DEFI 2020 gave us so much...
And yet we've squandered the opportunities that were granted. These days many are convinced that DEFI 2020 was a fad and nothing good came of it; all we got was a shitcoin casino and hyperinflation that led thousands of tokens crashing to zero; same as every cycle.
However, just because nobody seems to know how to correctly use this technology today doesn't imply future developments will be worthless. There are so many tools in the chest that will forever be available. The biggest one being AMM yield farms.
The crux of AMM tech is yield vs volatility.
Automated Market Making was not a new technology invented by crypto, although when I try to fact-check this Vitalik is credited as the ultimate innovator in 2017. The real point is that something like this could have never gained a foothold in traditional finance. Only in crypto do we see the ability to take models that would have been impossible in tradfi turn into a rampaging irrational bull market.
Why yield matters
Before defi came along and rocked everyone's world it was not really possible to do certain things in crypto. This becomes obvious when we take a look at Bitcoin and other POW chains. The entire premise of the halving event is to purposefully create exponential deflation using the logarithmic hardcap of 21M tokens. Because Bitcoin has been so absurdly successful over the years many crypto users have it in their head that a hardcap is necessary for success. This is woefully incorrect thinking.
Emissions (inflation) are not a bad thing, but rather a risky thing.
When we print money we hope that the money that we print will be spent on things that create more value than they cost. On a fundamental level printing money is an investment, but there are a myriad of ways that investment can fail; up to and including the people in charge just printing money for themselves at the expense of everyone else.
DEFI circumvents the biggest risk.
Or at least it is supposed to. If an asset was actually decentralized it should be harder to exploit, and yet we all saw how many rugpulls there were during the last run. People just called it decentralized because it was built on EVM even though a single private key could print an infinite number of shitcoins in exchange for the real asset that couldn't be printed out of thin air by plebs (Ethereum/BNB/etc).
Is Hive the original DEFI asset?
This is another weird question I ask myself from time to time. The blockchain extends back to 2016. We allocate yields to bloggers, investors, and a DAO fund. Yet we get none of the credit because everyone associates DEFI with AMM. These things happen.
Wasn't this post about airdrops?
Yep, but more importantly it is about the DEFI toolkit being able to provide us with never before seen business models. The ultimate problem with airdrops is that the distribution is extremely flawed. We give them away based on insanely stupid metrics like, "Who used our protocol over the last few years?" This may have worked well for the first iterations like Uniswap, but it didn't take long for the market to pivot to exploiting this flawed strategy. Now airdrop farming is a literal profession in crypto, whose sole purpose is to extract value and dump tokens on users who actually want to help the network grow.
So imagine, if you will, an airdrop that can never be sold.
What's the point of it? Well, first of all, DPOS allows us to give value to such an asset simply by having governance voting powers. Even if those voting powers didn't come with a yield bonus they would still have value. However, with DEFI added into the mix we can see that a permanently locked airdrop could also farm liquid yield. The advantages of such a thing are multipronged.
- The users that get airdrops can not dump all their tokens.
- The users that get airdrops can vote on governance.
- The users that get airdrops can earn liquid yields.
As long as these yields and governance powers retain enough value for the user to keep coming back, this creates a fourth synergy in terms of network effect. Users who would have dumped everything and left the platform forever will come back day after day if only to collect their yields. That's worth quite a bit in the attention economy. If anything new gets built that they find interesting: they're going to see it.
Because they are visiting the site every day they might even talk about it with others. This potentially could be a strategy that helps a token go viral simply by word of mouth alone. Of course that depends on what a user can actually do on the network besides farm yield. 'Innovation' is key, which is why it has become such a cliché nothing-statement in the face of crypto marketing techniques.
The ultimate function of DEFI: stability
As stated previously: the ultimate function of Bitcoin is deflation, which is going to have massive diminishing returns sooner or later (later). DEFI can code its way around the volatility problem by creating assets that aren't supposed to go up or down. In essence they'd be loosely pegged to USD by their own custom monetary policy. Rather than number go up, all gains would be outsourced to yield. The value of such a thing would send shockwaves across the entire industry, as the bear market is the easiest way to alienate new users who were extremely excited to jump in at the top and then subsequently ragequit when they lose everything.
Conclusion
The ability to permanently lock assets in exchange for yield is a gift that DEFI has given us but nobody is actually capitalizing on at the moment. I find it shocking that 4 years could go by and nobody has figured this out yet. Not only does it prevent users from dumping and exploiting the airdrop for maximum gain, but it also gives every reason to check in to the website once a day and see what's new with the protocol.
If you can't tell I'm really trying to hype myself up into a state of mind that will give me the energy to work on my own project. Big developments are happening on Hive as we ramp into the next bull market, and the token price still flounders at 30 cents. It's a great time to build. You won't find me underestimating the tenacity of this community anytime soon.