Down the DeFi rabbit hole with LEO... through CUB
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. by @d-pend .. . . . .
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Intro
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Hey everyone, @d-pend here. It's been quite a while since I posted cryptocurrency-related content here, but with the recent launch of the CUB token at https://cubdefi.com/, I finally felt like it was the right time to catch up to recent developments in the crypto space — most notably, DeFi, which really exploded towards the end of last year.
Keep in mind that I'm far from an expert in anything we're about to discuss, but I will do my best to outline some of the things I've been learning recently.
What is DeFi?
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DeFi is a blanket term that refers to a variety of applications of the concept of Decentralized Finance. By its definition it is antagonistic/disruptive to traditional financial institutions such as centralized banks and centralized exchanges, as these always include someone acting as an intermediary between you and your assets.
If you've been in the crypto space for a while, don't let the trendiness of this new term confuse you too much — in many ways the developments we have seen recently are a continuation/refinement of @dan's original vision with BitShares.
On the BitShares exchange, you can trade various assets in a decentralized manner, yet when you exchange for "BTC" on the exchange, you are not actually trading Bitcoin, but a 1:1 representative of it on the BitShares exchange — which you can freely withdraw as "real" BTC to any wallet address you choose.
Wrapped Tokens
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The concept of minting tokens on a different blockchain protocol than that which they represent, such as Wrapped Bitcoin, has been increasing in popularity as of late. In the case of Wrapped Bitcoin or WBTC, this is an ERC-20 token (which means that it "lives" on the Ethereum blockchain) that is backed 1:1 by actual Bitcoin. As such, it has the same theoretical maximum supply as Bitcoin, which is 21 million tokens.
When you "wrap" BTC into WBTC, the protocol will mint the same amount of WBTC as was sent as BTC. The WBTC can then be moved between Ethereum wallet addresses or used on centralized or decentralized exchanges that support trading of the Wrapped BTC protocol — or, placed into different kinds of liquidity pools on these same platforms in order to "farm" interest tokens (more on that later.) Whenever a holder of WBTC wants to receive BTC on its native chain, the system will burn the WBTC and return the same amount of native BTC from the 1:1 holdings.
The continued expansion of this sort of system is very exciting, because it gradually actualizes the concept of "interoperability" of different cryptocurrency blockchains and enables safe and convenient swapping between different algorithmic protocols without the need of other services.
Interoperability
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The way that I view interoperability in its most idealistic, actualized state is that all cryptocurrency protocols in existence can eventually be viewed as one enormous, interconnected system of currency in which there are countless checks-and-balances as well as maximum freedom of each constituent part to determine its own system of token issuance, governance, transaction fees, etc. Bridges between chains would provide people increased freedom to choose which asset aligns most with their needs and values. TL;DR — it is all about building safe and convenient bridges between tokens with completely different algorithms with reduced need for trusting third parties.
Liquidity Pools
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Another exciting application of the concept of DeFi and wrapped tokens is the ability to trade multiple token(s) for another a token that represents a stake in a Liquidity Pool. For example, on Cub Defi, which primarily operates on the Binance Smart Chain (a fork of the Ethereum Network,) you can enter the CUB-BUSD farm by trading CUB and BUSD in equal parts (measured in current USD value) for a liquidity token that can be staked in the pool, which pays out CUB tokens as interest. This can be quite lucrative depending on the value of the CUB token, but subjects the liquidity provider (you) to so-called "Impermanent Loss."
Impermanent Loss
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As liquidity providers stake their tokens, people can easily swap between various coins by paying a variable fee. As the tokens staked by LP holders go up and down in value, the pairing will "balance out" in pegged value. So what are the "impermanent losses" one can suffer? In the case of the CUB-BUSD pool, if the CUB token was worth $5 when one added liquidity, then increases to $50, one would have made much more by simply holding the CUB token — since as it is increasing, one's holdings will adjust to be less CUB and more BUSD, since people are buying the CUB token from you as a liquidity provider.
It is called impermanent because assuming prices return to their previous value, one will have the same amount of CUB as initially provided. I chose to use this example since BUSD is a stablecoin pegged to the U.S. Dollar, and as such fluctuates very little in value. In the other scenario, if one adds liquidity when CUB is worth $50 and then it drops to $5, one will exit the pool with more CUB tokens than one put in, but they will be worth less in USD value. In this scenario, you would not lose as much as someone holding CUB by itself since you will have more CUB tokens than you put in. (You will still lose fiat value, but not as much.)
Here also, if you were to wait until CUB reached $50 again, you would be able to withdraw the same amount of tokens as put in initially. Thus, the losses are "impermanent." (Please correct me with a comment if this explanation is inaccurate or unclear.)
Dens
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On Cub Defi, there are also "dens" which are simpler to understand and do not subject one to this kind of loss. Essentially, you may stake a single token instead of a liquidity pair and still earn CUB as interest. You will always be able to withdraw the same amount of tokens as you put in, though their relative value to other curriences may have decreased or increased while you held them. You can even hold CUB in a den and compound any interest directly back into the pool by paying a single BSC gas fee (currently between $0.15 - $0.50 worth of BNB.)
wLEO and bLEO
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These are wrapped tokens on the Ethereum/ERC-20 Network (wLEO) and the Binance Smart Chain/BEP-20 Network (bLEO.) As you might expect, they are able to be swapped 1:1 with native Leo that exists on Hive-Engine. Leo Finance is developing a bridge application that will provide even easier swapping of many tokens in the future, but already, any LEO holder may wrap their tokens into different forms using a simple interface at https://wleo.io/.
Where does interest come from?
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In the case of CUB, interest comes from the minting of new coins, which is currently 3 tokens per block for the first week of its existence but is set to decrease to 2 tokens per block on Monday, March 15th. It will further decrease to 1 token per block on Monday, March 22nd (new blocks occur about every 3 seconds.) The value of CUB is speculative based on the utility of the Cub Defi platform, which again, lets users swap between many different tokens with the click of a button (and the paying of a gas fee) due to the liquidity provided by those in the farms/dens.
Keep in mind that all the tokens on Cub Defi are BEP-20 versions on the Binance Smart Chain Network of any tokens natively on other blockchains and will need to be properly unwrapped before being sent to an ERC-20 or other kind of wallet address. This is currently doable using Binance's own Bridge at https://www.binance.org/en/bridge, or by swapping for BNB and sending to other exchanges or services that support it. Again, when Leo Finance's own bridge is released, this will be even more convenient for those preferring not to, or unable to use Binance's service.
Conclusion
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This post is not meant to be an exhaustive explanation of Cub DeFi or DeFi in general, but more a summary of what I have understood so far in the past few days of burrowing down the DeFi rabbit hole. If you are feeling confused, don't worry — I had absolutely no clue how much of this worked a week ago.
It's also not intended as a tutorial of how to get involved in Cub Defi as there are many other resources that explain that succinctly that I will do my best to compile and add to the end of this post based on your feedback. A great place to start is by reading everything published at https://docs.cubdefi.com/. Please comment below with any write-ups you know of that may be helpful to understand all of this.
Also, if you perceive that I have made any errors or left glaring gaps in any of the explanations in this post, do not hesitate to correct me with a comment below and I will do my best to edit this so it is as accurate as possible.
Overall, I am quite bullish on this project and have decided to take positions in the CUB-BUSD farm, the USDC-BUSD farm, and the CUB den so far. (Please do your own research and make sure you are educated on the pros and cons before getting involved; I'm not a financial advisor.)
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words and images created by @d-pendfor LeoFinance on HIVE — posted March 14, 2021.
images are free domain and processed with Deep Dream / Final Cut Pro.
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Additional resources
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LeoFinance's CUB release announcement post.
@Edicted goes into some dynamics of specific LPs on Cub DeFi
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LeoFinance's 1 week update for CUB including burn amounts
