DeFi (Decentralised Finance) is the hottest thing in crypto right now in 2020 and unlike the ICO bubble that lasted less than a year in 2017, it doesn’t look like the DeFi train is stopping anytime soon.
This time it’s for real.
The chart above is from DeFi Pulse and it showcases the total value locked (USD) in DeFi.
As you can see, the total value locked in DeFi has been steadily growing since the end of 2017. It peaked in February 2020 and then corrected sharply as the novel coronavirus pandemic sent the world into lockdown.
However, the total value locked in DeFi is back on track, reaching past $1B mark early June 2020 and is looks like it's on a way to reach a new all-time high (ATH).
DeFi, a quick Eli5:
Today, still most of crypto volume is on traditional exchanges with centralized servers. Decentralized money should be bought, sold, traded, stored, and used in a decentralized way.
To make this a reality, it means that all types of financial services that exist in the real world (and most importantly, ones that cannot be built for fiat) must be built into trustless and transparent protocols that run without intermediaries.
Various types of Decentralized Finance (DeFi) protocols, services and apps are already being built as we speak on Ethereum and BIG money is to be made on this upcoming financial shift from traditional to decentralized finance.
That said, let’s take a look at 6 DeFi projects with some interesting tokenomics (token economics).
1. Synthetix (SNX)
Synthetix website homepage
Before I get into some lesser-known, up-and-coming DeFi projects, I have to start this list off with Synthetix.
The Synthetix protocol and its SNX token are one of the the kings of DeFi.
The project’s tokenomics are revolutionary and which led to its token price increase of nearly 4,000% in just one year.
In short, what is Synthetix?
Synthetix is a protocol for trading synthetic assets (Synths) on Ethereum, where “Synths” are ERC-20 token representations of crypto assets, stocks, fiat currencies, precious metals, and other forms of assets.
Examples of a synth: sBTC, sUSD, sETH, sAUD, sXAU.
Synths simply copy the price of an asset and leave behind all of its other properties as the sole purpose of the Synthetix system is to allow users to bet on the price of an asset without holding the actual asset.
What are Synthetix Economics?
Its value is derived from the fees generated in the network, as the SNX token is used as collateral to mint Synths from the platform at a ratio of 5:1 (500% collateralization ratio). In other words, SNX holders can lock up their SNX as collateral for minting Synths and earn rewards paid out in SNX from transaction fees curated from trading between different synthetic assets on Synthetix.Exchange.
The SNX token incentivises token holders to fulfil two functions:
- To provide the system with collateral to generate Synths
- To participate in the stabilisation of the Synths price relative to the underlying pegged asset
All in all, the token economics of SNX comes down to using transaction fees as an incentive to ensure that the Synthetic Network and its Synths are always over-collateralized and solvent.
Currently, sETH create one of the largest liquidity pools on uniswap.
Synthetix success led to another wave of interest in the DeFi space as everyone began looking for the next Synthetix. It opened up people's minds about the possibilities of adding token lockups and inflation to bootstrap a platform and provide token utility.
For instance, Synthetix arguably led to tokenomics changes in larger projects such as Kyber Network (with Kain, the Synthetix CEO consulting with them on improved tokenomics).
And also more recently with Bancor, a DeFi project which appears to have derived much of its new tokenomics from Synthetix.
Now that I’ve introduced the “King of DeFi”, it’s time to jump into that list of DeFi projects with interesting tokenomics.
2. Ampleforth - $AMPL
Ampleforth website homepage
Ampleforth – a synthetic commodity money protocol with its AMPL token being the first asset in the world with an elastic supply – is one of the most interesting DeFi projects I’ve come across to date.
Accompanying Kuo and Iles is a team of 6 experienced individuals with tech backgrounds from companies like Google, Visa, and others; an advisory board with 6 members from leading universities; and 9 notable investors including Brian Armstrong, CEO and Founder of Coinbase.
In other words, Ampleforth has some serious backing and is doing something completely new and innovative – creating the first sound money with elastic supply.
What’s so interesting about Ampleforth’s token economics?
Ampleforth’s token – Amples (AMPL) – is a synthetic commodity money, like Bitcoin, but with near-perfect supply elasticity, like fiat.
In other words, while Bitcoin’s total supply is capped at 21,000,000 BTC, Ampleforth has no set total supply – its supply contracts and expands (increases and decreases) on a daily basis.
For instance, if the oracle rate of AMPL is slightly over $1 (about $1.04 to be exact) then the supply increases , if the price is below (it's about $0.96) then the supply decreases – it has a daily "rebase" (a re-calculation of the supply that happens ever 24 hours).
Does this “rebase” affect your balance of AMPL’s?
Yes, yes it does, and the amount of tokens in your wallet changes daily (doesn't matter if you hold it on an exchange or a erc-20 wallet).
And this is where Ampleforth’s token economics gets really interesting.
For instance, if you hold 1000 tokens at $1 and the next day the oracle rate goes above $1, your amount of tokens will increase to ie. 1050. This rebase happens every 24 hrs and the same is true in price decreases:
For instance, if you have 1000 tokens at $1, and the oracle rate drops to $0.90, you will have ie. 950 tokens the next day in your wallet.
- When supply increases, you have more tokens the next day, and they are usually worth more $-wise
- When supply decreases, you have less tokens the next day, and they are usually worth less $-wise
This constant contraction and expansion of the AMPL token supply opens up a whole new world of supply-based trading rather than relying solely on the price.
In short, it doesn't matter whether the supply expands or decreases - you'll always have the same % of the total supply in your wallet. (unless you decide to sell or buy some extra)
Therefore, traders who want to profit off the AMPL token should watch the AMPL cycles and see when and how often it trades above $1, and sell it within the positive rebase period.
That said, Ampleforth is a coin for TRADERS. If you can figure out the token economics and factor in the rebase, then this could be an amazing opportunity.
3. Balancer - $BAL
Balancer is the newest DeFi project in crypto as its $BAL token only just started getting distributed to liquidity providers on June 1, 2020.
Though Balancer is the new kid on the block, the project initially started in early 2018 as a research initiative by BlockScience.
During this initiative, the Balancer team (made up of well-intentioned mathematicians and engineers) came up with a powerful mathematical framework that enables any portfolio to continuously self-rebalance while also generating fees.
This powerful DeFi framework is now known as the Balancer protocol and the token powering its economics is BAL.
Providing further explanation:
“Balancer is an automated portfolio manager, liquidity provider, and price sensor whose mission is to provide a flexible and trustless platform for programmable liquidity.”
Balancer allows any token holder to provide liquidity with 100% of their assets by immediately turning their whole portfolio into a Balancer pool or by adding it to existing pools. These pools can contain up to 8 different tokens, with any custom %-distribution of value for each of them.
Foe example, one can create a pool made of 90% ETH and 10% DAI if they wish to do so. This ratio allows to maximize ETH exposure (and make money from ETH's price increase alone) while being able to earn fees from his own pool as people exchange ETH for DAI and vice versa.
The revolutionary aspect of these pools is that they are self-balancing index funds, where instead of paying fees to portfolio managers to rebalance your portfolio, you collect fees from traders, who rebalance your portfolio by following arbitrage opportunities.
Anyone can create their own self-balancing index fund, or invest in someone else’s.
What’s so interesting about Balancer’s token economics?
Balancer’s $BAL token is incredibly new and thus far, it’s main feature or purpose is to reward liquidity providers for providing liquidity in Balancer pools.
These BAL token rewards are in addition to the pool’s fees.
Also, the fact that liquidity providers earn BAL tokens, this should be an extra incentive for them to use Balancer instead of other platforms such as Uniswap.
Furthermore, the BAL token is the governance token of the Balancer protocol.
BAL token holders will be able to determine the future of the Balancer protocol by voting on and making decisions such as implementing new features, potential protocol fees, scalability implementations, and so forth.
As such, it only makes sense for Balancer liquidity providers to earn BAL tokens and be the ones who can influence the future decisions of the Bancor protocol.
4. Compound - $COMP
Compound app interface
Compound Finance, the popular and successful DeFi protocol for interest rate markets, recently introduced in March of this year - a new governance system controlled by the protocol’s newly launched $COMP token.
Compound is a money market protocol on Ethereum that lets users earn interest or borrow assets against collateral. The protocol was initially launched in September 2018 and grew to become one of the most successful DeFi projects without ever launching its own token, until now.
Is this a real world? A crypto project managed to be successful without a fancy ICO?
As of June 2020, Compound is ranked as the 3rd most popular DeFi protocol with more than $112M in locked (USD) value.
As seen from the chart above from DeFi Pulse, the amount of locked USD value in Compound is quite significant, and its climbing its way back to its ATH just before the coronavirus market crash in March this year.
What’s so interesting about Compound’s token economics?
$COMP is the governance token of the Compound protocol and for now, it’s not available for the public until the decentralization process is complete. Once it is available, however, it’ll be interesting to see how the token behaves on the market given the fact that it was implemented atop of a successful project.
The most interesting part of it is that the token is being implemented atop of a successful project, which will be absolutely insightful once the project gets in public hands will be able to maintain its growth.
As for $COMP token use cases, they include:
- Delegate voting rights
- Make new proposals
- Track historical voting weight
In the meantime, here are a few resources that’ll help you get acquainted with the token:
- COMP Address – 0x1Fe16De955718CFAb7A44605458AB023838C2793
- Governance Address – 0xbB627bAf348F6f5031B23445E0353923421d11cA
5. Band Protocol - $BAND
Band Protocol website homepage
Band Protocol describes itself as a secure, scalable blockchain-agnostic decentralized oracle platform that aggregates and connects real-world data and APIs to smart contracts.
The project is a competitor to Chainlink, another self-proclaimed “decentralized oracle” solution, but Band Protocol is a late comer to the game as it was founded in 2017 and launched its protocol on the Ethereum mainnet in 2019.
Though Band Protocol is not as popular as Chainlink, it is moving up the ranks fast and is already up 700%+ in 2020 year alone.
Attributing to Band Protocol’s rise to fame is its recent partnership with Binance to power DeFi through the Band Protocol:
What’s so interesting about Band Protocol’s token economics?
The Band Protocol uses a dual token model to segment and incentivize unique data sets, which ensures that providers are compensated properly if their data becomes more valuable than others.
The two assets involved include: dataset tokens and the native BAND protocol token.
Dataset tokens are essentially utility governance tokens that enable holders to do three things:
- Become a “data provider” for curating high-quality data to smart contracts.
- Purchase data from a datasets
- Vote for data providers they trust to contribute valid information.
The native $BAND token works as a value capturing mechanism in a few different ways:
- BAND is used as collateral to issue dataset tokens.
- BAND is used to control dataset quality through a curated dataset registry.
- BAND will be used to govern future protocol upgrades.
- BAND will eventually migrate to its own BandChain where it will then be used as a staking mechanism to secure the network via a Delegated Proof of Stake (DPos) consensus mechanism.
6. Statera - $STA
Statera website homepage
Statera is an immutable, deflationary, smart-contract that 'destroys' itself with every transaction.
Embedded inside the STA smart contract is a command which automatically destroys (burns!) 1% of every transaction it sends, thus limiting supply. So far this has burnt just over 5% of the supply in around just 1 week after launch (a bigger % burn than UNUS SED LEO after 1 YEAR)
Every trade for Statera creates an arbitrage opportunity. This trading attracts liquidity, which in-turn attracts trading. Liquidity ripples and the supply of Statera decreases.
Statera has specifically been designed to be used within DEFI funds and portfolios. Where other deflationary tokens failed (like BOMB) as they had no usage, relying only on the hope that people would send the token to each other and burn it in the process - STA is being placed into token portfolios/funds / decentralized exchanges - specifically on Balancer Protocol.
The first one is a Balanced Liquidity pool weighted 20% BTC, 20% ETH, 20% LINK, 20% SNX, and 20% STA: https://noproxy.pools.balancer.exchange/#/pool/0x0e511Aa1a137AaD267dfe3a6bFCa0b856C1a3682
The key feature of Balancer, as described above is to keep a $ weighted balance between its pools, so this pool “must” keep 20% $ value of each of these tokens - as any one of them increases or decreases in value this leads to buys or sells of the others - and every single time this triggers a transaction and a burn on STA.
* 6 trades in and out of STA over an hour time period, each trade burns 1% of the tokens traded.
This is definitely interesting stuff, it’s early days, we don’t know what’s going to happen, but the token is out there now, not in control of the original development team but fairly distributed, and anyone can make any other pools on Balancer with it, or enter the existing pool - it is made to trade and made to burn and it could get really aggressive... Be careful.