining multiple wallets just to trade in multiple exchanges is eliminated.

    Since Orion is open-sourced, third-party developers can join the protocol and make their own decentralized applications on top of it.

    Orion Products

    Orion aims to be a one-stop shop, so naturally they have a whole suite of products and ecosystem for traders. Let’s take a look at them in turn.

    Orion Trading Terminal

    The trading terminal is Orion’s platform to allow traders and investors to conveniently execute trades in its universal API. In just a single call, users can make trade orders that will be automatically executed across different exchange platforms in search for the best spot prices.

    If users want to invest in emerging blockchain initiatives or are interested in purchasing new tokens, they can also perform such transactions with Orion’s trading terminal.

    Portfolio management application

    Instead of having to check different accounts from multiple exchanges one by one just to monitor your portfolio, Orion simplifies the process by collecting all relevant information together in a single tool for the user.

    Orion’s portfolio management application allows users to monitor and record their activity across exchanges, set alarms for arbitrage opportunities, and automate asset management processes, among others.

    All these processes do not require the user to give up custody over their funds because the application offers a non-custodial portfolio management feature. Surrendering your private keys to a third party is no longer necessary.

    App store

    Orion has a marketplace of decentralized applications that users can access to purchase Orion-based software. Many of these software may be third-party developments built on top of the protocol. Some applications users can gain access to are:

    • Arbitrage apps;
    • Algorithmic trading bot; and,
    • Payment integration systems.

    Enterprise trade

    While interoperability is a concern for some aggregators, Orion has developed a system made to address this. Orion has its own extension that firms and traders can embed into their own software to provide access to Orion’s API.

    Liquidity boost plugin for exchanges

    Orion has its own plug-in that centralized and decentralized exchanges can place on their own platforms to contribute to Orion’s aggregated liquidity. This also helps bring market-makers to exchanges at a reasonable fee.

    Orion shared liquidity pool — brokers are liquidity providers who hold funds in exchanges while also executing orders on behalf of the users. They stake a minimum amount of ORN tokens to join the liquidity pool. The more ORN they have, the more fees they get from executing orders.

    DEX launcher

    This is the platform where users can launch their own decentralized exchange with access to Orion’s liquidity. It is not just a simple method to open new exchanges but also provides instant liquidity.

    Orion Token ($ORN)

    Orion Protocol’s native utility token, $ORN, is an ERC-20 token. The token supply is capped at 100,000,000 ORN and the circulating supply is around 3.8 million coins. Orion claims it is committed to ensuring ORN’s sustainability and they aim to achieve this through several means:

    • providing uses for the token;
    • non-inflationary staking;
    • diminishing supply;
    • benefits for holders; and
    • refund opportunities.

    Uses for ORN

    ORN can be used throughout its various products. For example:

    • Orion terminal: Users receive fee discounts when paying using ORN, and can earn terminal transaction fees and interest by staking ORN tokens.
    • Decentralized brokerage: brokers are required to stake ORN in order to be chosen to execute trades. Whilst non-brokers can stake ORN to vote for their chosen broker.
    • Orion Enterprise: All licensing fees generated will be used to buy ORN from the market and removed from the total supply.

    Non-inflationary staking

    Currently Orion has a multi-exchange pre-staking initiative and according to them, it yields a 39% APR. Apparently it is so lucrative that 50% of circulating ORN ahs already been staked.

    Upon Mainnet launch in Q4 2020, Orion will utilize a Delegated Proof of Broker (DPoB) staking model. This model has 2 components: Broker Stakers and Non-broker Stakers. Brokers run the Orion Broker Software, which automatically executes trades routed there from Orion’s liquidity aggregator. The more ORN staked by the Broker, the more likely they are chosen to execute trades. Brokers can also increase their chances of getting chosen through Non-broker Stakers who stake ORN to “vote” for their chosen Broker to execute the trades. Both Broker Stakers and Non-Broker Stakers receive rewards. Broker Stakers receive a portion of fees from each trade they execute, whilst Non-Broker Stakers a variable reward share offered by the Brokers in exchange for their vote.

    The DPoB model for staking ORN is non-inflationary because, under existing mechanisms used by other exchanges, miner/staker benefits are typically minted as new tokens which hurts the underlying asset over time. Orion departs from this existing mechanism because Orion does not mint tokens for the purpose of giving rewards, instead, DPoB stakers receive rewards that are generated through Orion’s 13 revenue streams. This in turn preserves the necessity and the value of the ORN token.

    Orion's 13 revenue streams
    Orion’s 13 revenue streams

    Diminishing supply

    Orion actively removes ORN from ciruclation (thus increasing its value over time) through the following means:

    • Staking: Under the DPoB model, both Broker and Non-Broker stakers remove their ORN from the circulating supply. The rewards generated are compounded into their stake which further reduces circulating supply.
    • Licensing fees: 100% of licensing fees generated from Orion’s DeFi solutions will be used to purchase ORN from the market and removed from circulation.
    • Refunds: ORN tokens refunded via the Dynamic Coin Offering (DYCO) will be destroyed.

    Benefits for ORN holders

    As seen above, Orion Terminal users get fee discounts when paying using ORN and stakers get additional incentives.

    Refund opportunities

    Orion is the first project ever to implement a DYCO. 80% of the funds which were raised during the token sale were set aside to buy-back holders’ tokens if they so requested. Any refunded tokens will be burned.

    Where can I trade ORN?

    ORN can be purchased with Ethereum (ETH) or USDT in several exchanges such as KuCoin, BitMax or Uniswap (v2), although according to Coingecko, it is most actively traded on Bilaxy exchange. Orion also claims that through a multi-exchange pre-staking program, ORN tokens can be staked on Bitmax, KuCoin and Biki for staking rewards of approximately 39% APR.

    Orion roadmap: What can we expect?

    Orion’s token sale had ended on 14th July 2020 and as mentioned above ORN is already listed on several exchanges. In the upcoming Q4 2020 we can expect the launch of the public mainnet, decentralized brokerage and Orion price oracle. Most importantly upon public mainnet launch the DPoB staking model will be place.

    Here’s a look at Orion’s roadmap:

    Orion roadmap
    Orion roadmap

    Conclusion

    The challenge for traders and investors is how they can make sure that the transactions they make are still profitable. This is because day-to-day market prices can be manipulated by crypto whales and other large investors as they influence overall liquidity.

    Orion’s aggregated liquidity promised to solve this issue and so far, it is off to a good start. With Orion, no single entity or investor can influence its aggregated liquidity. Users can consider this platform if they want to execute trades that are much more profitable, or if they just simply want to have a better view of how their portfolio is performing on different exchanges.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Uniswap Review and Tutorial: Beginners Guide and Advanced Tips and Tricks

    Uniswap Review and Tutorial: Beginners Guide and Advanced Tips and Tricks

    Uniswap is an automated liquidity protocol and is one of the most popular decentralised exchanges (DEX) out there because of the surge in popularity of decentralised finance (DeFi). Users can become liquidity providers for a pool on Uniswap by depositing an equivalent value of each underlying token in return for other tokens in the pool. In this article, we look at why Uniswap is so popular and provide a tutorial suitable for both beginners, and some advanced tips and hacks for more advanced users.

    You can also check out our Uniswap Guide with a walkthrough of their various features, tips and tricks here:

    Key features of Uniswap

    Uniswap has 2 major elements or features known as Swap and Pool:

    Swap: Uniswap’s Swap feature allows users to swap between Ethereum (ETH) and different ERC-20 tokens.

    Pool: Uniswap’s Pool Allows users to earn through providing liquidity. This is done by depositing tokens into a smart contract and you would receive pool tokens in return.

    Why is Uniswap so popular? Advantages of the Exchange

    Self-custodial: Uniswap allows you to retain full custody of your funds. So there is no risk associated with centralised exchanges where you could stand to lose your funds if the exchange is hacked or goes bankrupt.

    No Know Your Customer (KYC) process: Because Uniswap allows you to retain custody of your funds they do not require you to go through a lengthy KYC process and disclose your full name, passport details etc. It also means getting started on the Exchange will be much quicker and will drastically reduce the chances of your personal information falling into the wrong hands if the Exchange is hacked.

    Low trading fees: Uniswap only charges a flat fee of 0.30% per trade. This is much cheaper than most decentralised exchanges.

    Access to new coins: Usually with centralised exchanges, different cryptocurrency or DeFi projects will need to go through a vetting process with the exchange before their coin or token is listed for trading. However, since Uniswap is decentralised and owing to their popularity, a lot of projects are instead choosing to launch on Uniswap directly. So with Uniswap, users can get their hands on these new tokens first. And with crazy fluctuations in token prices, especially when they first launch, many traders consider it crucial to be the first ones there.

    Is Uniswap safe or a scam? Disadvantages and risks

    Transaction failure: When swapping coins on Uniswap, transactions can be at risk of failing. This is mostly for 3 reasons. Firstly, you paid too little gas fees and the transaction took longer than the hard deadline coded into the transaction. Secondly, you had specified a maximum price that you would be prepared to pay per token but the price exceeds the maximum before the transaction is completed. Lastly, there is insufficient liquidity in the pool. In these cases, your transactions are “reverted” i.e. reset as if the transaction never occurred, so you would not lose your funds. So it cannot really be said that Uniswap is a scam.

    Fake coins: Anyone can list their tokens on Uniswap, so there are people out there who list fake coins on Uniswap in the hopes of being able to scam people into sending their funds for these coins. So Uniswap users need to be extra careful in this respect- see our section below on identifying and avoiding fake coins on Uniswap which teaches you how to double-check you are sending funds to the correct transaction.

    Uniswap beginners guide

    Uniswap allows users to connect directly to their Exchange, the following wallets are supported: MetaMask, WalletConnect, Coinbase Wallet, Fortmatic and Portis.

    Connecting MetaMask to Uniswap

    If you don’t have a MetaMask wallet yet, learn to set one up with our MetaMask tutorial.

    On Uniswap, click “Launch App” and then “Connect to a wallet”. Choose the MetaMask wallet (or whichever other wallets you want to connect with) and click “Connect wallet”. A popup window would appear showing your account, choose the wallet then click “Next” and “Connect”. Then you are all set!

    How to use Uniswap’s Swap feature

    Uniswap allows you to swap between ERC-20 tokens. On the Swap tab, choose the amount of ERC-20 tokens you want to swap. Choose the token you want to swap to by clicking the down arrow under “To”. A list will appear and you can choose the token you want to swap to, or if your token is not on the list you can paste the address of the token. Uniswap will display an estimate of how many tokens you would receive after the swap. To confirm, click “Swap”.

    Choose the token to be swapped
    Choose the token to be swapped

    You will then be taken to a page to confirm your swap (see left image below). There are several figures you need to look out for here:

    • the amount you are swapping from, and the amount you will receive;
    • minimum sent: which is the guaranteed minimum amount you would receive if the price drops whilst the transaction is processing;
    • price impact: the difference between the market price and the price estimate provided by Uniswap due to trade size; and
    • liquidity provider fee: amount of fees you will be paying to Uniswap. This is generally 0.03% of the transaction.

    Once you’ve confirmed your swap, a pop-up window would appear (see right image below) to confirm the gas prices to be paid for this swap since it is an Ethereum transaction. Input the gas prices you wish to pay and click “confirm”.

    Confirm swap
    Confirm swap

    Once the transaction is completed, Uniswap will let you know and provide you with a link to Etherscan to show your transaction details. Here you can check how many tokens you actually got out of the swap, and the amount of transaction fees that were paid.

    Uniswap advanced tips and tricks

    Failed transactions: why does it happen and how to avoid them?

    Transactions on Uniswap can fail if the prices of the input currency drops such that it does not fulfil your preset criteria. When a transaction fails, all your sent Ethereum would be reverted back to you. So you do not lose your original funds. However the Ethereum gas fee does get deducted and it is not refunded.

    To avoid failed transactions, you can look out for other people who are also trying to do the same transaction as you. To do this click “…” on Uniswap go to “Analytics” and search for your intended trading pair to see how many other people are also trying to do the same swap. If the price of the token you want to swap for is increasing in value, you may want to increase the amount of gas fees. This will speed up your transaction and beat your other competitors to lock in the swap price.

    How to get faster / speed up Uniswap transactions

    Get faster or speed up your transactions by essentially outbidding other competitors who are trying to process the same transaction. This is by paying more gas fees than others. To see how much gas fees to pay go to Ethereum Gas Station and see the recommended gas prices for fast, standard and safe transactions. As a tip for getting fast transactions, we suggest paying around 10% more than the recommended price for fast transactions. You can input the amount of gas prices you wish to pay in the MetaMask pop-up window before you confirm your transaction (see above section on how to use Uniswap’s Swap feature).

    ETH gas station
    ETH gas station

    Fake coins on Uniswap: How to identify and avoid them

    Because any coin can be added to Uniswap, there are lots of scam or fake coins on the Exchange. Cryptocurrency transactions are irreversible, so if you accidentally send your funds to buy these scam coins or tokens you will not be refunded. The logo and ticker of these fake coins can look exactly like the real ones, so you need to be careful.

    You can verify if the coin or token is real by checking it on Coingecko. To do this, look up the coin or token you want to exchange to on Coingecko, at the bottom of the page find and click on the trading pair for Uniswap (see image on left). You will then automatically be taken back to Uniswap and the token will have been imported (see image on right).

    Import token on Uniswap
    Import token on Uniswap

    Another way to verify that the token is genuine is to check it on Etherscan (see below). Again on Coingecko, find the token and click on the etherscan.io explorer. On the Etherscan window, you will be able to see the contract number for the token. Match this contract number with the number in the address bar in your web browser for Uniswap.

    Check token number on Etherscan
    Check the token number on Etherscan against the number in your Uniswap browser.

    Warning: Do NOT search for the token or its address on Etherscan. Always link to Etherscan via Coingecko or the project’s official website. This is because Etherscan itself lets you search for all tokens and transactions on the blockchain, including the fake ones.

    How to adjust slippage tolerance

    Slippage in trading occurs when the price at which the order is eventually executed does not match the price at the time you confirmed the transaction. When trading on Uniswap, this is referred to as “slippage tolerance” and is expressed as a percentage.

    For coins or tokens whose price is on the way up, there may be a lot of competition to process the transaction and get those tokens. In that case, you can increase the chances of your transaction being processed faster by increasing your slippage tolerance. This will also avoid failed transactions.

    To adjust your slippage tolerance, click on the gear icon located at the top right-hand corner on the Uniswap browser. There you can adjust your slippage tolerance. This will, in turn, decrease the minimum amount that is guaranteed to be sent to you. That is, it will increase the chances of your transaction going through but at the cost of potentially receiving fewer cryptocurrencies.

    Slippage tolerance compared
    Slippage tolerance compared

    Mobile trading: How to use Uniswap on your phone

    Prices of cryptocurrencies are always fluctuating, so serious traders want to be able to trade their cryptocurrencies on the go. Uniswap allows you to connect your mobile wallet. Simply go onto Uniswap on your browser and follow the same steps as you would on your PC. This allows the same wallet to appear on your PC and your mobile phone. The following mobile wallets are supported: MetaMask, Trustwallet, Coinbase wallet, Rainbow, Argent, imToken, Pillar, Safe, Math, and Fortmatic.

    From our user experience, it’s not the most convenient feature since you need to multitask between several windows. BUT it does fulfil the objective of being able to trade cryptocurrencies on the go.

    Uniswap Liquidity Pool guide

    Uniswap has liquidity pool which is essentially pools of various tokens that sit in smart contracts. Users can exchange the tokens in the pools using Ethereum as a conduit. And a main feature of Uniswap is that anyone can create new exchange pairs in a liquidity pool for any token, unlike centralised exchanges where the exchange dictates what trading pairs are available.

    First off, note that for liquidity pools you need to deposit both an equal value of Ethereum and the token that you want to participate with. So say I want to participate in the ETH/USDT pool, I would need to deposit an equivalent amount of ETH and USDT into the pool at the same time. The funds you supply to these pools will be traded by other people and so there will be fluctuations in the ratios of ETH and USDT that you have.

    This is because if someone wants to sell ETH for USDT, they will tap into your liquidity pool and the USDT that you supplied to the pool would be used to buy up the ETH- this whole concept is known as Automated Market Making (AMM). As a result of this, there would be a higher ratio of USDT compared to ETH in your pool. Conversely, if someone wants to sell their USDT for ETH, they would take ETH out and shrink your ETH liquidity. Thus the liquidity pool is like scale, whereby if your ETH goes down by 10 dollars, then your USDT should correspondingly up to by 10 dollars.

    So why would liquidity providers do this? It is because they receive a Liquidity Provider Fee from those who are conducting swaps in their liquidity pool. As mentioned earlier in this article, Uniswap charges a flat fee of 0.3% for each transaction. This 0.3% is actually then split in proportion amongst all the liquidity providers of that pool based on their contributions.

    Adding liquidity and earning provider fees
    Adding liquidity to pools allows you to earn provider fees when other people do swaps

    And Uniswap is not the only liquidity pool provider out there, so many people try to find and contribute to the most profitable pools in order to earn more liquidity provider fees. Pools.fyi is one such website that a lot of people use to try and find the best liquidity pools.

    Click here for our video tutorial on Uniswap liquidity pools.

    FAQs

    What’s the difference between Uniswap version 1 and 2?

    Uniswap has launched an improved version of their Exchange, simply referred to as version 2. The main difference between these versions is that version 2 offers ERC-20 to ERC-20 token pools, native price oracles and flash swaps.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Ampleforth ($AMPL) review: The essential guide to this DeFi protocol

    Ampleforth ($AMPL) review: The essential guide to this DeFi protocol

    Ampleforth is a game changer that is claiming the spotlight on Decentralised Finance (DeFi) following the success of several lending platforms such as Compound ($COMP), Aave ($LEND), dYdX, etc. Ampleforth is a DeFi protocol that aims to reinvent money both within and beyond the cryptocurrency space. While centralized finance (CeFi) and DeFi as we know today have their own unique sets of problems, the Ampleforth protocol is here with the aim to address them.

    The protocol has a native token known as $AMPL. It is a stable currency that has both inflationary and deflationary capabilities designed to adapt to demand.

    Background

    Ampleforth was created by Evan Kuo, an engineering graduate of UC Berkley. He was also the former CEO of Pythagoras Pizza, the first pizzeria to tokenize its franchise.

    Evan Kuo
    Evan Kuo (Image credit: Cody Pickens)

    Kuo’s motivation for creating Ampleforth was twofold. The death of his father, which made him want to leave a legacy after his passing, and his passion for tech and finance which brought him into the cryptocurrency industry.

    He recognised two things that cryptocurrency was trying to reinvent: money and banking. Of the two, money was a lot easier to work with and so that became his focus.

    The Ampleforth Foundation was then funded by Pantera Capital, True Ventures, Huobi exchange and Brian Armstrong. Most of the members of the foundation consist of “engineers, academics, investors, and enthusiasts” from Ivy League universities.

    Ampleforth raised a total of nearly $10 million USD in 2 Initial Coin Offerings (ICO) and an Initial Exchange Offering (IEO).

    Ampleforth Protocol

    Ampleforth Protocol is a cryptocurrency ecosystem built on the Ethereum blockchain. What makes it stand out is its adaptive supply, that is to say, Ampleforth adjusts the circulating supply according to demand.

    When the demand for Ampleforth increases, the supply increases. Conversely, when demand decreases, the supply also decreases. This makes Ampleforth prone to being mistaken as a stablecoin since it does function quite similarly.

    However, it is not backed by any cryptocurrency or fiat currency like most stablecoins are. And although the system attempts to keep the value close to $1 USD, sometimes it could go way past $3 USD depending on the demand.

    As of press time, $AMPL is trading at $1.64 USD according to Coin Market Cap.

    The Ampleforth Protocol is autonomous, but not decentralized. The Foundation still holds the keys to the system, and have the power to freeze all assets or change token supply arbitrarily. So for some decentralization purists, this is a red flag.

    Ampleforth Monetary Policy

    Kuo came up with Ampleforth’s economic design after examining the history of the U.S. Dollar. Back in the day, every U.S. Dollar bill was backed by gold bullions, which were stored in government vaults. Gold is a great store of value but it has an inflexible supply. Furthermore, going by the gold standard alone runs the risk of runaway deflation.

    After World War II, the Dollar was in high demand globally and the U.S. couldn’t keep up. The amount of gold is fixed since mining can only introduce very small amounts of new gold in a given timeframe. Therefore, the U.S. government decided to abandon the gold standard to avoid stagnation of international trade.

    And that became the birth of the fiat U.S. Dollar, which we now know has its own set of shortcomings. One problem with fiat money is that you could only print more of them but not destroy them. Therefore, the supply can only be partially controlled in a sense. Furthermore, the people in charge of the minting facility is also subject to greed and corruption.

    Ampleforth’s monetary policy is a solution to both fiat and gold-backed currencies since it is designed to maintain a stable value by adjusting the supply to match demand.

    As an illustration, say you have 1 AMPL worth $1 in your wallet. If the demand for AMPL rises and causes the price to jump to $2, the Amplforth Protocol will expand the supply of AMPL such that you’ll end up with two AMPL in your wallet worth $2. This process is called a “rebase”.

    The rebasing process does not dilute existing token holders. You get to retain the same percentage of the total supply yet the value you held doubled.

    Ampleforth use cases

    Ampleforth divides its use cases based on its goals: near term, medium term and long term use cases. In the near term, AMPL aims to diversify cryptocurrency portfolios. Most cryptocurrencies are correlated to Bitcoin’s price pattern, which poses a risk. But because of AMPL’s rebase mechanism, it is decoupled from Bitcoin’s price pattern and allows cryptocurrency traders to have some diversity in their portfolio.

    In the medium term, Ampleforth aims to work as a stable store of value or form of collateral for decentralised banks and DeFi applications. This is because unlike fiat-backed stablecoins, it does not pose the risk of devaluation of its underlying asset.

    Ultimately, Ampleforth hopes to become a “A better Bitcoin”. It wants to be an alternative to central-bank money that can adapt to sudden shocks in the market. In that sense, it is competing with Bitcoin and XRP; not to mention national currencies. But as of the moment, it is being used primarily in the cryptocurrency space.

    Another opportunity it offers is arbitrage. Arbitrage traders have the chance to reap profits during the time the supply is reduced when the price rises. On the other hand, they can increase their AMPL allocation before the supply is increased when the price drops.

    How the Amplforth ($AMPL) rebase process works

    The supply of Ampleforth adjusts daily every 1pm EST to match the demand via a smart contract. The system utilizes Chainlink’s oracle network alongside the Ampleforth oracle to siphon price data from KuCoin and Bitfinex.

    The smart contract ensures that Ampleforth sticks within the designated equilibrium range, which is between $0.96-$1.06. If the price of AMPL hits beyond the two extremes, the smart contract will continue to “expand” or “contract” accordingly until the value of the token is in the equilibrium range again.

    AMPL price vs supply
    AMPL price vs supply

    Ampleforth Geyser: What is it?

    Ampleforth Geyser is a smart faucet that incentivizes liquidity providers to supply AMPL to a Uniswap pool. It is brought about through a collaboration between the Ampleforth Foundation and Uniswap.

    Users are rewarded with AMPL tokens for depositing AMPL to Uniswap. The longer the tokens are held in the pool, the higher the returns.

    Ampleforth geyser
    Ampleforth geyser

    To make money from Geyser, visit their web portal at ampleforth.org/geyser and connect either your MetaMask or Coinbase wallet. You will need to deposit equal amounts of ETH and AMPL to participate.

    How do I get AMPL tokens?

    Aside from getting AMPL tokens during the rebase process (though this requires you to stake some AMPL in the first place), people can also buy AMPL from cryptocurrency exchanges. Here are the major exchanges that offer AMPL tokens for sale: Uniswap (v2), KuCoin, FTX exchange and Bitfinex. Learn more about our picks for the top best cryptocurrency exchanges of 2020.

    Conclusion

    Ampleforth has to some degree successfully redesigned the way money works despite only being a few years old. Their influence has not penetrated a huge portion of the market as of yet but there is a lot of room for them to grow. And being part of the DeFi movement makes it a lot easier to gain more traction. As a matter of fact, over 36 million AMPL has been deposited in Geyser as of now. This is a great stepping stone for the protocol.

    Ultimately, Ampleforth’s goal is to compete against national currencies, and perhaps against Bitcoin as well, to become the world currency. For now, Ampleforth should work on establishing its trust and legitimacy within the cryptocurrency community, which will be a stepping stone for it to achieve its use-cases.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Maker ($MKR) and ($DAI) : What is it and how does it bring stability to DeFi?

    Maker ($MKR) and ($DAI) : What is it and how does it bring stability to DeFi?

    Before DeFi was even a thing, Maker was already popular. With the rise of decentralized finance applications (DeFi), the cryptocurrency space has seen a drastic growth in a short span of time and Maker is the primary pioneer of DeFi applications. Meanwhile, the world of cryptocurrency is dynamic, and every moment sees new use cases emerging for different purposes. The high volatility of cryptocurrency has also posed different challenges for users and crypto investors, leading to the creation of stablecoins which can hopefully ‘stabilize’ the volatility.

    What is Maker?

    MakerDAO is a Decentralized Autonomous Organization (DAO) founded by Rune Christensen in 2014. Maker ($MKR) serves as its governance token and is powered by the Ethereum blockchain.

    The Maker ecosystem utilizes smart contracts to execute transactions in the protocol. Additionally, it uses the fractional reserve banking approach to ensure that its stablecoin ($DAI) remains stable.

    As an ERC-20 token, MRK is not mined. Its holders are given voting rights to the collateralization on the platform. As governments who have a stake in the protocol, they are incentivized to vote on changes that could benefit the Maker ecosystem. After all, poor governance would lead to the devaluation of MKR.

    The Collateralized Debt Position (CDP) makes the provision for liquidity possible when dealing with crypto assets. The idea is to provide crypto investors and traders with a decentralized platform that is suitable for margin trading. Additionally, many users have found value in exploring offshore poker sites as part of their diversified investment strategies, leveraging unique opportunities and benefits these platforms offer. Some unique things about the Maker platform include lower prices compared to other margin trading platforms, flexibility, and improved security.

    What is the difference between $MKR and $DAI?

    Maker ($MKR) was created to function as a utility token for a blockchain-based platform for P2P transfers and international payments. To avoid the volatility of the crypto market, a stablecoin called “DAI” was created and connected to Maker.

    Collateralized Debt Position (CDP) and its uses

    The value is based on the ability of the investor or trader to get liquidity without giving out their ETH tokens. It is important to protect the DAI from loss of value by depositing more than 140% of the DAI coins. 

    MKR tokens are needed to perform the transactions with the aid of smart contracts. When the CPD gets closed, or if there is a repayment of the DAI, the stability fee gets paid as MKR. 

    Furthermore, after each transaction MKR gets burned. Which invariably means that the circulating supply of MKR tokens will reduce over time. An increase in MKR’s popularity will increase the demand and number of burned MKR tokens, and result in a price increase.

    Uses of MKR

    The MKR network has four major use cases, including usages by the participants within the network. It is important to note that MKR and DAI are the two tokens used within the Maker ecosystem. Here are the four major uses:

    Traders can utilize MKR as leverage for the ETH they own

    Crypto investors and traders can use MKR if they think that the price of ETH at that moment is undervalued. While anticipating the coin’s rise, they make some ETH deposits with MKR, have a CDP, and get DAI in return. 

    They can make other ETH trades with DAI. When the ETH they own is leveraged, it is kept locked-up to get more ETH and make profits from the increase in price.

    A liquidity creation tool that helps avoid capital gains tax

    Some crypto users may be subject to capital gains tax on their earnings from cryptocurrency trades and investments. Crypto traders that have made a fortune need to secure their profits from the high volatility of digital currencies like ETH. 

    MKR provides an effective solution through ETH deposited for DAI which is pegged with the exchange rate of the US dollar. The benefit is that you avoid paying tax because your money is available in a profitable and stable cryptocurrency.

    A cheap way to facilitate the repayment of costly fiat loans, with crypto loans

    A crypto trader or investor can deposit their ETH in order to get loans at favorable rates. This helps them boycott the expensive loan fees and interest rates of traditional banks.

    For crypto investors without CDP

    Another use case of the MKR token is by crypto investors who are interested in the token. However, their interest in the token does not involve creating a CDP; rather they own the tokens to sell later.

    MKR tokens are created to promote financial freedom while eliminating volatility.

    Markets that can benefit from MKR

    MKR comes with some flexibility that makes it perfect for some markets, and these markets include:

    Financial Markets

    The introduction of smart contracts to facilitate the operations of derivatives and options helps collateralized stable prices. Decentralized trading tools are provided at zero interest rates, and are facilitated by the implementation of CDPs by MKR.

    Transparent Auditing Frameworks

    By default, the underlying blockchain technology promotes transparency. However, MKR’s platform takes transparency further with verifiable transactions. Organizations are provided with a framework that helps improve efficiency in their auditing and accounting operations. The transparency in the system mitigates corruption.

    International Trade

    One irregularity with performing international transactions is the high cost, which can be attributed to the presence of intermediaries. With MKR and DAI, intermediaries are taken off the equation in exchange for seamless person to person international transactions at reduced costs.

    Gambling Markets

    The volatility of the crypto market does not make long-term betting with crypto an advisable venture to try. The underlying risks involved include a drop in the rate and price of crypto assets.

    Where to buy MKR

    As opposed to some years ago when MKR was not available on popular exchanges, it is pretty much available almost everywhere. You can buy from Changelly, ShapeShift, OKEx, Nova Exchange, HitBTC, Binance, CoinBase Pro, BiBox, MXC, etc. 

    Getting signed up to start trading is easy and straightforward too.

    Check out our reviews for Binance and Coinbase exchanges. If you do use Coinbase, you might want to also check out our tips and hacks for avoiding Coinbase fees.

    Conclusion

    Cryptocurrency is on the path to mass adoption, and unique blockchain-based platforms like Maker are strategically positioned for it. With more use cases of cryptocurrency and blockchain technology emerging, owners of the MKR token are likely to enjoy more profitability. 

    Maker MKR has the right framework and underlying technology to tackle the issue of high volatility within the crypto market. In comparison to regular cryptocurrency, MKR poses fewer risks because of its stability mechanism.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Synthetix ($SNX): Everything you need to know about this top DeFi project

    Synthetix ($SNX): Everything you need to know about this top DeFi project

    Synthetix (SNX) is one of the top Decentralised Finance (DeFi) platforms in existence. According to Coinmarketcap their native token $SNX ranks no.7 in terms of market capitalisation compared to other DeFi tokens. Synthetix itself is primarily a decentralized exchange but also a synthetic asset issuance platform.

    The platform enables users to issue and trade synthetic assets — digital assets that represent other real assets like stocks, fiat currencies, commodities, or cryptocurrencies. It also has a staking mechanism that incentivizes users to provide liquidity and maintain the platform.

    The Synthetix Protocol was originally conceived as Havven back in 2017 by Kain Warwick. Warwick is currently also a Non-Executive Director of blueshyft- a network of over 1200 retail locations around Australia.

    What is Synthetix?

    Simply put, Synthetix is an Ethereum-based DeFi ecosystem that functions as a deentralised exchange (DEX) and asset issuer that is maintained via a staking incentive scheme.

    Users can speculate on any real-world asset by creating synthetic assets that track their prices in real-time via oracle feeds. And unlike traditional financial systems, Synthetix requires no KYC. You don’t even need to create an account.

    Yet anyone could gain exposure to Tesla stocks, high premium bonds, real estate, and just about anything. This can be done simply by depositing SNX tokens into the platform.

    Furthermore, those that mint synthetic assets can earn passive income from the fees generated by people buying the assets.

    One of the most exciting aspects of the Syntethix system is that it can siphon a huge chunk of the trillions of dollars of assets from traditional markets and bring them to the Ethereum network.

    Synthetix Network (SNX) Token

    SNX is the utility token of the Synthetix ecosystem and is necessary to create synthetic assets called Synths. Users can buy SNX tokens from several crypto exchanges and deposit them in a compatible wallet in order to stake them.

    Once they are locked up, new Synths can be minted. The token’s supply used to be deflationary until it was updated in March 2019. The update saw the implementation of an inflationary monetary policy to encourage stakers to create more Synths.

    By 2025, a total of 250 million SNX tokens will be minted. SNX has surged drastically in the last couple of months. It went from $0.79 at the beginning of June to around $3.32 on the 25th of July 2020.

    Synth Tokens

    Synth tokens are synthetic assets that track the price of real assets. They are minted by locking up SNX tokens.

    Synths can come in any form and they are denoted by ‘s’. For instance, fiat synths would look like these: sEUR, sUSD, SRMB. Other variations of Synths include sAAPL (synthetic Apple), sTSLA (synthetic Tesla), sAu (synthetic gold), sBNB (synthetic Binance Coin), sDEFI (synthetic DeFi Index), and many more. (https://www.furtenbachadventures.com/)

    Whenever new Synths are minted, stakers create a debt. Therefore, they need to pay back the same value in Synths before they can withdraw their locked-up SNX tokens. And the value of Synth will likely change over time.

    As a result, users may need to pay a different amount of Synths by the time they withdraw their locked up tokens. 

    Fortunately, users are not required to pay the same type of Synth that was initially minted. As long as the Synth used to pay has the same market value, the system will accept it. For instance, a Tesla share Synth can be used to pay in the place of a Bitcoin Synth as long as they have equal value.

    One thing to note is that Synth tokens are not exactly the same as the assets they represent. They are known as synthetic assets for a reason. 

    For instance, if you hold an sAAPL token, you will be exposed to the volatility of Apple shares. However, unlike owning real AAPL shares, you won’t be receiving dividends like real Apple shareholders enjoy.

    Collateralization 

    The Synthetix system requires a collateralization rate of 750%. For instance, if you want to mint 100 sUSDT, you need to deposit $750 worth of SNX tokens as collateral. 

    This rather high collateralization rate is imposed in order to hedge the platform against extreme market price swings.

    Staking SNX

    Staking is currently where most people are making money out of the Synthetix protocol. But like any money-making schemes, staking Synthetix bears some degree of risk.

    How to stake SNX

    If you truly want to make money staking SNX, there are a few easy steps involved.

    1. First, you need to buy Synthetix in any exchange and connect to a web3 wallet.
    2. Visit Mintr, the best portal interface for minting and managing Synths.
    3. Connect your web3 wallet to Mintr.
    4. Click ‘Mint’ and choose what type of Synth you want to mint.
    5. Remember the collateralization ratio of 750%
    6. Input the number of Synths you want to mint.
    7. Click ‘Mint Now’.
    8. Confirm the transaction in your web3 wallet.

    Afterward, your SNX token will automatically be staked. You will now be able to enjoy rewards generated from trading fees. Furthermore, you are also subject to inflation rewards.

    These rewards, however, come with a price. When you mint Synths, you get to own a portion of the platform’s debt pool — the total value of all Synths. And this debt can increase and decrease regardless of the original value of your minted Synths.

    Mintr
    Mintr

    Synthetic DEX

    Synthetix has a built-in DEX interface that enables users to trade without an account. The DEX currently offers 19 assets to trade and 31 trading pairs.

    All you need to do is visit the Synthetix exchange and connect any web3 wallet like MetaMask. It has a slick but simple interface that eases users’ experience while trading.

    Synthetic exchange charges both maker and taker fees with 0.30% which is higher than the industry standard of 0.05-0.25%. The fees will be used to reward the stakers for providing liquidity to the platform. 

    Furthermore, users will also be charged Gas fees by the Ethereum network. For now, all these fees could add up which might be a hindrance from the greater market to fully adopt DEXes for all their trading needs.

    In time, when Ethereum finally scales, gas fees should be low enough to become negligible.

    DEXes like Synthetix don’t require withdrawal fees (except for Gas) since trades are conducted directly from wallet to wallet.

    Synthetix exchange

    The Takeaway

    As a leading DeFi protocol, Synthetix has a lot of potential. It has enabled users across the world to create and trade synthetic assets more than any platform to date. However, nothing is guaranteed to last in the crypto space.

    DeFi protocols like Synthetix have seen enormous growth in the last couple of months. Whether or not this is sustainable, only time will tell. 

    But considering the trillions of dollars floating in Centralized Finance (CeFi), it is not far-fetched to assume that DeFi’s disruption is far from over.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Balancer Finance Guide and Review ($BAL)

    Balancer Finance Guide and Review ($BAL)

    Balancer ($BAL) is an automatic market maker (AMM) protocol that reduces the cost and slippage between trades of different cryptocurrencies. Balancer is a decentralized replacement for the traditional market-maker, a 3rd party entity that provides liquidity to traded assets. Balancer protocol can be called upon by different decentralized trading platforms to automatically figure out the best rates and trading prices using Smart Order Routing (SOR). The protocol also provides the funds necessary to complete the trade, using the funds from available Balancer Pools. Balancer Finance was Launched in September 2019 by Mike McDonald and Fernando Martinelli, since then the Company had a successful seed round with $3 million invested.

    Balancer Exchange Interface

    Balancer uses the N-dimensional invariant surface that is built upon the Uniswap dapp. They also use Automated Market Makers (AMMs), much like UniSwap, which are built off computer algorithms to regulate the market. Their Pools are doing away with portfolio management fees with users instead of collecting fees from traders, who re-balance the portfolio by “following arbitrage opportunities”.

    Balancer has shifted itself into a prominent position within the Decentralized Finance (DeFi) hierarchy, as it’s BAL token caught the coattails of Compound Protocol’s governance tokens rise at the start of 2020. This saw increased attention on the exchange and has been earmarked as a competitor in the DeFi field. This perception coincides with an increase in popularity for DeFi projects and their mining qualities, something highlighted in a recent Forbes report on “DeFi Yield Famers”. So, if you are a budding or curious yielder or someone looking to understand the emerging DeFi market, this is the guide for you. In this article we provide a full breakdown of the project, what it is and explain the benefits of using this DeFi exchange and protocol.

    To learn more about Balancer including its strengths and weakness, check out our video:

    Balancer Finance: What you MUST know about this DeFi platform

    Balancer’s Pools Explained: What are they?

    Balancer pools are collections of user supplied funds that are used to provide liquidity to trades and transactions. These pools can total up to more than $11 Million USD (eg, the USDT, BAT and COMP pool). This collection of funds will be called upon during cryptocurrency trades as the as the counter-party to the transaction, thus providing liquidity to traders.

    Controlled/Private Pools: These are when a fixed state is over the pool and the creator can set out the tokens and weights. This is usually done for private actors who don’t want outside liquidators, for example third party liquidators working with large quantities.

    Finalize/Shared Pools: These pools are open for all actors to add liquidity and is a one way transition. They can not be amended and have a fixed parameter, unlike controlled pools and are usually for the general public to liquidate and make profits.

    Alongside the two main subcategories of pools, there are other more specific smart pools that you can use. For example, Liquidity Bootstrapping Pools (LBPs) give the opportunity for teams to release a project token while at the same time building deep liquidity. Other examples include stablecoin pools with zero impermanent-loss, which founder Martinelli wrote an extended explainer here.

    Pool creator tool
    Balancer’s Pool creator tool

    $BAL Token

    In its initial launch, Balancer didn’t have their own native token but this changed this year, with the company revealing their governance token $BAL. The Company began distributing the token on June 23rd 2020 and will be distributed on a weekly basis for liquidity providers on the site.

    However, there is no economic value to BAL tokens, rather they are currency for governance rights on the protocol. These rights allow the holders to have a say on the structure of Balancer protocol, with weight in terms of implementing new features, protocol fees, and larger structural changes like layer 2 scaling as well as contracts on other blockchains.

    There are 100 million tokens created but 25 million of them have already been allocated to the founding members, core developers, advisers, and investors. The rest though are free to be mined by Balancer users who add liquidity.

    According to Balancer’s website: “Every week 145,000 BALs, or approximately 7.5M per year, are distributed to liquidity providers. This means in the first year of BAL’s existence there would be 30% supply inflation off the initially allocated supply of 25M tokens.” So, how can you earn the weekly BAL allocation? This is done through BAL liquidity mining, which is discussed below.

    BAL Liquidity Mining: How to earn $BAL tokens?

    Liquidity mining has become one of the most popular topics of conversation in the space of decentralized finance (DeFi) in recent weeks. At its core, liquidity mining is essentially when users supply liquidity of assets to a DeFi protocol in exchange for some kind of reward. That reward may be various tokens, including governance tokens of the underlying DeFi protocol (which may end up having monetary value – like COMP). It basically offers a way for users to earn money on assets that they hold.

    The main way to earn $BAL tokens is through Liquidity Mining. Essentially, Balancer rewards liquidators who pay into their pools in the form of $BAL tokens. The Company’s proposal is to give out BAL tokens in proportion to the amount of liquidity each address contributes relative to the total liquidity on Balancer.

    Another way to make BAL is through creating a pool and reaping the benefits of trading fees. These are handed out in the form of $BAL. This system also incentivises the pool creator to lower fees as the lower the fees are, the more BAL they receive. Balancer’s fee gives pool creators a short term or a long term option, and they hope it will encourage lower fees so that traders are lured onto the exchange.

    Speaking on the issues concerning distribution of BAL and governance rights, founder Martinelli said: “By far the most important factor or reason why we are doing that is because we want this thing to be decentralized. We believe in a decentralized, trustless future, and we want Balancer to do that. We need the distribution to be in a healthy way.”

    Balancer Yield Farming & Best Pools

    Top liquidity pools on Balancer are currently returning up to 30% APR on Return on Liquidity. These rates have drastically improved after the Cap Factor update on July 5th 2020.

    The best way to find the current best rates and return on liquidity is via the Predictions Exchange Chart.

    Balance Coin Whitelisting

    In order to quality for airdrops of $BAL Balancer Governance token, pools need to have at least two coins that are on the whitelist. Coins are added to the balancer whitelist on a weekly basis. The amount of $BAL being distributed depends on the trade volume and total liquidity, with a maximum of $

    Trading on Balancer’s Exchange

    Alongside their liquidity and pools, Balancer is first and foremost a decentralized exchange. With no KYC or signups, the anonymity and privacy is upheld. All you need to start trading on there is a wallet like MetaMask. Learn how to set up a Metamask account here.

    The Exchange has a number of tokens available to trade. These include: Ethereum (ETH), DAI, MKR, USDC, REP, BTC++, WBTC, WETH, BAT, SNX, ZRX, LINK, DZAR, UMA, LRC, REN, LEND, KNC, COMP, OCEAN. The Exchange also has a number of tokens without pools such as tBTC, ANT, cUSDC, cDAI, imBTC, pBTC, sBTC, sUSD, PNK, AST and RPL.

    Balancer: are there any risks?

    Decentralized exchanges are often associated with high risks. This sort of ability to trade so easily with high interest rates is a concern. This was highlighted more recently by Ethereum founder, Vitalik Buterin, who cautioned that they were “flashy DeFi things” which sometimes come with “unstated risks attached”.

    Tweet from Vitalik Buterin

    Balancer has acknowledged the risks, with their website warning users that: “Balancer is a very new protocol. Although we are taking every precaution and doing extensive audits, this is still very much a beta product. Use small amounts of funds to start.”

    Conclusion

    Overall, Balancer has position itself as a powerful tool to automate marketing making and reduce transaction fees for different cryptocurrencies. It’s leading the liquidity pool market with the ability to create n-dimensional liquidity pools which is a market first. With their unique formula which negates and actively discourages large fees, Balancer has created a decentralized project that could potentially be a self-sufficient system with a community emphasis.

    For now though, the main target for Balancer is to create stiff competition for UniSwap and make themselves the industry leaders in the AMM field on Ethereum. Many believe this is possible as the DEX functionality on Uniswap is the same as Balancer, as one Uniswap token-for-token pool is equal to the Balancer pool with two tokens set to 50/50, or 1:1, value.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • What is Compound Finance ($COMP)? A guide to hacks and tips on the latest DeFi platform

    What is Compound Finance ($COMP)? A guide to hacks and tips on the latest DeFi platform

    Compound Finance is a leading decentralised finance (DeFi) protocol which allows users to deposit and borrow cryptocurrencies, and earn interest whilst doing so. How Compound does this is by creating liquid money markets for cryptocurrencies by setting interest rates with the use of algorithms. They are popular mainly because they are cryptocurrency exchange Coinbase‘s first ever investment into a crypto project and prices for their $COMP token had more than doubled in the past week. In this Compound guide we cover topics such as what is Compound, how to use the platform profitably and how to earn more of their $COMP token.

    For an overview, check out our explainer video on DeFi and Compound:

    What is Decentralised Finance (DeFi)?

    Decentralised Finance (DeFi) was designed to “cut out the middle man” i.e. banks and reduce the cost of traditional financial operations such as taking out a loan or buying property. The aim of DeFi is so that people, particularly the unbanked can have open access to every financial service on the internet with their smartphones, without needing the banking system. Smart contract platforms such as Ethereum opened the door to DeFi, whereby programs running on the blockchain can self-execute when certain conditions are met. Developers can make use of these smart contract platforms to build decentralised apps (Dapps) with various functions. Developers brought the concepts of Dapps and DeFi together by bringing functions traditionally served by banks onto smart contract platforms. Compound is an example of a DiFi app, it is a blockchain-based Dapp which allows deposits and taking out loans of cryptocurrencies on its platform.

    How does Compound work?

    Compound operates similar to a bank. You can deposit various cryptocurrencies and earn an annual interest on your deposits, similar to depositing your money into the bank. However, Compound’s main difference is that it does not have custody of your cryptocurrency deposits. Instead, you are actually sending your crypto to and interact with a smart contract, rather than another company or user. This feature is important because it means that no person or authority can control or take your funds.

    What makes all of this so interesting is that since Compound is a DeFi platform, it does not have to follow the Federal Funds Rate. It can do something completely different and cannot be shut down since there is no central authority.

    How to supply (deposit) cryptocurrencies onto Compound and earn interest

    On Compound’s website you can earn interest when you deposit (Compound refers to this as “supply”) cryptocurrencies onto their platform. To do this, first load an Ethereum account with any of the cryptocurrencies supported by Compound. Then on the Dashboard, choose which cryptocurrency you wish to supply to the platform by clicking on it.

    Supply cryptocurrencies
    Choose which cryptocurrency you wish to supply to the platform

    In the below image you can see that we will be depositing USD Coin (USDC) which generates an Annual Percentage Yield (APY) of 0.12%. So you can earn 0.12% per year if you supply USDC to the platform. Input the amount you wish to supply and confirm by clicking “SUPPLY”. A metamask window will pop up where you will interact with the smart contract and confirm the transaction. You will be charged gas fees for interacting with the smart contract. In our case we were charged USD$1.

    Supply cryptocurrencies
    Supplying cryptocurrencies to the platform generates interest

    Once you have supplied cryptocurrencies onto the platform, you would be able to use Compound’s other features such as using these supplied cryptocurrencies as collateral to take out loans.

    An important point to note is that Compound has floating interest rates which are subject to change. How Compound determines the interest rate is similar to the Federal Reserve, Compound would analyse the supply and demand for a particular cryptocurrency and then set a floating interest rate that will adjust based on market conditions. Compound also takes a 10% cut off your earned interest. Users can take back their cryptocurrencies at any time with a 15 second lag between executing the instruction and receiving their crypto.

    How do I take out loans/ borrow cryptocurrencies on Compound?

    You can use your deposited cryptocurrencies as collateral to borrow other cryptocurrencies. Compound requires users to put up 100% of the value of your intended loan. There are risks of doing this though which will be explained below where we look at Compound’s liquidation clause.

    Borrowing cryptocurrencies does also require you to pay fees. For example in the below image you can see that taking out a loan of BAT will cost you a whopping 29.4% per year.

    Borrowing cryptocurrencies
    Borrowing cryptocurrencies requires you to put up collateral and pay fees

    You can also see from the above image how Compound makes money, since there is a spread between the amount of interest generated from depositing, say BAT and the amount of fees you need to pay for borrowing the same.

    What is $COMP token? How can I earn $COMP?

    Since May 2020, Compound has transitioned to community governance. This means holders of Compound’s token, $COMP can make proposals and vote on decisions relating to how Compound is to be developed or run, e.g. what kind of collateral should Compound support, or what the interest rates should be.

    There is a total supply of 10 million $COMP, of which 42.3% is reserved for distribution to users to earn when they use Compound e.g. by supplying or borrowing cryptocurrencies. For every Ethereum block, 0.5 $COMP is distributed across Compound’s 9 markets in proportion to the interest accrued in the market. And within each of these markets, the amount of distributed $COMP is divided 50:50 between suppliers and borrowers of that particular cryptocurrency. Hence the cryptocurrency which is earning the most COMP per day is always changing. Users should check Compound’s User Distribution page, where they can see the amount of interest paid per day as well as the amount of $COMP distributed to suppliers and borrowers.

    You can also earn $COMP by voting on various governance proposals concerning how Compound should be run.

    Governance proposals
    Users can vote on governance proposals and earn more $COMP

    $COMP can be traded on various exchanges, such as Coinbase or FTX Exchange. And there was certainly a lot of attention focused on $COMP since prices for the token recently shot up from USD$60 to over USD$300 in a matter of days.

    $COMP prices
    $COMP prices

    How are people using the Compound platform to earn 100%+ APR?

    Users earn COMP when they supply or borrow cryptocurrencies on the platform. So in the below image we deposited 500 USDC and borrowed 300 USDT to get a net effective interest of -12.27% which on the face of it does not look profitable.

    Net interest
    In our case, depositing USDC and borrowing USDT generated a net interest of -12.27%

    BUT at the same time we are also earning $COMP. This calculator shows you how much $COMP would be distributed depending on the type and amount of tokens supplied or borrowed. So as seen in the below image, whilst the net interest was -12.27% per annum, we EARNED 13.94% APY of $COMP. Basically, you are being PAID to take out a loan.

    $COMP mining: Another way to potentially earn more $COMP

    $COMP mining goes beyond simply supplying cryptocurrencies and profiting off the interest rates on Compound. Rather it is about getting as much $COMP rewards as possible in the shortest amount of time. Some methods even allow you to multiply your earnings by folding your position 4x.

    In a nutshell, people have have been finding ways to do this by first depositing USDC, borrowing USDT and then converting the USDT to USDC. Then depositing the USDC onto the platform, leveraging it, withdrawing USDT and depositing it onto the Compound platform several times over.

    What cryptocurrencies does Compound support?

    Compound currently supports 9 cryptocurrencies, namely: Ether (ETH), USD Coin (USDC), Basic Attention Token (BAT), Tether (USDT), 0x (ZRX), Wrapped BTC (WBTC), Dai (DAI), Augur (Rep) and Sai (Legacy DAI) (SAI).

    Available markets on Compound
    Available markets on Compound

    What are the risks of DeFi platforms?

    DeFi, and any such platforms such as Compound has the main feature of being decentralised. Yet, it is decentralisation that brings associated risks. This is because instead of trusting a central authority to supervise the transactions, we are trusting the code which the smart platform was built upon. If there is a mistake in the smart contract e.g. the conditions for release of funds are set incorrectly, there is no overriding body which can correct this mistake or any customer service representative that can help. And the biggest risk of all is if the developer did not code the contract correctly making it vulnerable to hackers. An example of this was the dForce hack where hackers exploited a well-known exploit of an Ethereum token, resulting in losses of USD $25 million worth of customers’ cryptocurrencies.

    Risks of using Compound: Compound’s liquidation clause

    For Compound, there are risks associated with trying to earn $COMP through borrowing on the platform. Compound has a liquidation clause that kicks in when borrowing on the platform. For instance if the cryptocurrency you are borrowing increases in value and exceeds the value of your collateral, your borrowing account will become insolvent. In such case, other users can step in and repay a portion of your outstanding loan in exchange for a portion of your collateral at a liquidation incentive. This liquidation incentive is the discount at which other users can receive your collateral. So if the liquidation incentive at the time is 8% (subject to change through voting on Compound’s governance system), then other users can receive your collateral at 8% off the market price when they help repay your loan. Hence there are serious incentives for users on Compound to liquidate others and this will result in the person being liquidated to potentially suffer huge losses.

    What is Compound’s aim for the future?

    Currently, Compound only deals in cryptocurrencies on the Ethereum blockchain. However the Company eventually wants to expand and move into carrying tokenised versions of real-world assets, for example the US Dollar, Japanese Yen or stocks in companies such as Google.

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Decentralized Finance (DeFi) has been the breakout trend of 2020. With prices of standout DeFi tokens surging and terms like “Yield Farming” getting mainstream attention, the DEFi field has taken off. This next step in the evolution of finance uses public blockchain technology and has a wide range of sub- divisions that make up the growing field. The most notable and popular of these DeFi services are decentralized exchanges, decentralized stablecoins, decentralized money markets, decentralized synthetics and decentralized insurance. To understand this emerging field, first a definition on what decentralized means must be had. 

    Learn more about DeFi, and liquidity pools such as Balancer, Uniswap and Curve with our video:

    What is decentralized and what does it mean?

    Decentralized is a term you will have definitely heard thrown around even if you are relatively new to the cryptocurrency scene. Be it on Twitter, with the various profiles espousing the benefits of decentralization and calling out centralized cryptocurrency projects, or in articles online. To give a little context, the decentralized v centralized argument is akin to economic arguments on political systems between capitalists and communists. 

    Part of the reasoning for many supporters of decentralization is that blockchain technology at its core was made to be decentralized. Blockchain is reliant on open source networks and has no central entity controlling it. Rather, the computer power and the overall network is split up, which is why it is decentralized. The benefits of this system are that it doesn’t have a single point of failure, making cyber attacks and poor leadership somewhat irrelevant. 

    As such blockchain has been earmarked as the breakout technology of the 21st century. Companies, governments and financial institutions are all clambering to bring developers on board as blockchain continues to be viewed in an increasingly glowing light. Yet, how does blockchain’s decentralized foundation play into the emerging DeFi field?

    DeFi Explained

    For many, blockchain is the embodiment of the DeFi field and is the promised land of finance that Satoshi Nakamoto first imagined when he created Bitcoin. The term DeFi has turned into an all encompassing term for a range of projects, but the core values of each are pretty clear. These are open access to anyone, resistance to censorship, privacy and an open democracy of finance away from singular control. The majority of DeFi sites are run through decentralized apps or Dapps, which allow for financial services to be created and be used easily by anyone. 

    The DeFi Market

    The DeFi market is a field that has grown massively in recent months as billions of dollars are handled every hour in the sub industry. Part of DeFi’s popularity is down to its transformative effect on almost all aspects of finance. From loans to remittance markets and even insurance, the DeFi field could give financial access to people around the world as all they need is an internet connection. The technology could have an impact on the third world, where many of the population is unbanked or even in more developed financial societies as governments and financial institutions continue to lose credibility as they go from recession to recession. Sold on DeFi now? Well if so, read on for a closer look at the different blockchain applications in the field and the top companies within each subcategory. 

    What is a Decentralized Exchange?

    Exchanges are the heartbeat of the cryptocurrency traders. Most of you will have an idea of the more famous centralized exchanges like Binance and Coinbase, but decentralized exchanges (DEX’s) may be less so. The main difference between the two is that there is no central authority over decentralized exchanges, rather governance is determined in various ways, like through earning native tokens. 

    Focusing on namely cryptocurrencies, the decentralized exchanges offer a range of benefits. The first is security as you are not trusting a centralized exchange which could be susceptible to hacks with your funds. Instead trades are done through a peer to peer (P2P) trading network and a range of methods are used to facilitate this. Some DEX’s use proxy tokens, others multi-signature escrow systems and some use shares. Popular DEX’s are dYdX, Uniswap and Kyber network.

    Decentralized Stablecoins

    Much like DeFi applications, stablecoins have also seen a rise in popularity and usage in recent times. Put simply, stablecoins are less volatile tokens that are usually backed by a currency, commodity or a collection of both that enables them to keep a steady price, unlike the often wild swings of other cryptocurrencies. Some stablecoins are centralized but there is a growing amount of stablecoins that have become decentralized. These include industry favourites like DAI, USDC and Tether (USDT). To be classed as a DeFi stablecoin, there needs to be no central figure ruling the tokens or single point of failure as well as a resilient network.

    What is a Decentralized Money Market?

    Money markets are markets for borrowing and lending assets. The decentralized element means that users can borrow and lend cryptocurrencies without the control of a central figure. The lack of central authority is fixed using smart contracts and algorithms to determine the markets function. Decentralized money markets put interest earning potential in the hands of anyone with an internet connection in the world. Popular examples of decentralized money markets include Aave, Compound, MakerDao and Balancer. This area of DeFi has gained the most traction in recent times, especially with the bearish crypto market. This is because there are lots of profits to be made, with “Yield Farmers” churning in large sums from interest earned.

    Decentralized Synthetics

    Decentralized synthetics is another growing sector of the DeFi field. Synthetics or derivatives as it is also known refers to the tracking of a value for an asset. This means traders can get an insight into an asset without physically investing themselves. This representation of the asset allows traders to make educated investment decisions. There are a number of decentralized synthetic companies, the most popular ones being UMA and Synthetik. Expect more companies to pop up in the future too.

    Decentralized Insurance

    As blockchain gains exposure, more and more use cases appear, from accounting to product tracking. One industry that has taken to the technology is insurance. The bureaucratic side of the industry is perfect for blockchain technology and smart contracts, with a wide variety of usages for the technologies. The technology has the ability to revolutionise the insurance field as it cuts out added fees and reduces smart contract risk. Notable decentralized insurance companies include Nexus Mutual and Opyn.

    Conclusion

    Overall, it would appear that the DeFi field is growing and most importantly, is here to stay. People around the world are increasingly seeing the problems of a centralized method, especially in the cryptocurrency industry which has a long history of customers’ funds being lost due to hacks of centralized exchanges. Partner this with an increasingly more aware population with regards to internet privacy, you have the makings of the next big thing in the cryptocurrency industry and possibly the wider financial field. 

    Although the industry is in its infantile stage, there are a number of interesting projects and options, most strikingly in the decentralized exchange and money market area, which users can partake in. Boxmining has a number of guides which can help you decipher more clearly which is the best project for you. For more DeFi related information and other cryptocurrency news, subscribe to our YouTube channel and newsletter. 

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • THORChain ($RUNE) information and guide

    THORChain ($RUNE) information and guide

    Among the growing list of emerging decentralized exchanges lies THORChain and their RUNE token. The Company is one of many decentralized finance (DeFi) options in a field that is creating much buzz within the industry. The decentralised liquidity network, whose successful seed funding was completed last year, is one that should not be missed by those who are looking into this field. After a successful mainnet launch, the cross blockchain answer to Uniswap was made official in the first part of this year. As such we have compiled a complete guide to EVERYTHING you wanted to know about THORChain, answering questions like ‘What is THORchain?’, ‘Who Uses THORChain’ and other important topics.

    What is THORChain? 

    First imagined in 2018, THORChain offers a wide range of services on its decentralized permissionless network. It allows for swapping of assets like Bitcoin and Ethereum as well as providing continuous liquidity pools for users. The platform uses a cross chain and can be used on any blockchain/with any asset, unlike other decentralized exchanges. 

    Their development paper outlines the core conception of THORChain, saying: “THORChain is a liquidity protocol designed to connect all blockchain assets in a marketplace of liquidity through cross-chain bridges and continuous liquidity pools secured by economically incentivised validators.” 

    THORChain’s consensus is Proof-of-Stake and built on Tendermint, with network validators required to bond (lock up) their native token, $RUNE. Validators are punished for bad behaviour by having their stake slashed, which in turn disincentivises such actions.The network’s data is calculated and overseen using Midguard API service and is secured and bonded by ThornNode, which also powers the network. The nodes make vaults and validate the transactions on the site.

    Who uses THORChain?

    Users

    These are the main participants and they usually use the cross chain services between the pools with them paying a slip fee. The fee is paid due to gas fees on external services and for fast execution. However, swapping is non custodial and unrestricted on different chains. 

    Liquidity providers

    These are secondary participants who add liquidity to the various pools which is then bound with RUNE in a separate vault. Using the continuous liquidity pool means the network does not need oracles or have a price feed. Liquidity rewards are earned through fees generated from pools and are paid out when users withdraw. As the THORChain website explained, “liquidity is provided by stakers who earn fees on swaps, turning their unproductive assets into productive assets in a non-custodial manner. Market prices are maintained through the ratio of assets in pools which can be arbitraged by traders to restore correct market prices.”

    Nodes explained

    Nodes are the basis for THORChain’s services. They have three main functions, these are: to Bond RUNE, create vaults (which are like wallets) and witness transactions/produce blocks. They are all run by node administrators who are also rewarded for their work through bond rewards. For a full breakdown of node operators, please click here.

    In terms of THORChain, as previously mentioned, nodes earn two-thirds of the System Income and they make vaults and validate the transactions on the site. Nodes are anonymous, with plausible deniability on all transactions. The nodes are created every three days and compete to enter with bonded capital. The oldest nodes are churned out and replaced when necessary. This allows the nodes to stay fresh and keeps the network constantly updating itself.

    RUNE token: what is it?

    Another integral part of the system and the nodes that run it is THORChain’s native token, RUNE. Available through Binance Chain, the token is a BEP2 token.The RUNE token is used in all liquidity pools and is bonded by nodes. All RUNE tokens are at a 1:1 ratio to asset value and this allows for pools to be linked. RUNE is also the rewards for pools, with the equivalent of 1/3rd of the System Income providing continuous liquidity incentives. 

    Alongside providing on chain liquidity, RUNE is also an important part of the THORChain security. This is because it protects against malicious actors by offering them a larger benefit for liquidating then they would receive from corrupting the system, as nodes earn 2/3rds of the System Income. Thus all transactions using RUNE on the system have double the amount at a 67% to 33% ratio. The other third is for liquidity providers. Not only that, but in terms of security nodes are also closed when malicious activity is detected. 

    RUNE has a total supply of 500 million tokens. Of which 100 million will be sold to the public in 3 stages, 150 million has already been allocated throughout the team, community and operational reserves, and the remaining 220 million is saved for the emissions reserve. 

    How to earn RUNE?

    RuneVault: Liquidators and users of RUNE can have access to the RUNEVault feature which allows you to store and stake the token, with returns on investment. Using a Binance Chain Feature, users can “freeze” their tokens even if they have staked them meaning that the currency is always in the wallet. Earnings are based on weekly RUNE staked, but this weekly taking is reset should you withdraw any amount. 

    Rewards

    THORChain offers rewards for all participants on the network. The rewards are paid out through the distribution of system income. This is worked out by Swap fees plus Block rewards. Swap fees are paid by users when swapping assets and Block rewards are worked out on an emission schedule. As mentioned previously, the system income is paid 67% to the nodes and 33% to the liquidator. However, this ratio is officially worked out by the incentive pendulum. 

    Governance on THORChain

    THORChain attempts to have a minimal governance model. Instead staked capital is the main driver of the market and developers respond accordingly. New assets are easily listed and this means there are rarely many governmental decisions to undertake and it is truly decentralized in many ways. 

    Who is the team behind THORChain?

    The team behind THORChain is purposefully pseudoanonymous. According to their website, “figureheads, personalities and founders undermine a project’s ability to decentralise,” and that, “transparency is demonstrated in other facets (treasury, code, research)”. That being said, there are 10 employees listed on LinkedIn and 12 team members listed with 6 additional advisors on ICOBench. 

    What sets THORChain apart? What are its benefits?

    THORChain takes a little while to understand the basics and the nodes that run the network. However, once you get the hang of the exchange then THORChain has a number of benefits. 

    The main benefit is that with their cross chain feature, any asset can be swapped and a pool created around it. That gives users a huge amount of variety and does not hem them in unlike other decentralized exchange options do. This opens a whole new world of possibilities for DeFi users and one that should be applauded. 

    Conclusion

    For those who are fans of Uniswap, then this decentralized option could be a great alternative. Yet, as Balancer has shown with their recent security scare, the often precarious nature of DeFi security does cause concern. Perhaps though, THORChain with their incentivized payments negates this risk. However, until more is known about the site and they are around for longer it will be hard to make a final judgement. 

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.

  • Cover Protocol ($COVER): peer-to-peer coverage market for DeFi

    Cover Protocol ($COVER): peer-to-peer coverage market for DeFi

    Cover Protocol ($COVER) is one of those projects that can really have a solid impact on the future of decentralised finance (DeFi). Why? Because users want to sleep well knowing that in case of exploits, they won’t lose their money. Trusting the protocols and the team behind them is not enough anymore.

    With the dawn of decentralized finance, more smart contract risks have arisen. Most contracts aren’t audited, and if they are, malicious actors are always on the lookout for a vulnerability in the code. As we have seen in 2020 nothing is really secure, whether it is a protocol built by one of the best developers in crypto space ($EMN) or the code has been audited. Anything can be exploited, and we need to remember it.

    Therefore, investors are cautious of interacting with DeFi protocols for fear of losing funds.


    What is Cover Protocol?

    Cover Protocol is a blockchain-based peer-to-peer coverage market for decentralized finance. The platform allows DeFi users to hedge against risks due to smart contracts’ fallacies (especially useful when farming or staking). Thanks to fungible cover tokens and letting the market itself set coverage prices, the protocol shifts from the need of relying on a bonding curve to determine the cost of being insured.

    Insurance guards against hacks and bug exploits that lead to loss of deposited assets. Notably, Cover doesn’t blindly allow DeFi protocols on their platform. It performs a thorough background check considering its security measures, total value locked and other features, all necessary to determine user risk levels.

    Background

    The project is led by a team with vast experience in blockchain programming and traditional finance. Among the team members we also find Andre Cronje as their advisor.

    Cronje is the founder of Yearn Finance, one of the most successful DeFi protocols. Other notable names associated with the project are PeckShield, Hacken, Farming Lord, and The Arcadia Group, all as CVC (more on them below).

    How does Cover help Defi users?

    Coverage protocols are the solution. These are platforms incentivizing DeFi users and developers to provide decentralized insurance. An excellent example of such a platform is Cover Protocol.

    Cover lets people buy “insurance” for products like Yearn Finance ($YFI) (Learn more about the yEarn Finance ecosystem) and other systems in the DeFi ecosystem. By ensuring systems and users, the protocol provides a critical missing link between DeFi and conventional finance.

    Here we examine how Cover handles insurance in a decentralized industry. In addition, we shall take a look at who’s eligible to use the platform.

    How are Fungible Cover Tokens used?

    Fungible Cover tokens are minted on the platform, when users interacts with the smart contract. Cover determines the protocols to be covered, type of collateral needed, amount of collateral, and insurance length.

    Diagram by Cover Protocol core dev, crypto_pumpkin
    Diagram by Cover Protocol core dev, crypto_pumpkin

    Once a deposit is made into the contract, two types of tokens can be created; CLAIM and NOCLAIM. For the moment, Cover only supports DAI as collateral and keeps a 1:1 ratio between collateral provided and the tokens.

    The two minted tokens work in opposite ways in the system. The CLAIM token enables its holder to receive a payout once a contention is approved. On the other hand, NOCLAIM enables holders to redeem the collateral when a filed petition fails to go through or the token expires after nothing notable has happened to that particular project within the expiration date.

    Each CLAIM-NOCLAIM tokens refer to only one project and provide unique info. Example of denomination (with $CURVE):

    COVER_{Protocol}_{Expiration Date}_{Collateral Currency}_{Nonce}_{Direction}

    Example tokens for a coverage on Curve (has no accepted claim) that expires 12/31/2020:

    Symbol for CLAIM token

    COVER_CURVE_2020_12_31_DAI_0_CLAIM

    Symbol for NOCLAIM token

    COVER_CURVE_2020_12_31_DAI_0_NOCLAIM

    Usually, one DAI equals to one CLAIM + one NOCLAIM token. As such, it gives its holder exposure to both outcomes during a petition. Depending on the result of a filed allegation, the values change. If a claim is approved, CLAIM value goes to 1 and NOCLAIM to 0. The opposite is true viceversa. Holders can deposit the two token types on the Balancer pools.

    Cover Protocol creates two Balancer pools; one with 80% CLAIM coins and 20% collateral token (DAI) and the second with 98% NOCLAIM and 2% DAI. In this way, IL (Impermanent Loss) is minimized. The pools are created once a new cover is launched on the protocol.

    Types of Participants in The Cover Ecosystem

    To give life to the platform, Cover encourages the participation of market makers, insurance providers, and insurance seekers.

    • Market makers – They provide liquidity and hold both types of minted tokens. Market makers receive rewards from fees charged in the respective liquidity pools. Fees charged usually range between 2-3%. Notably, they can liquidate either token at will.
    • Coverage providers – Unlike market makers, they are insurance providers and only hold NOCLAIM coins. Note that they receive both token types like everyone else when they deposit collateral in the system. However, they can sell CLAIM tokens for a premium and retain NOCLAIM coins.
    Coverage Providers (CP) on Cover Protocol
    Coverage Providers (CP) on Cover Protocol

    Fees charged on the NOCLAIM pool act as their incentives. Cover encourages teams seeking insurance for their platform to be insurers to boost trust and confidence in their offering. In the event of a claim payout, they would lose all their funds, since NOCLAIM tokens would become worthless.

    • Insurance seekers – They hold CLAIM coins and insure their deposited funds. Apart from being covered, they’re rewarded for providing liquidity in the CLAIM pool.

    How Does Cover Protocol Handle Claims?

    Allegations are a normal occurrence in insurance-focused products. The network provides a petition filing window of 72 hours after an incident. Although Cover is a decentralized platform, it handles contentions in four simple steps.

    First, a case is brought against an insured product after paying a fee, which Cover calls the Claim File Fee. However, to keep spam attacks and malicious actors at safe distance, the network increases the cost each time a new allegation is filed against an insured product.

    The second phase involves a vote from $COVER holders (more on the token later). If the community votes unanimously in favour of the submission, it goes through to the third step.

    Claim Management Process (CM) for Cover Protocol
    Claim Management Process (CM) for Cover Protocol

    At the third “level”, the Claim Validity Committee (CVC) or Auditors review the petition to determine whether it meets all the requirements. The CVC also deliberates on the payout percentage , which can be up to 100%.

    Note that five auditors review a single contention and half of them must vote in favour of it to be accepted. The last step is for $COVER holders to redeem their payout for the accepted allegation.

    Note that if a case is rejected during the community voting phase, it can be re-filed as a Forced Claim, which is much more expensive. A bulldozed submission goes through the first, third, and fourth steps.

    Cover Token and Governance

    The native currency on Cover Protocol is $COVER. $COVER acts as a governance token and gives access to the Balancer pools. Additionally, as we saw, it allows holders to participate in the claims management subsection.

    System users can use COVER tokens to provide liquidity on SushiSwap via interacting with the ETH-COVER liquidity pool. Depositing the platform’s native currency in this pool opens the door to receiving a percentage of fees from traders plus additional $COVER through staking the LPs on Cover Protocol.

    What makes Cover different from other Insurance Projects?

    Cover Protocol is not the only project users can refer to when looking at ways to protect their investments. The leader in this space is probably still Nexus Mutual.

    As the name implies, it acts more like a classic insurance company. A user looking for a coverage should go on their website and find the right one to buy. He can choose how much to cover and for how long. A key difference is that, to be able to complete the process, a KYC is required. Moreover, this is the only way to buy $NXM, as you can’t find them anywhere else. For general investors who believe in the project but don’t need coverage, there is a wrapped version of the token which is normally tradable, $WNXM.

    CLAIM/NO CLAIM tokens, unlike $NXM, are just normal tokens and are not connected to any identity (no KYC needed). At will, they can be traded or given to anyone you want. Their utility won’t change.

    DEVELOPING STORY: $COVER exploit/hack?

    On 28th December 2020 an attacker exploited a bug in the protocol’s smart contracts. The exploit appears to be an abuse of the minting exploit where the attacker managed to mint 40 quintillion COVER tokens and sold around USD$5 million worth of COVER tokens. Several hours later, one of the attackers returned the stolen funds (i.e. 4,350 ETH) with the message “Next time, take care of your own shit.” and burned the remaining tokens.

    The Team are still investigating the exploit and mentioned they are looking into providing a new $COVER token and how to return the stolen and returned ETH to affected LP tokens.

    Most importantly, the Team are urging people not to buy $COVER tokens. Exchanges such as Binance have stopped trading on $COVER, particularly as a large trading group of 16,000 members had dumped the price to short the token.

    In a community-driven effort to mitigate the damage, Leo Cheng of CREAM has sent out a “call to action” on behalf of COVER and available developers from the yEarn Ecosystem have come together to lend help and support to the Cover Protocol team.

    Post-Mortem and snapshot

    In the following hours, the Cover team has released a post-mortem article to explain what happened in details and confirming that the exploit affected the minting contract and the token only. The lines of code “incriminated” have been always present in the code and went unnoticed during the audit.

    The team acknowledged their fault too in missing the “amplifier”, that allowed for extra rewards to be minted, and announced a snapshot to distribute a new token and the returned funds. The snapshot will will be taken at block 11541218, one block before the first major exploited mint.

    Compensation Plan and new Token

    Affected users of the attack can check their compensation eligibility on this page. Basically, all $COVER holders and liquidity providers of the /ETH pair could be compensated, even those who were keeping their tokens on a CEX. Unfortunately, unclaimed rewards are impossible to withdraw as as the minting rights from the Blacksmith have been removed.

    The team, consequently to brainstorm with advisors including Andre Cronje, has decided to discard the idea of new shield mining. The total supply, with the launch of the new token, will be the same amount that is eligible for migration.

    The Cover v2 Core contracts are undergoing an internal review at the moment and the exploit hasn’t affected the core contracts, so the project will continue with its development.

    On January the 5th the new $COVER token was made available for claim. All the details can be found on the medium page of Cover Protocol.

    Conclusion

    With DeFi smart contracts repeatedly experiencing hacks and exploits from malicious actors, Cover Protocol provides a critical service by allowing DeFi users to insure their deposits and not be worried anymore. Furthermore, encouraging a product team to provide coverage offers insights into whether it believes in its own protocol security. Consequently, it boosts DeFi adoption.

    Incentivized liquidity provision allows coverage providers, seekers, and market makers to receive trading fees charged on respective pools and rewards while helping other users at the same time.

    Updated on January 6

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.