DeFi 1.0 (Curve), DeFi 2.0 (Olympus), DeFi 3.0 (Libero), Will we survive the whales?

Image by OpenClipart-Vectors from Pixabay

Listen. I am here for decentralization. If the price of the coins in my portfolio increases, much better and welcome. But I am not a trader, nor do I look at the price of crypto assets 14 times a day. What continues to attract me since 2011, when I first came into contact with Bitcoin, is the idea that humanity will one day be able to manage their own money without depending on governments, central banks, and commercial banks.

Also, without depending on whales.

Moby Dick was written in 1851 by Herman Melville and recounts the adventures of the Pequod whaling ship commanded by Captain Ahab, obsessed with killing the “Leviathan” personified in a huge white sperm whale that had eaten his leg, and which he had sworn to exterminate before his death. It is a great display of a human obsession, it abounds in biblical passages and stories, and ends up being a perpetual search that seems to have no end.

Is it that we can not at least mitigate the actions of the whales? Aren’t we killing a Leviathan to build a much bigger and more devastating one? Are we allowing the creation of a dark plutarchy disguised as benefactor technology?

The DeFi ecosystem brought us a very attractive promise: to interact with smart contracts instead of interacting with centralized institutions that have an obvious power project. But the first generation, DeFi 1.0, while showing the way, also paved the way for the whales to rejoice as they pleased. Manipulation was evident when a project grew in the first few days at astronomical prices and suddenly, without anyone having a shelter, they abruptly fell to the ground, leaving a trail of blood among those who lost. The very nature of an AMM shows us that the game is zero-sum and that what some win, others lose.

DeFi 2.0 showed intentions to innovate in this regard, changing the rules of the game. Now you do not lend liquidity to a protocol, but you sell it to them in exchange for a bonus or a discount. The protocol owns its own liquidity and therefore does not need LP providers. The protocol builds an entity called “Treasury” (with the danger of centralization that this entity creates), and that is where all the money that was bought as liquidity goes, through the granting of “Bonds” that try to ensure the token price and give it a sustainable value. Additionally, APYs for staking in DeFi 2.0 are often so high that they encourage no-withdrawal for arbitrage. The Treasury tries to decentralize itself by making the team of developers control it when the protocol is launched, and in an established roadmap, control migrates to a DAO. This is a clear intention to avoid that, from the beginning, the whales do not have so much weight in the votes and can take the destiny of the platform to the terrain that they best manage.

With DeFi 1.0, the whales were abusing by farming, withdrawing liquidity, and selling the native token. There was too much pressure to sell the DEX token. Investors were constantly moving between platforms to take advantage of maximum returns by doing arbitrage. It was a clear game of professional traders that made prices rise to the stratosphere in the first few days, to fall to the second underground in a week.

Can we call that “everyday people’s access to finance”, as the DeFi concept was originally sold?

It would be ridiculous.

What went wrong?

DeFi 1.0 fundamentally depends on stablecoins. This is not bad per se, because stablecoins facilitated the entry of a very large mass of users who were scared away by the volatility of the cryptosphere. But stablecoins are a double-edged sword. Indirectly, we continue to depend on the US dollar, its inflation, its constant depreciation, and its centralized government. DeFi 1.0 bases its ecosystem on everything from which we sought to get away from the founding moment.

The objective of MakerDAO was to create an autonomous system controlled by smart contracts, which would manage collateralized debt positions (CDP), using Ether, in order to issue a stable currency anchored with the dollar, and thus provide new financing options in the blockchain ecosystem, with the aim that anyone could access these options. The idea was for people to transform their Ether into DAI. In this way, MakerDAO increased the efficiency and transparency of financial markets through a decentralized and transparent currency that is not directly related to the US dollar, although it is indirectly.

DAI is really wonderful, it is fair to recognize it. It is not just any stablecoin, but it is a stablecoin that does not depend on banks because it does not have collateral in fiat, but is backed by a basket of cryptocurrencies. For operators who fear the instability of the crypto ecosystem, DAI is a wonderful phenomenon, since central banks have nothing to do with it, even though its value remains pegged to the dollar without being backed by it.

The main concept introduced by the first generation of DeFi 1.0 is that of AMM, Automated Market Maker. Uniswap used a simple formula, while Curve and Balancer made it quite complicated. An AMM ends up being a DEX robot that creates liquidity by the contribution of investors and that follows certain rules instituted by the protocol. Instead of using an order book, assets are priced according to a formula. This formula may vary with each protocol. For example, Uniswap uses x * y = k, where “x” is the amount of one token in the liquidity pool, and “y” is the amount of the other. In this formula, “k” is a fixed constant, which means that the total of the liquidity pool must always be the same. Other AMMs use other formulas for the specific use cases they are targeting. However, the similarity between all of them is that they determine prices algorithmically. Managing through formulas has the advantage that if someone wanted to buy all of a token from the pool, they would not be able to do so, because if the liquidity of a token falls to 0, the formula no longer makes sense and they would have to pay a premium higher and higher for every unit of token they bought.

Now, Curve, an emblematic protocol of DeFi 1.0 that created a very innovative investment philosophy, in its successive updates has created, or rather allowed the creation of, one of the most sinister episodes that we could imagine, if we are going to refer to a decentralized ecosystem in which ordinary people can operate. It is a relatively recent phenomenon and is known by the cinematographic name “Curve Wars”.

Image by ErikaWittlieb from Pixabay

For context, a veCRV is a Curve token with a locked vote. With these voting lock tokens, DeFi projects can vote to have multiple CRV tokens distributed to the liquidity pool of their choice. The CRV supply is limited, so the logic is very simple: buy CRV, lock it in exchange for veCRV, then vote to distribute CRV tokens to a specific pool and earn more CRV. Repeat.

Then, as expected, the bribes appear. Today, various secondary platforms allow all kinds of bribes in one form or another.

Image by Alejandro Tuzzi from Pixabay

Andre Cronje, the creator of Yearn Finance and many other DeFi projects, has created a platform to execute this exact type of bribery. It is a portal that facilitates CRV bribes. It allows bribes to create offers and bribes to claim offers.

The bad news is that there are already multiple DeFi bribery platforms out there. And perhaps the most successful platform has been Convex. It holds over 50% of all CRV tokens in circulation and was created specifically to acquire as many CRVs as possible, offering high rewards to users.

When users lock their CRV tokens (or even Curve LP tokens) on Convex, they receive another token called cvxCRV as a sort of receipt for their deposit. Holding this token entitles users to better trading rates from Curve, Convex’s native token called CVX, and to earn the maximum possible reward for a specific Curve pool. Now there is also a race to acquire CVX for holders to have power control over Curve.

So what does governance mean? Acquiring large amounts of a project’s native governance tokens to take control.

Whether the worrying growth in DeFi bribes is truly the end state of DeFi or simply its next chapter will be up to users to decide.

With DeFi 1.0 we learned about AMM, slippage, impermanent loss, and farming. The terms were set and we lived in total euphoria while a pandemic paralyzed the world. However, DeFi 1.0 platforms remain difficult for the general public to use, raise questions of control and governance, and have many loopholes that distance them from the common person.

For its part, Olympus appears to be the most iconic DeFi 2.0 platform. As the code of the blockchain platforms is open and easily accessible, it is very common to “copy-paste” to create new platforms, and this is what happens in both DeFi 1.0 and DeFi 2.0: when a successful platform appears, it is copied, and released under another name (it’s no exaggeration to say that all DeFi 1.0 looks like MakerDao and Uniswap, and all DeFi 2.0 looks like Olympus).

The great difference between Olympus is the creation of a cryptocurrency collateralized with other cryptocurrencies, with the intention that it become the unit of measurement of the cryptosphere. The currency is called OHM, it is algorithmic and its price is free-floating. Typically, a stablecoin is pegged to a fiat currency like the US dollar. Several stablecoins are algorithmic and backed by a basket of cryptocurrencies, but OHM differs in that the groundwork is finally being laid to leave dependency on the fiat world behind.

Furthermore, Olympus is geared towards solving the core issues of DeFi 1.0. For the first time, liquidity ceases to belong to users and instead belongs to a smart contract. In other words, the new DeFi stage is made up of platforms that are the owners of their own liquidity.

A large part of the DeFi ecosystem relies on stablecoins. But DeFi 1.0 stablecoins are directly or indirectly tied to the US dollar, and therefore to inflation, depreciation, and the centralized government of the Fed. The result was that the small investors we wanted to attract because they were outside of today’s wicked financial system, find themselves at the mercy of the whales. Whales can withdraw liquidity from one platform when they find better returns on others, leaving small investors with big losses.

The solution proposed by Olympus is based on a very particular stablecoin called OHM. It is particular because the Olympus protocol participates in the regulation of the price of OHM. Its price is free/floating, but when the price rises above the set limits, OHM is issued to flood the market and lower the price, and if the price drops, OHM is burned to increase its price. The same operation as AMPL. The algorithm regulates the money supply to stabilize the price. Not being tied to any fiat currency, its price floats freely, but this freedom has a floor and a ceiling. The floor is equal to the number of assets backing each token. The value or backing of OHM comes from other cryptocurrencies deposited on the platform.

But the great innovation of Olympus is related to its mechanisms to attract liquidity. First of all, staking is very attractive. Staking OHM generates sOHM that can be used on other platforms. Second, the bonding system generates bonds that can be considered as a sale of OHM at a discount to provide liquidity to the protocol, which is the owner of that liquidity.

This new stage of DeFi 2.0 somehow marks an idea of ​​keeping the whales away, with staking and bonding that must respect times and conditions to be withdrawn.

But since we were few, the grandmother gave birth (a popular saying in Argentina). Now the DeFi 3.0 stage has arrived with Libero.

Libero’s banner is the Libero Autostaking Protocol (LAP) which facilitates staking and gives holders of the $LIBERO token the highest stable return in the cryptosphere, while establishing tough rules for whales, materialized in high commissions of entry and exit.

LAP grants the Libero token automatic staking with compound interest and the highest APY in the market. It is a fixed annual rate of 158,893.59%, which arises from composing a daily rate of 2.04% per day.

The team behind Libero is impressive for its diversity of skills. Furthermore, the platform is backed by its strategic investor

Libero provides automatic staking, that is, from the moment the Libero token is purchased, there is no need to move it and it starts receiving rebase rewards every 30 minutes. Some DeFi protocols pay very high APYs, but these can fluctuate wildly on the same day. The APY of 158,893.59% is fixed so you can be sure of the tokens you will receive.

Libero can be locked by xLibero for a term, from 2 weeks to 4 years. The more it is locked, the less Libero there will be in circulation and its price will grow. You can unlock xLibero early, but 90% of your locked Libero will go to current xLibero holders. This is a great anti-whale punch.

The process of multichain farming and buyback to liquidity is very ingenious. As in DeFi 2.0, liquidity belongs to the protocol, and this per se is a good reason to keep whales away, but Libero allocates 5% of all purchases and 10% of all sales to the RFV farming/buy wallet, and these funds do not sit idle, but are instead bridged to other EVM-compatible blockchains such as Avalanche, Fantom, Solana, Polygon to farm at the highest APY farms and profits are deposited into the RFV fund, whose value grows exponentially. DeFi 1.0 and 2.0 do not have such a fund that grows the liquidity of the protocol. On the other hand, DeFi 1.0 and DeFi 2.0 farm on a single blockchain, while Libero does multichain-farming.

Every week Libero burns between 1 and 4% of the circulation, growing the value of the token. DeFi 1.0 and 2.0 projects generally do not have a routine process for burning their token supply, and when they do, they rarely increase the value of the token. In addition, the profit distribution process is manual and complex, having to collect earnings from several farms, which makes the process very difficult for the common man and only professional whales can obtain good profits. Instead, Libero automatically distributes daily profits of 2.04% to the investor’s wallet every 30 minutes without the investor having to do anything. Certainly, we are approaching the idea of bringing people closer to the world of international finance with a single click, which has always been the goal of DeFi.

You can learn more about Libero by looking at its documents.

Conclusion. Before you DYOR an upcoming DeFi project, please read this book.

The question is: How far away from managing polyarchist whales will I be if I provide liquidity to this project?

This article was originally published on Publish0x

As usual, none of the things written in this post are financial advice and are not intended to replace personal research.

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