Working principle of blockchain distributed Finance: HFT

Jiedao jdon 2021-05-06 22:02:46 阅读数:937

working principle blockchain distributed finance

Let's talk about real decentralization in DeFi How it works in the field . For encryption and DeFi To achieve decentralization in the environment of , You must have the following characteristics ;

  1. Destroy the ownership key : The creator of the project must burn the ownership key , To make the project ownerless
  2. No pre excavation , Fair lunch : Since the governance token will be used to govern the protocol , So governance tokens should be distributed fairly , And the pre mining is zero .
  3. Community governance and voting : Any change to the agreement must be voted by the community

If the protocol has the above characteristics , Then every aspect of the agreement is distributed among many people and countries / region , Without a single point of failure .

DeFi It stands for decentralized finance . Many people throw out this catchphrase without knowing its exact meaning .DeFi It's a movement to eliminate middlemen and return economic opportunities to others .

Even though DeFi Just the name of the sport , But there is still a range of products that make up the ecosystem . It's like Uniswap In this way DEX( Decentralized exchange ), It's like LEND and COMP Such a lending platform , Also like YFI Such an automatic revenue network (Yield Farming)  agreement .

We're going to go into each of them , And how they are in DeFi Play a role in space .

All of these projects have something in common .

  • First of all , They're scattered , This means that there is no owner , And it's an open source project running as a smart contract .
  • second , They transfer the profits generated by middlemen to the people who provide liquidity for the project .

These agreements are not set up to generate profits , It's just to help the space become more fragmented . therefore , Basically , You will be your own bank . Let's start with borrowing , We will build on that .


To loan

LEND and COMP And so on . under these circumstances , The borrower is the demand , And the lender is the supplier .

Lenders provide liquidity in the form of cryptocurrency or stable coins . As a lender , You'll get liquidity providers (LP) Token as an exchange . This is proof of your ownership of the tag source . Whenever you return LP When the token is , The agreement will give you back everything you put in , And some profits .

Where do profits come from ? When you put money into the agreement , The agreement will use the funds to lend to others . The borrower pays a certain amount of interest , The interest is transferred to you in the form of the currency you deposited .

Now? , You might ask yourself , Why do borrowers have to pay back the money , Because people don't have to pay their debts . Because there is no enforcement agency , So the agreement to mortgage the borrower means , If Bob Want to borrow 100 dollar , He needs to put in value 200 US dollar cryptocurrency as collateral , Then he can borrow stable coins .

Most agreements are based on 1:2 The proportion of mortgage , Require borrowers to maintain a healthy ratio of debt to equity . therefore , If Bob To give up ETH As collateral for your USDT, And if the ETH Insufficient reserves , be Bob Have to provide more... For debt ETH At a healthy rate . If Bob Failure to do so , The agreement will be liquidated ETH Collateral , And repay your initial investment with certain interest .

therefore , Now you may ask yourself : Why does Bob need to borrow ? Because Bob (Bob) I believe his Ethereum will appreciate , And he doesn't want to sell his Ethereum at the current price . however , He does need some cash to survive . under these circumstances , He can mortgage his Ethereum and borrow some stable coins . When he pays back capital and interest , He can unlock his own ETH And continue to hold .

please remember , These loans are immediate ! No paperwork or waiting time . You press “ Advance charge ” Get a stable coin , Without losing investment in your sacred cryptocurrency .

This change in supply and demand creates a very interesting market , So we got into some places where we borrowed money DEX And automatic market making .


DEX And automatic market making

Decentralized switching or switching protocols are decentralized versions of centralized switching .DEX Is in ETH Smart contracts running on the Internet . Like any other exchange , Pairing , You can immediately put A The deal is B, Without opening an account , If KYC Trading, etc .

How it works ? The concept has two components :

  • On the one hand, liquidity providers like traditional exchanges and dealers .

Liquidity providers choose the pool of funds they want to provide secure liquidity ( The deal is right ), You can use ETH-USDT Yes .

When supply is liquid ,Uniswap Will provide you with a LP Tokens, , This token represents your percentage ownership of the pool .

Whenever you need , You can return it LP Token and get your share of the shared pool and some LP cost .

When you provide liquidity , You have to provide both ends of the currency pair equally .

therefore , If you put in value 100 $ Of ETH, You need to invest 100 $ USDT. Unlike the borrowers above who need to maintain a healthy debt relationship ,Uniswap Will be through the purchase of assets A Buy assets at the same time A More assets to automatically keep your ratio healthy , This is called automatic market making (AMM).

hypothesis ETH by 100 $, You have 1 individual ETH and 100 USDT To be used as LP. If ETH Fell to 50 dollar ,Uniswap Will use 25 USDT Buy ETH, send 2 The proportion of assets is 1:1. result , Now you have a total of 150 $. This is called impermanence loss , It is DeFi The most important aspect of assessing risk .

about AMM, What you need to know is , Whether assets go up or down , You are in 2 The ratio in each asset is always 1:1, It's the job of an automated market maker .

  • On the other hand , Traders can trade these currency pairs and pay 0.3% Of “ Swap fees ”.

Charge a fee and allocate it to the liquidity provider according to its share in the liquidity pool . Middlemen are also known as exchanges and market makers , And all the costs are passed on to you .

For both sides , It's a win-win situation . Traders don't have to register with exchanges , Conduct KYC transaction , You don't have to put money on the exchange .. meanwhile , Liquidity providers enjoy transaction fees instead of letting their assets sit idle on the exchange .


Income grazing (Yield Farming) 

Income grazing / Revenue networks / Income farm is where you provide liquidity to different agreements and earn interest ( That's the revenue ) The process of putting money in . There are many different strategies for revenue networks . It can be as simple as a protocol A Provide liquidity and get a certain amount of interest . perhaps , It can be very complicated , For example, using X borrow Y, take Y lend Z And deposit in Z To earn A, And then sell all the proceeds .

Some protocols can automate the whole process , So what you have to do is deposit the funds into the platform , And let smart contracts automate the whole process , So as to save your time and gas fee . for example Yearn Finance(YFI). You can deposit stable coins in Yearn, And let the protocol process the most profitable pool on the network . You always get whatever you put in , Plus some interest . There is no loss of impermanence .YFI The current strategy is to use stable coins to grow Curve, And sell stable coins .

If you're smart , You can do it manually farming Provide LP A reward agreement . As an example , Let's take a look FARM.Harvest.Finance It's a real decentralized, automated agriculture agreement ( Don't let trolls look like they've cheated you ).Harvest with YFI The same farming strategy , But also by offering $ FARM Tokens to motivate them to provide liquidity in the pool . It's like YFI and Yearn equally ,FARM yes Harvest The governance token of . although ,YFI The supply has run out , No farming , but Farm It can be cultivated at present . No pun . then , You can use FARM lofting FARM Pool and plant more FARM.



APY It's a term , You will DeFi I met a lot of . exactly ,APR and ROI Difference is very big , And frankly , It's a bit misleading .APY It's interest incurred , Including compound interest effect . Even if these pools automatically increase your profits , But the effect of this increase is quite different from what most people expect .

therefore , please remember , these APY There is a slight drop in the percentage , You are more likely to see lower returns than these . There are many variables , For example, total liquidity , The price of farming , The amount cultivated and the rate of inflation cultivated , They are APY It plays an important role in calculation . Considering that there is no APY The calculation will cause permanent damage !


Permanent loss

When the price of one of the assets changes , Liquidity providers will suffer a permanent loss . because Uniswap Always keep your deposit ratio at 1:1, So either sell ETH To buy more USDT, Or use USDT To buy more ETH. Permanent loss is related to measuring the value of one's assets, which is very important . If you want more USDT, Then you hope ETH rose , vice versa .

Let's look at some examples of permanent losses in the case of profit and loss . You deposit value 100 $ Of ETH and 100 USDT.ETH Up to the 150 dollar . result , Now you have value 125 $ Of E​​TH and 125 USDT, Always be 1:1 Ratio of . contrary , hypothesis ETH Fell to 50 dollar , Then you will have 75 The dollar ETH and 75 The dollar USDT. The important thing is to pay attention , by “ small change ” The provision of liquidity is likely to result in a permanent loss .

up to now , You probably need to see some sample protocols already . I will list some potential risk measures . The vault is the safest way to earn interest on stable coins It's another agreement , Enables you to manage governance tokens while deploying and Yearn The same farming strategy

YFV,LUA — and It's both these two agreements , Allows you to store and manage the governance tokens of an un exchanged liquidity provider . however , These agreements have a high risk of permanent damage .



版权声明:本文为[Jiedao jdon]所创,转载请带上原文链接,感谢。