DeFi 2.0: An Upgrade to the First Generation of DeFi

This article covers the fundamentals of Defi 2.0 while discovering the need for DeFi 1.0 evolution.

Several crypto users are getting weary of DeFi 1.0 due to its many flaws and inconsistencies. To newbies, these flaws are not obvious, but to oldies, these flaws are very obvious. All of the flaws associated with DeFi 1.0 are due to its instability and lack of popular acceptance.

Seeing that DeFi 1.0 can’t match the pace of crypto advancement, there is a need to launch into a better crypto world. Hence, the essence for the creation of DeFi 2.0.

DeFi 2.0 is an advanced version of the DeFi 1.0 with several improvements and addition to its networking. As a trader, we’ll recommend that you know so much about this new system network.

In this article, we’ll be discussing DeFi 2.0 in detail and the problems it will be solving. Also, we’ll be discussing how DeFi 2.0 solves these problems and why it is better than DeFi 1.0.

What is DeFi 2.0?

The DeFi 2.0 is an advancement of the DeFi 1.0 with improvement on its liquidity infrastructure layer and sustainability of the Decentralized Financing project.

DeFi 1.0 offered users liquidity mining, AMMs, lending, and token exchange. The DeFi 1.0 network was also offered alongside many projects that made transactions on the ecosystem comfortable and secured. Some of these projects are

Although these projects were incredible, there had to be improvements on the DeFi 1.0 ecosystem to accommodate the newly developed projects. The DeFi 2.0 will offer everything DeFi 1.0 will offer and many more. That is, the DeFi 2.0 ecosystem will offer liquidity, AMMs, lending, token exchanges, new finance technologies, user experience, and some improvement to capital utilization.

To improve on the capital utilization and use experience, DeFi 2.0 will be solving problems DeFi 1.0 couldn’t solve.

Meanwhile, here are some drawbacks to DeFi 1.0

So far. DeFi 1.0 has not been able to form close connections between its users. It forms weak vertical links and horizontal connections. To worsen it all, DeFi 1.0 is responsible for the cold transactions that occur on the website.
DeFi 1.0 didn’t focus on decentralized finances. It allowed transactions based on interest and enthusiasm. So, authorization of transactions was assigned to only specific individuals on the network.
A major disadvantage of the DeFi 1.0 was its means of accruing funds for transactions. It is used to acquire funds to loans via deposits from depositors for deposit claimers. This means of funding loans became a big problem over time. Hence, a need to find other alternatives of funding liquidity pools for loans.

These said, just like DeFi 1.0, DeFi 2.0 will come alongside various, better, and more problem-solving projects too. Some of these projects are:

The Next Three Projects in DeFi 2.0

Olympus DAO

The Olympus DAO serves to solve one of the biggest problems with DeFi 1.0. DeFi 1.0 was DeFicient in how it sourced funds for loans. It focused majorly on using funds from users to supply its bridge pool.

It'll mean that if there is no supply from users, there won't be a supply of funds to the bridge pool. Consequently, there won't be loaning in the network.

To properly handle this, Olympus DAO will be sorting funds for bridge pools without getting any from users. This is why Olympus DAO is often referred to as the alternative model to liquidity mining.

Olympus DAO is an algorithmic protocol that utilizes bond mechanisms to help it serve as an alternative for liquidity mining. It's the first protocol to use this kind of liquidity mining mechanism.

Olympus DAO can function effectively by issuing its tokens at lower costs for easy purchase. With this, the OHM (Olympus DAO Token), will be able to secure a position in the market to create protocol-owned liquidity.

Each OHM is oftentimes backed by DAI. It means that one OHM is backed by 1 DAI. So, higher OHM prices will mean more DAI pumped into the pledge contract. Consequently, more returns are available during participation in OHM pledges.

With this mechanism, the price of OHM is constantly maintained above 1 DAI and the market cap steadily approaches the overall asset value of Olympus treasury.

In addition to all these said about the Olympus DAO, we must mention that users don't own the tokens on this system; it is the protocol that owns the tokens.

This is an advantage as it helps to prevent selling pressure from immediate liquidity providers. So, it is Olympus DAO filling in the place of liquidity providers.

Abracadabra

Abracadabra works like MakerDAO in that they both are lending platforms and collateralize users’ assets to generate stable coins. Also, they both function by using protocol incentive tokens.

But unlike MakerDAO, Abracadabra collateralizes assets with proceeds such that users can use tokens to mint or borrow stable coins some of the tokens Abracadabra uses are yvUSDT and xSUSHI being tokens. By using these tokens, they can free up assets, liquidity, and user revenue.

Abracadabra has lending advantages too and some of them are:

Abracadabra offers a very low cost of borrowing and low, stable interest rates
Independent liquidity risk with no linkage to other collateral.
Conversion of assets with high potential of yielding interest into liquidity for the increment of income and capital leverage.

On the whole, Abracadabra enhances the utilization of funds and reduces the chances of liquidation.

Convex Finance

Convex finance has embarked on the journey to improve the user experience in DeFi 2.0. It will be doing this by showcasing a one-stop platform for its users for liquidity mining and CRV pledging.

In the end, convex finance will be developing the CRV ecosystem by balancing CVX tokens by simplifying the CRVA locking, pledging, and process of the curve.

Recent breakthrough with DeFi 2.0

One of the key indicators of the growth of DeFi 2.0 is the quick growth of its projects on the ecosystem. So far, Convex finances a Total Value Locked {TVL} of 14.55 billion surpassing yearn of .0 billion.

In the same way, Abracadabra has accrued 4.2 million and Olympus DAO accruing 650 million growth change. All of these are clear indicators of the effectiveness and efficiency of DeFi 2.0.

Which Way to Go?

We have seen the differences between the two DeFis, weighing their cons and pros, and have submitted our resolution to you to pick which best suits you.

No one will prefer DeFi 1.0 over DeFi 2.0 seeing its ease of adaptability and its ease of incorporating ability into several crypto networks. You may want to deny it but several applications and transactions will soon wear out your patience for DeFi 1.0.

Instead of sticking to the old man, why not launch into newer experiences and enjoy smooth transactions on DeFi 2.0?

Also Read CURVE FINANCE: Let’s Take A Curve Into Defi Of Stablecoins

Serum: A Blend of Speed, Convenience and Trustlessness

As the next-generation exchange system, Serum is making waves in proving its credibility in crypto-trading and decentralized finance transactions. It provides faster and frictionless orders with its automated order book system.

Serum provides incentives to its users which in turn favors so many developers. Some of these incentives are Serum Token (SRM) and MegaSerum Tokens(MSRM). With these tokens, one can achieve passive crypto income by staking their tokens on Serum.

Serum allows every member to stake their tokens. It doesn't only allow members with the highest token to stake, it also allows members with small tokens to stake too.

Seeing that Serum DEX has so much to offer, there's a need to know so much about it. In this article, we'll extensively discuss Serum DEX and its features. Also, we'll discuss the values and how it relates to other blockchains. Enjoy!

What is Serum?

The Serum is a decentralized exchange system built on the Solana ecosystem to provide unmatched low costs and speedy DeFi transactions. It charges as low as 0.0001 cents for transactions.

The system aims to offer users faster settlement times and zero centralization.

In offering a non-centralized side of its architecture, it centralizes price fees even without using Oracles services. Hence, we say the Serum system functions without Oracles. Oracle is a centralized service used by Defi protocols to verify, authenticate and query external data then send them to an already closed system.

Because Serum is based on the Solana blockchain, it offers fully decentralized services that are easy, fast, and affordable to use.

In Serum DEX, users can easily transfer assets amongst different blockchains and even trade stable coins and wrapped coins or even convert coins from one coin to another. For instance, converting Ethereum to FxT. Some of the projects build on Serum DEX are:

Furthermore, users can create customized financial products as they deem fit.

The Serum uses native Serum tokens(SRM) as its main governing assets and incentive for its ecosystem. With SRM, users can stake, trade, or participate in burn and buy fee incentives for reduced trading costs.

Also, with the SRM, users enjoy a further reduction in Serum-based transactions.

Aside from all of these, Serum aims to enhance frictionless cross-chain contracts in DeFi while traders trade synthetic assets. It provides many synergies with the Solana blockchain serving as its host application.

Solana Blockchain

As the fast-growing blockchain system, Solana has secured a spot in the top 10 cryptocurrency projects according to the market cap. Being able to carry out fifty thousand transactions in a second(TPS), Solana blockchain has demonstrated to be the quickest blockchain anywhere on the globe. So, Serum building their project on the Solana network will allow for quick fast transactions on the Serum network.

Solana, with all of its functions, is a layer-1 blockchain. So, to function effectively, Serum functions solely on a layer-1 solution system without layer-2 solutions. It operates solely on a decentralized clock that monitors time-stamps transactions together with an advanced Proof-of-Stake(POS) mechanism.

In recent times, blockchain developers have been designing decentralized applications using the Solana blockchain. This widely accepted choice from blockchain developers is due to Solana's reputation in providing fast and scalable smart-contract-enabled blockchain. It's this advanced blockchain system that the Serum network is built on. Clearly, Serum is just a project on the Solana ecosystem.

That said, Serum DEX mirrors the cost and speed of the Solana network. With this, it offers a fully decentralized trading arena with easy trading on centralized exchange systems. It also offers inter-operable features that allow users to exchange assets such as Ethereum (ETH), Bitcoins (BTC), SPL-based tokens, and ERC-based Tokens.

Serum Token (SRM)

A unique thing about the Serum token (SRM) is its means of collecting values. It accrues values via hyperinflation.

SRM accrues values through adoption and utility. Some are:

All Serum's net fees go to burn.
50% off on all Serum fees on holding a token.
Fees payment with SRM.

That said, most SRM have extensive unlocking terms with all sales fees inclusive. Serum achieves this by locking the tokens. SRM are locked cryptographically in a smart contract. It takes about a year or less to unlock a locked token.

The period where you cannot unlock a locked token is its unlocking period. Most SRM have an unlocking period of one year.

In some cases, some SRM take up to 6 years to unlock. This type equates to 1/2190 SRM in a day.

SRM amount to a maximum of 10 Million tokens, creating about 175 million tokens in its circulation. Because of this high number of tokens in circulation, Serum has been able to provide liquidity to their project. However, several token stakeholders have decided to hold on to a large number of their tokens thereby reducing the number of tokens in circulation.

Moving on, several traders stake SRM to achieve passive crypto income. They also do this by rescuing fees and staking rewards when trading on Serum DEX.

Howbeit, traders with SRM can still partake in on-chain governance. Traders who do this will vote on updates to specific markets on the project.

MegaSerum Tokens (MSRM)

A MegaSerum(MSRM) is equivalent to one million SRM. It means you have to have a million SRM as they'll amount to one MSRM.

MegaSerums are rare and there are only 10%. This is so as there are just fewer users that show belief and commitment to the Serum network. It's just those 10% that can lock their SRM with MSRM.

Project Serum Cryptocurrency Ecosystem

The project Serum, built on the Solana ecosystem, provides usable services to developers and other users from the start of their project to its deployment. On a large scale, this ecosystem provides a suitable platform for non-technical users planning on delving into Decentralized Finance(Defi). This they can do on Serum's user-friendly App(dApp).

That said, in the Serum ecosystem, developers are automatically eligible for grants once they build on this network. With this, projects receive the support and funding to enhance their user adoption and brand awareness.

A good example of a project like this is the Phantom project. The Phantom project is a Defi(Decentralized finance) and NFT crypto wallet. Another example is Coin98 that offers users smooth running payment gateway services.

Also, Project Serum provides developers contact points and resources. With that, you can view on-chain codes, clients codes, and repositories. The project also offers tutorials for developers which can be found on the "Developer Resources" on its website.

Finally, the Project Serum allows users to comprehensively overview all Serum's tokens and integration within its ecosystem. And to top it all, the project provides a link to its whitepaper.

Serum and Staking Nodes

Before one becomes a Serum node, one must take at least 10million SRM including a minimum of 1 MSRM. However, at 100 million SRM or 100 MSRM tokens, nodes stop staking tokens.

Nodes collect several rewards based on their network participation, the aggregate of activity, and performance within the Serum ecosystem. Generally, nodes are in charge of some blockchain operations like cross-chain settlement validation.

Staking

Oftentimes, traders can't continue the Serum project and earn passive income via Defi because they can't stake 10 million Serum tokens. This shouldn't be a challenge as there are alternatives to this.

Serum token holders can now stake tokens as regards a node. A node is formed by a leader and consists of members of that network. The node leader doesn't necessarily have the highest tokens. But the leader can be the founder of the node and will receive small fractions of node staking fees.

In a node, anyone or the leader can stake a node on behalf of another member. Still, Serum nodes will offer trading fees and governance rights within its ecosystem.

However, there're mechanisms to provide an overload of tokens in the ecosystem. As many readers stake their SRM tokens, the system cools down following unstacking tokens. This period, known for just a week.

Node Rewards

In a node, rewards are distributed through native SRM. However, the nodal leaders receive more proportion of the node than other members. Commonly, the leader receives 15% of the rewards while the 85% is distributed among other members.

Annually, nodes receive a 2% percentage yield (APY) based on their staked funds. However, this percentage can increase to around 13%. This can only be possible if members of a node increase their performance duties and challenges. Also, nodes get special rewards for special challenges. One of these challenges includes providing collateral for SRM tokens. The aim of this is to prevent funds from burning.

How to Use Serum

Serum exchange doesn't require that users own an account before a transaction. All you need to transact on Serum DEX is an internet connection, a wallet, and some cryptocurrencies.

First, if you're carrying out a transaction on Serum, you’ll be needing a Solana wallet. Asides from the Solana wallet, there are other wallets that Serum interacts with.

Some are:

To switch between the wallet, click on the change wallet at the top right corner of the interface. Then pick your desired wallet.

Here is a breakdown of how to use the Serum before we delve into each process extensively.

Create a Solana wallet

Here is a link that explains how to create a Solana wallet.

After creating a Solana wallet, on the first opening, you’ll be asked to write down your recovery keys. Make sure to write them somewhere first as you’ll be needing them some other time.

Often, we advise users to create a password immediately after creating their Solana wallet.

After creating a password, you’ll be asked to re-enter your new password for confirmation.

After doing this, you click on continue. There you have it. You have just created your Solana wallet.

On your Solana wallet, you can deposit Eth and convert it to Sol and vice versa. As you’ll expect, there are conversion fees associated with this.

From another exchange system, you can click on the cryptocurrencies you have there and transfer them to your Solana wallet. In withdrawing your cryptocurrencies, you’ll be needing your already copied Solana wallet link to be able to receive your money.

To successfully withdraw, you will need to authenticate your transactions.

After a complete authentication, you can head to your Solana wallet. It’s critical to mention that this transaction doesn’t take long. It only takes a maximum of two minutes to complete a transaction.

Seeing that your cryptocurrency has arrived in your Solana wallet, you can add tokens by clicking on the add token feature on the interface. One may choose to add Serum unwrapped Bitcoin to the Sol.

These wrapped tokens can then be in the deposit and become real underlying assets.

Also important to note is the small fee attached to adding tokens to a Solana wallet.

The next thing to do is to find a Serum-based DEX to connect to this wallet.

Connecting your Wallet to Serum DEX

Connecting your wallet to Serum DEX shouldn’t be challenging provided you follow these easy steps. Below are simple steps on wallet connection.

On the Serum DEX interface, click on "connect" on the top right corner of the interface.

Ensure you must have selected your desired wallet before clicking connect.

And if you wish to change your wallet, you must disconnect from the current wallet, then, you can click the select wallet feature to pick your new wallet.

The Value of Serum

As of the time of writing this article, Serum values was the 11th most trending cryptocurrency. On the other hand, it was 141st on the coin market cap on that same day.

On the coin market, Serum was $8.10, a market price of $404.8 million, and a 24-hour value of $117.71 million.

To Wrap It Up

Serum DEX offers a platform for developers and other users to trade speedily and conveniently. For developers, it provides contact points and resources. Such that, they can view on-chain codes and attend tutorials. All that Serum offers is because of its conjunction with the Solana network.

Also Read Solana: Exploring the Blockchain

ETF: An Overview To Exchange Traded Funds

Over the years, cryptocurrency has grown in leaps and bounds. There has been a significant improvement from the day it was first launched, and today the cryptocurrency space has more than a trillion-dollar market cap. Despite the growth associated with cryptocurrency, its volatility has made it increasingly difficult for new investors to put their money into it. ETF provides safety against risk and volatility. Many investors can invest in cryptocurrency through the ETF.

What Is An ETF?

An ETF stands for exchange-traded fund. An exchange-traded fund means buying and selling an ETF the same way you buy and sell a stock. An ETF gives you the ability to spread your investment money across many underlying assets rather than have all your investment in one underlying asset. It can be used for diversification and security of investment because you can use it to get many assets.

An ETF tracks the price of an underlying asset. For example, copper ETF tracks the price of copper.

What Is A Cryptocurrency ETF?

A cryptocurrency ETF is an exchange-traded fund that tracks the price of the cryptocurrency. Investors can buy or sell a cryptocurrency ETF in the stock exchange the same way they buy and sell other stocks. An investor trades cryptocurrency ETF in the traditional market exchange and not a cryptocurrency exchange.

How Does Cryptocurrency ETF Work?

The cryptocurrency ETF works the same way as other ETFs. The organization in charge of funds would need to own cryptocurrencies which serve as the underlying assets. The cryptocurrency would serve as shares that investors can buy. Once the investors purchase the shares as ETFs, they already own cryptocurrencies indirectly.

Since you cannot trade a cryptocurrency ETF on the cryptocurrency market exchange, you do not need a wallet to store it. For example, if you want to invest in bitcoin, you can get the bitcoin ETF from the stock exchange, and it would have the same value as the bitcoin. If the price of bitcoin increases, then the price of bitcoin ETF increases. If the price of bitcoin reduces, the price of bitcoin ETF also reduces. In essence, the price of the bitcoin ETF is dependent on the price of bitcoin.

The Top Currency ETF

There are cryptocurrency ETFs, and it is not surprising that the bitcoin ETF was the first. The first country to approve a bitcoin ETF was Canada. The name of the ETF is the purpose Bitcoin ETF and goes by the ticker BTCC on the Toronto Stock Exchange. BTCC was launched in February 2021. Three more bitcoin ETFs have been launched in Canada, bringing the total number of bitcoin ETFs to four.

Presently, Canada has approved four new Ethereum ETFs: CI Galaxy Ethereum ETF, Purpose Ether ETF, Evolve ETF, and Ether ETF. Toronto Stock Exchange is the place where all ETFs are currently trading.

The year 2021 might be the year of the cryptocurrency ETF as countries like the United States of America, Brazil, Chile, and the UAE, are considering launching it. To date, the U.S. Securities and Exchange Commission (SEC) has rejected all proposals to launch a crypto ETF. The reason cited by SEC for the rejection is related to crypto being volatile and non-regulation of the crypto market.

Despite all the rejections, we await a positive announcement from the SEC later by June. There is a high probability that a crypto ETF would be launched then.

Blockchain ETF

Apart from the cryptocurrency ETF, we also have the blockchains ETF trading on the stock exchange. The popular blockchain ETFs are:

Amplify transformational data sharing ETF
Reality Share Nasdaq NexGen Economy ETF
First Trust Indxx Innovative Transaction and Process ETF
Capital Link Global Fintech Leaders ETF
VanEck Vectors Digital Transformation ETF

Advantages Of Cryptocurrency ETF

Ease Of Investing

Cryptocurrency ETF makes it easy to invest in cryptocurrency because you do not need a wallet. You also do not have to sign up on any cryptocurrency exchange market. The use of an ETF reduces the chances of losing your cryptocurrency. And it also reduces the risk associated with having cryptocurrency directly.

For example, if you store your cryptocurrency in a personal wallet, you could lose it once the password is lost. If a centralized exchange is compromised, you can also lose your funds if you have it there. In summary, a cryptocurrency ETF gives you leverage over the risk and volatility associated with cryptocurrency.

Diversification

It is easy to diversify with an ETF. You could invest in more than one underlying asset from different companies in your ETF. For example, you could have bitcoin, Ethereum, Google stocks, Tesla stocks, Facebook stocks, Guinness stocks, Coca Cola stocks, and more in your cryptocurrency ETF. The advantage of this ETF is that it helps you to reduce your risk and diversify your portfolio.

Tax Efficiency

The United States of America Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) regulate financial institutions. Cryptocurrencies are decentralized, and hence, no financial institution regulates them. Cryptocurrency ETF won't trade on decentralized platforms but regulated exchanges such as New York Stock Exchange, making it open to most tax havens and pension funds.

Long Term Return

Investors that want to invest in cryptocurrency and make better long-term returns can use cryptocurrency ETF.

Disadvantages Of Cryptocurrency ETF

Higher Management Fee

There are two ways a cryptocurrency ETF can be managed. It can either be managed actively or passively. An actively managed fund has a higher management fee than a passively managed fund. The management fee is higher for an investor with many cryptocurrency ETFs when compared with those with less.

Limitation To Trading Other Cryptocurrencies

For instance, you can trade bitcoin for Ethereum, but you cant trade bitcoin ETF for Ethereum. It is impossible to trade bitcoin ETF for Ethereum because it is an investment fund and not a cryptocurrency.

Centralized Regulation

Cryptocurrencies were created not to be centrally regulated. They were created to be decentralized and not regulated by any financial institution such as the central banks. Cryptocurrency ETF won't enjoy all these benefits because they are regulated by the financial institution where they are listed.

The Inaccuracy Of ETF

One of the advantages of ETF is the fact that you can use it to diversify your portfolio. The diversification advantage can also be a disadvantage as ETF may not track the accurate price of a cryptocurrency because of the value of its other holdings.

For example, a drop of 5% in Ethereum may not reflect a 5% drop in the price of an ETF that tracks numerous assets.

Inability To Buy Things With Your Cryptocurrency ETF

While you can directly use your cryptocurrency, such as bitcoin, to buy things and make payments, you cannot use your ETF to do such.

Cryptocurrency ETFs And Institutional Investment

For Institutional investors who could not get into the crypto market for many reasons, crypto ETFs could provide an entry point for them to invest.

Conclusion

Cryptocurrency ETF would open up a new era of investment all over the world if it is accepted. It would allow people who have low-risk tolerance to invest in cryptocurrency. However, if you have high-risk tolerance, there might be no need to invest in cryptocurrency ETFs since the return of cryptocurrency is higher than in ETFs.

Also, read about Opyn Protocol.

Opyn: DeFi's Options Protocol

What Is Opyn?

Opyn is an Ethereum based decentralized Options trading platform, which allows you to buy, sell and create Options. It is a trustless and permissionless insurance platform that protects user’s decentralized finance (DeFi) assets from risks. There are three categories of Opyn users which are:

Sellers
Buyers
Market makers

Basic Terms On Options Trading

To understand Opyn and how it works, you must understand some terms associated with DeFi and Options trading. Below is an explanation of the words.

What Are Options?

Options are the contract that gives you the right to buy or sell an underlying asset at a set price within a particular time frame. It is not a must to purchase or sell the underlying asset at the expiration time. You can decide to honor the contract or not.

We have two types of Options which are Call Options and Put Options. Option buyers are known as holders, while Option sellers are known as writers.

Call Options

A Call Option contract gives you the right to buy a specified asset at a set price within a particular time frame. You have a choice to either accept or not, as the contract does not make it compulsory for you to buy at the expiration time. A Call Option could be a Call Option buyer or a Call Option seller.

Call Option Buyers

A Call Option buyer is also known as a “Call Holder”. As a call holder, you can decide to exercise the right to buy an Option contract or not. To have the right to buy, you will pay a fee to the Option seller called the Premium.

Call Option Sellers

A Call Option seller is also known as a “Call Writer”. As a call writer, you must sell an Option contract to the buyer if he or she exercises the right to buy at the strike price.

Put Option

A Put Option contract gives you the right to sell a specified asset at a set price within a particular time frame. You have a choice to either sell or not, as the contract does not make it compulsory for you to sell at the expiration time. A Put Option could be a Put Option buyer or a Put Option seller.

Put Option Buyer

A Put Option buyer is also known as a “Put Holder”. As a put holder, you have the right to sell an Option contract but are not obligated to do it. You can decide to exercise your right to sell or not.

Put Option Seller

A Put Option Seller is also known as a “Put Writer”. As a put writer, you do not have an obligation to buy the underlying asset at the strike price.

Premium

The money an Option buyer pays to the Option seller to buy a contract is called a Premium. It is the income a seller gets for selling a contract.

Bid Price

The “Bid price” is when a buyer is willing to pay a specific price to own an Option contract.

Ask Price

The “Ask Price” is the price at which a seller accepts to sell an Option contract. The money you are willing to pay to buy an option contract is the premium.

Strike Price

When exercised, the price at which a seller can sell an Option contract or buy an Option contract is the strike price.

In The Money (ITM)

This term is different for both the Call Option and the Put Option. For the Call Option, ITM is when the current price of an underlying asset is greater than the strike price. While for the Put Option, ITM is when the current price of an asset is lower than the strike price.

Out Of The Money (OTM)

For a Call Option, OTM refers to the position where the strike price is greater than the current price for an asset. While for a Put Option, OTM is when the strike price is lower than the current price for an underlying asset.

At The Money (ATM)

ATM is the same for both Put and Call Options. It refers to the position where the price of an underlying asset is the same as the strike price.

Example To Explain Options

Rich wants to sell 1 ETH for 3,000 USDT before 10 am on May 28, 2021. Stone is willing to buy 3,000 USDT for 1 ETH at Rich’s request. Rich pays Stone 5 USDT for having the right but not the obligation to sell his ETH. After the expiry date of May 28, 2021, Stone must buy from Rich if he decides to sell. If Rich doesn’t sell, he only loses 5 USDT and keeps his 1 ETH while Stone keeps his 3,000 USDT plus the 5 USDT.

In the above example,

Rich is the Option holder.
Stone is the Option writer.
ETH is the underlying asset.
USDT is the strike asset.
3,000 USDT is the strike price.
5 USDT is the Premium.
If, Rich sells his 1 ETH to Stone for 3,000 USDT on May 28, 2021. The Option is exercised.
If Rich exercises his Option before the expiry date, this is known as America style option. If Rich can only exercise his Option precisely at the time of expiration, this is known as a European style Option.

Reasons For Using Option

The reasons for using Options differ for people. People use Options basically for:

Risk management: People use Options to reduce losses that can occur from volatile assets such as ETH.
Income generation: When an Option expires, it becomes worthless. The worthlessness results in income generation.
Speculation: A user can predict the future price of an asset. The prediction can help an Option holder not invest a large percentage of their money in the asset but still profit if the Option closes in the money.

Step By Step Guide For Using The Opyn Platform

Download a wallet such as Metamask and register.
You have a phrase seed while registering, ensure you keep it well because that is the only way you can access your wallet during a loss.
After registering, click on dApps in Metamask wallet.
Search for Opyn.co.
Click on the icon at the top right corner.
You should connect your wallet, select Metamask from the Options to allow Opyn to have access to your wallet.
A dropdown menu shows on the top left corner of the screen. Select the Options you want to perform and the expiration date you want for your Options.
For instance, if you selected the Buy Call Option.
Choose your preferred strike price.
Type your position size in the order box.
Select the approve USDC button and confirm your selection.
Then, select buy oToken and confirm your selection.
Select done.
Go to your dashboard to verify your trade.
You just bought a Call Option.
The same steps above apply for buying a Put Option.

To sell Call Options and sell Put Options, you should follow the steps below:

Follow the steps above from one to seven.
Select a sell Put Option, for instance.
Select your preferred strike price.
Enter your position size in the order box.
Select approve wETH (Wrapped Ethereum) button, and confirm your selection.
The wETH serves as collateral for the trade.
Select the issue oToken button, and confirm your selection.
Then, select the approve oToken button, and confirm your selection.
Select sell oToken and confirm your selection.
Go to your dashboard to verify your trade.
The same steps above apply for selling a Call Option.

How To Reduce Or Cancel A Trade Before Expiration

Locate your Opyn dashboard.
Select the position you want to close on the active positions tab.
Input the oToken quantity you wish to reduce or cancel.
Click on “Buy Back” and confirm.
In the close position box, input the oToken quantity again.
Click “Burn and Withdraw” and confirm.
Use Etherscan to ensure your transaction.

Conclusion

Opyn is an Ethereum based decentralized, trustless, and permissionless Options trading platform, which allows you to buy, sell and create Options. It is flexible, secured, and easy to use for three categories of users - sellers, buyers, and market makers to ensure against financial and technical risk in a DeFi, and also help users generate income.

With Opyn, you can buy and sell a call option, or buy and sell a put option. To start trading options using Opyn, you can use the guide in the article.

Also, read about Hegic Protocol.

HEGIC PROTOCOL: An Overview

Hegic protocol is the non-custodial, decentralized, and on-chain Option trading platform built on the Ethereum blockchain. Hegic allows you to buy WBTC and ETH Options or sell ETH Options using the Hegic token. To sell, you have to provide liquidity.

What is an Option?

An Option is a smart contract that gives you the right to buy or sell an underlying asset at a specific price within a certain time frame. There are two types of Options which are the Call and Put Option.

Call Option

A Call Option is a contract that gives you the right but not the obligation to buy an asset at a certain price on or before a particular date. A buyer is known as a holder.

Put Option

A Put Option is a contract that gives you the right but not the obligation to sell an asset at a specific price within a particular time frame. A seller is called a writer.

Strike Price

A Strike Price is the fixed price at which you can buy or sell an underlying asset if the Option is exercised (i.e., if you decide to buy or sell an asset). For example, the Strike Price is the buying price for Call Options and the selling price for a Put Option.

Option Premium

The price of an Option contract is called an Option Premium. There are four ways to trade Options, which are:

Buy Call
Buy Put
Sell Call
Sell Put

Buy Call

A Buy Call is a price above the Strike Price that you can exercise your right to buy. You may be wondering why you should buy an asset above the current price. The reason is explained with the example below. A Premium is paid to make a Buy Call. The risk involved with a Buy Call is minimal, as the maximum amount you can lose is the premium paid.

For example, if the Strike Price of Ethereum is $500, you can place a call to buy it at $600 within a week. Instead of paying $500 for the Ethereum now, you will pay $100 (Premium), and once the price gets to $700, you can exercise your right to buy and have made a net profit of $100. Your net profit is $100 because the Premium is subtracted from the total profit.

If the price is at $600 or below at expiration, the Option will expire worthless, and you will lose $100 (Premium) rather than $500 if you had bought without using an Option.

Buy Put

A Buy Put is the price below the Strike Price that you can exercise your right to buy. A Premium is also paid to make a Buy Put. The risk involved with a Buy Put is minimal, as the maximum amount you can lose is the Premium paid.

For example, if the Strike Price of Ethereum is $500, and you place a Put-Call at $400 within a week at a premium fee of $10, you can exercise your right to buy once the price gets to $400 or below before the expiry date. You will make a profit of $90 because the Premium will be subtracted from the gain. If the price does not decrease below $500 at the end of the week, you will lose just $10.

Sell Call

A Sell Call is a choice you make to sell a Call Option when the price falls below the Strike Price. A Premium is paid by the buyer of the call to you. Risk is high, as you are obliged to sell at the Strike Price if the buyer exercises the right to buy.

For example, if the Strike Price of Ethereum is $300, and the price falls below the Strike Price at the contract’s expiration. The seller will get a profit from the Premium paid. If the price becomes higher than the Strike Price, the seller will have an obligation to sell Ethereum at $300.

Sell Put

A Sell Put is the choice you make to sell a Put Option when the price falls below the Strike Price. A Premium is paid by the buyer of the call to you. Risk is high, as you are obliged to sell at the Strike Price if the buyer exercises the right to sell.

For example, if the Strike Price of Ethereum is $300, the price rises above the Strike Price at the contract’s expiration. The seller will get a profit from the Premium paid. If the price becomes lower than the Strike Price, the seller will have an obligation to buy Ethereum at $300.

Factors Affecting Option Prices

Three elements affect the Options price. These elements are:

Time to Expiration:

The time remaining for an Option contract to expire is called the Time to Expiration. A holder or writer can decide to exercise the, stop the contract to take profit or loss before the contracts expire, or let the contract expire and become worthless.

Underlying Asset’s Price:

This is the Strike Price set for an asset. Any price above the underlying asset’s price in the Call Option is called out of the money. At the same time, any price below it is called in the money. The reverse is the case for the Put options. An increase in the underlying asset price causes an increase in the Call Option Premium and a decrease in the Put Option. A reduction in the asset price causes a decrease in the Call Option Premium and an increase in the Put Option.

Volatility:

This is the extent to which an asset’s price swings. It can be a high volatility asset or a low volatility asset. The higher the volatility, the higher the price, and the lower the volatility, the lower the price.

Conclusion

In conclusion, Hegic uses the American style Options to exercise your right before the expiration date. This style of usage is an excellent advantage of Hegic over the other decentralized Option trading platform.

Opium Protocol: A Comprehensive Review

Overview:

The Opium protocol is a robust and universal platform that allows users to create, settle, and trade decentralized derivatives on Ethereum. A token represents every option on Opium, and it can be traded, sent, or stored in cold wallets. The system provides robust and universal financial primitives on-chain. It also allows for more advanced features like order books, combined orders, and market-making features to happen off-chain by leveraging meta-transactions.

The Opium protocol currently supports two products; swap.rate and opium.exchange. In simple terms, swap.rate enables users to create derivatives. On the other hand, the Opium.exchange is an open trading exchange specifically designed for decentralized derivatives.

The Background of Opium:

Arjan Van Der Kooij and Andrey Belyakov founded the Opium protocol. Before creating this, Arjan has been a serial entrepreneur and private investor with 20 years of experience in business management. On the other hand, Andrey has been a professional derivative trader with ten years of experience to his belt. He is also a member of the CFA Institute.

Currently, the financial derivative market is the largest in the market but has always been under the control of banks. Other centralized financial institutions also own a large chunk of the derivative market. These entities provide the clearing, settlement, and trading of derivatives. The goal of the Opium Protocol is to move these traditional functions of centralized entities to the blockchain. By moving these traditional functions to a trustless, distributed, and immutable system, Opium will lower the cost and increase security. It will also make it possible to accommodate unbanked individuals in the world’s financial system. As an Opium user, you can be an investor, a hedger, speculator, margin trader, or arbitrageurs.

In an interview with CoinDesk, Andrey Belyakov said that they created the protocol to solve three specific problems experienced in the traditional derivative market. These problems include:

Transparency problems
Cost efficiency, and
A barrier to entry.

Why Opium?

There must be a very good reason(s) to make us abandon the traditional players in the derivatives market. What are the things that set the Opium ecosystem apart from the centralized financial entities in the market? The Opium system is built to be compatible with both the DeFi market and the professional market. Most of the derivative protocols we have on the DeFi space today bring theoretical risks with them. They do this by using on-chain liquidity pools or the use of automated market makers (AMMs). Opium provides a robust and simple on-chain infrastructure that users can leverage off-chain.

The implication of having an alternative to on-chain infrastructure is the presence of more complex features. Some of these features include advanced derivatives, market-making strategies, order books, arbitrage combined orders, etc. All the features mentioned above are implemented at the layer 2 level. As a user, you can create decentralized derivatives benefiting from a risk profile that is more similar to the traditional financial products. However, these products may appeal more to a broader range of users than the on-chain derivatives.

The Opium protocol is live on the Ethereum mainnet, and SamrtDec audits it. Thus, it gives users the peace of mind necessary to try out new things with DeFi. There are currently at least three working products that are built on the Opium Exchange. These products have been assisting about four independent establishments in bringing their derivatives to the market by leveraging the Opium Protocol.

Features and Products of Opium Ecosystem:

• Opium.Exchange:

The Opium.Exchange product is a non-custodial platform built for decentralized derivatives. You can trade, hedge, or invest without the need for intermediaries. It also allows you to benefit from high-speed orders on meta-transactions. You will also enjoy secure settlement on-chain.

• ERC-721o Token Standard:

Every position created using the Opium Protocol is represented by ERC-721o tokens. These tokens are specifically designed to help you trade financial instruments. The Opium team created the tokens by combining the ERC-20 and ERC-721 standards with more functionality. Users can combine these tokens into portfolios, and they are backward compatible with the ERC-721stanbdard. The implication is that these tokens can be used in existing ecosystems. The ERC-721o standard has primary portfolio functions which include the following:

Compose
Decompose, and
Recompose

A portfolio is composed of the entire portfolio that can be managed or traded as a single ERC-721o token, hence saving gas fees. The portfolio decomposes when the tokens used to compose the portfolio are minted again and stored on your balance. You can recompose a portfolio by removing or adding to/from an already existing portfolio. However, you must ensure that you do that in a gas-efficient way.

• Swap.Rate:

This is a platform designed to help users hedge against or take advantage of the interest rate fluctuations in the DeFi lending and borrowing space. It also allows users to create contracts for interest rate swaps. One stream of future interest payments is swapped for another based on the stipulated principal amount.

Conclusion:

The Opium Protocol is undoubtedly revolutionizing the derivatives market. Without millions of dollars, you cannot make derivatives, but Opium is changing all that. Now, everyone can run his own derivates in the most efficient way possible. You can follow the Opium project on social to stay up to date with the happenings in the derivatives market.

You can also read about Compound Defi Protocol.

DeFi Yield Farming: An Introductory Guide

Introduction:

Since the launch of the first cryptocurrency blockchain, the possibility associated with it has been eternal. One such possibility is the introduction of yield farming – a reward scheme that enables you to get more from decentralized finance (DeFi) - that gained popularity in 2020. Some years back, a crypto enthusiast could only generate a reward by trading or holding it. Today, the story is different through the power of yield farming.

Yield farming gives you a new way to generate rewards from crypto. It might be challenging to benefit if you start, or you begin without adequate knowledge about it. Whichever one it is, you don’t have to panic or be scared. You can also benefit from yield farming, and that is why we have written all you need to know about DeFi yield farming below.

What Is Defi Yield Farming And How Does It Work?

Yield farming is a process where you get rewards from your cryptocurrency by investing it in a DeFi platform. It is simply a process of allowing your crypto to work for you while you earn passively. Sounds lovely right? Yield farming works like a bank loan, where you are paid interest on the money you lent. You can lend out your crypto or borrow crypto from a platform that supports it in yield farming.

Yield farming operates on smart contracts. The majority of yield farming is on the Ethereum network using the ERC-20 tokens. Yield farming is also on the Binance smart chain. This is possible because the Binance smart chain is compatible with Ethereum Virtual Machine (EVM) and can also operate with the Ethereum native protocols.

Total Value Locked:

Total value locked (TVL) is the sum of all funds locked in the liquidity pool. This is very important to measure how healthy a yield farming platform is. An increase in the total value locked leads to an increase in the yield farming on a platform. The current TVL for DeFi is approximately 77billion dollars. You can monitor the total value locked through Defi Pulse.

Yield Farm Platforms:

There are various platforms where you can farm tokens. They have the same way of operating, though the reward system might be different. Below are some of the yield platforms that run on the ethereum and Binance smart chain.

• Compound:

Compound is an Ethereum based protocol that allows borrowing and lending. The lender provides a loan by providing liquidity in terms of assets in the platform. The lender gets an interest in the loan supplied. The supply and demand of crypto determine the interest generated. The compound has a native token called cTokens used to pay interest for users. cTokens can also be used in other applications. For example, if you deposit 5Eth on the protocol, the system automatically generates 5c-Eth for you with interest. You can redeem your c-Eth for Eth at any time plus your stake. The compound protocol uses any ERC-20 token. The compound protocol also has the advantage of moving or trading the c-Tokens on other decentralized apps (dApps).

• Aave:

Aave is a smart contract-based protocol that allows borrowers to borrow loans and lenders to lend. All that is required for a lender to do is put their cryptocurrency funds into the liquidity pool. Collateral in terms of cryptocurrency must be provided to borrow from the aave’s protocol. A borrower can only borrow a fraction of the collateral. It boasts a high annual percentage yield (APY) ranging from 6% to 13% on stable coins such as USDT and USDC.

• PancakeSwap:

PancakeSwap is the leading automated market maker on Binance Smart Chain. Though it is an automated market maker, its yield farming has continued to grow and is one of the most used in BSC. Presently, Pancakeswap has more than 10 pairs of cryptocurrency for yield farming.

• Venus:

Venus is now one of the leading Binance smart chain protocols for borrowing and lending assets. Users deposit cryptocurrencies such as BNB, USDT, USDC, and ETH to earn interest. The interest is helpful for other purposes such as minting venus stablecoin called VAI or used as collateral to borrow.

• Autofarm:

Autofarm has a total value locked of 1.3billion dollars. It currently has more than 30 liquidity pools and is very good for farming.

• Yearn.finance:

Yearn.finance is a platform that chooses the best platform to make a profit. It takes the user’s fund from one protocol, such as Aave, to the other to make a profit. It has a native token called yToken. All deposited funds are automatically converted to the yToken.

Steps on Starting Yield Farming:

Get crypto that is useful in a particular yield farm platform. Widely accepted crypto coins are ETH, BTC, and stable coins such as USDT, DAI, BUSD, and USDC.
Download decentralized wallets such as Trust wallet or MetaMask wallet. Register as prompted. Make sure you keep your seed phrase or keys very secure.
After installing, send your funds to your wallet.
Go to the dApp section of the wallet to start farming.
If you are a beginner, it is advisable to start with the compound platform.
On the compound, click the button on the top right-hand corner.
You should connect your wallet, select the wallet you are using, e.g., Trust wallet.
Go to the supply page, and then choose the asset you want to supply and the amount. Then click supply
A page shows the supply annual percentage yield (APY) and the distribution APY. You earn from the APY by depositing on the compound platform.
Confirm the transaction. Note that you need ETH as a gas fee on the compound platform. If you are using a Binance smart chain such as venus, you need BNB as a gas fee.
You can now borrow or lend on the platform.
Viola, you are now a yield farmer. Simple right? Please give it a try now.

Risk of Yield Farming:

Just like everything that has to do with life, yield farming has its own risk. The higher the risk you take, the more profit you make. It is always advisable not to invest more than you can afford to lose.

Liquidity risk:

Liquidity risk occurs when the price of your loan is greater than the collateral you deposited. You run into loss if this happens. Liquidity risk is familiar with crypto that has high volatility, such as BCH or ETH.

Smart contract risk:

Defi protocols are open-sourced and can be open to bugs. These bugs can affect the token price, causing a high drop in the price of the token.

Gas fee:

An increased gas fee occurs on the ethereum smart chain. The increase in eth gas fee has been on the rise, which poses a challenge for an average investor.

Composability risk:

Composability risk is also known as “money legos,” which means that all defi applications and platforms can interact without permission; this means that the whole defi platform relies on each of its building blocks. Naturally, composability should not be a risk but an advantage. It is a risk because if any of the building blocks stops working, the whole platform can be down.

Conclusion:

Decentralized finance is a platform that uses technology to remove the intermediary barrier in carrying out a financial transaction. It is simple to use and very efficient when compared with centralized exchanges like banks. To use Defi, you do not need an identity card, social security number, or a KYC.

There are risks associated with using the DeFi platforms, and as such, you should ensure you research the platform you are using and invest what you can afford to lose.

You can also read about Curve finance and Uniswap v3 protocol.

MakerDAO: A Comprehensive Overview

What is MakerDAO?

Most people in the blockchain space know MakerDAO as the protocol behind the stablecoin DAI. DAI is a cryptocurrency that always maintains a 1:1 peg to the United States dollar. You can think of 1 DAI as equivalent to $1. Meanwhile, the interesting thing here is that Ether backs each DAI and not a third party. The volatility of Ether poses some notable challenges in terms of maintaining the peg.

This MakerDAO project joins a DAO with another crypto-collateralized stablecoin called DAI. The aim is to build a complete, decentralized finance ecosystem that permits loans and savings on the Ethereum blockchain network. The responsibility of creating and developing the Maker Protocol also saddles this project. The Maker Protocol aims to permit and control the emission of DAI anchored to the dollar. All these things happen on a series of smart contracts on the Ethereum blockchain.

What has made MakerDAO the largest DeFi project in the crypto and blockchain space? How did it come about? What does the future hold for this project? This article will answer all these and many more questions.

The History of MakerDAO

Rune Christensen started the creation of the MakerDAO project in 2015. In his first work on Reddit, Christensen explained his idea of creating a DAO on Ethereum and using it to generate a stablecoin that will be pegged to the dollar.

Christensen’s idea went further, and led to the formation of the Maker Foundation. The role of the foundation is to direct all developmental and management efforts of the MakerDAO project. In August 2015, the project launched its Maker (MKR) token. The token established the foundation of the government of the Maker Protocol.

In December 2017, the first stablecoin came into existence, governed by DAO in the crypto space.

The Vision Behind MakerDAO

According to the whitepaper, the Maker project aims to create an independent system controlled by smart contracts that manage collateralized debt positions (CDPs) using Ether. Thus, issuing a stable currency hinged on the price of the dollar. This offers new financing options in the relatively nascent blockchain ecosystem.

Creating a decentralized operating and governance infrastructure that enables people to develop a stablecoin with global reach is the main objective of MakerDAO. Also, the project seeks to create a mechanism that gives users access to decentralized finance (DeFi) through the use of cryptocurrency. This mechanism encourages people to convert their Ether to DAI.

What Is The Maker Protocol, And How Does It Our Work?

The Maker protocol is a built-in smart contract and runs on the Ethereum blockchain network. This protocol allows the operation of a platform specifically for the generation and control of DAI stablecoin. The protocol also handles Maker Vault, Oracles, and voting within the entire system. With the Maker protocol, you can control the fundamental parameters of the whole system. This includes stability fees, interest rates, collateral assets, and many other things.

The protocol permits a democratized process where most MKR token holders must sanction every proposed change. This process ensures that the system doesn’t fall into a few hands and prevents manipulation in any way.

The DAI Stablecoin

The DAI stablecoin is the second element that enables the MakerDAO to function efficiently and effectively. You can only generate the DAI stablecoin under certain conditions and with the use of the Maker protocol. The conditions in question are the ones decided by the community governing the protocol. By implication, DAI is an impartial and decentralized stablecoin.

Unlike most other stablecoins, DAI does not depend on banks, and it also doesn’t have collateral in fiat. It makes use of cryptocurrency as collateral. You can store your DAI in wallets that support the standard ERC-20 tokens. As DAI is built in this standard. If you want to generate DAI, you need to lock Ether or any currency accepted by the protocol within the Maker Vaults. The Maker Vaults will utilize such cryptocurrencies to create a collateralized debt position (CDP), thus generating the corresponding DAI. You can also save it as savings using a Maker protocol known as DAI Interest Rate (DIR).

The DAI stabelcoin can function as the following:

Reserve of value
An exchange medium
A unit of account, and
Deferred payment reference

Collateralization of DAI Stablecoin

Before you can generate, support, and maintain the value of a stable DAI, you must first collateralize its value. To do so, you will use different tokens that can be deposited into the Maker Vaults. The Maker protocol ensures every DAI stablecoin has real value support that permits the supporting and issuance of each DAI within the ecosystem.

All collaterals accepted on MakerDAO are all tokens that are supported by the Ethereum blockchain network. Initially, collaterals started as something much more straightforward. Ether was once accepted as the only collateral, but it changed in 2019 upon releasing the multi-collateral DAI protocol (MCD). Other tokens began to be accepted. Today, the accepted tokens include all Basic Attention Tokens (BAT), USDC, wBTC, TUSD, KNC, ZRX, MANA, and Ether.

The collateralization value for every token varies, and the governance of the Maker protocol decides them.

Also read Ampleforth: A Comprehensive Guide.

The Maker Vaults

In the course of this article, you must have come across Maker Vaults multiple times. They are the storehouses that hold all cryptocurrencies that act as collateral for DAIs. Using the Maker Vaults, you can:

Send cryptos as collateral and get DAI in return or
Send DAI and receive a collateral cryptocurrency.

It is important to note that the interaction with the Maker Vault is done without an intermediary. The user interacts with it directly. There are rules of operation guiding the operation of the Maker Vaults. If you send tokens as collateral to a Maker Vault to generate DAI, the collateral will always be available under certain conditions. If the token price fluctuates beyond the “Settlement Ratio,” the system liquates the position.

It means that the Maker Vault will sell your crypto to maintain the positive and stable relationship of the DAI. What matters most is to avoid losses to the protocol and to the people who support it. The liquidation is executed by the Maker protocol as stipulated in the interaction of users and the Maker Vaults.

MakerDAO Governance Protocol

The Maker Governance Framework (MGF) is in charge of handling the governance of MakerDAO. It is based on thoroughly analyzed and reproducible scientific models created by experts with a proven track record. The framework falls into the following components:

Governance Proposals

They are symbolic votes that are used to scrutinize community sentiment towards particular models or data sources.

Executive Proposals

They help to rectify the Risk Parameters identified by the models and data accepted by the Government Proposals. Executive votes bring about status change within the DAI Credit System, and it happens every quarter.

In the governance of MakerDAO, the role of the Maker Foundation is vital and very fundamental. The foundation directs the development and management efforts of the project. Aside from that, the Maker Foundation is also dedicated to expanding the project and also seeking financial and institutional support for the protocol.

The governance model of the Maker protocol ensures that neither the MKR holders nor the Maker Foundation has absolute powers to dictate what happens in the system.

Conclusion

The future looks great for the MakerDAO ecosystem and its users. Today, developers continue to use DAI and the Maker Protocol to create innovative decentralized finance applications. It thus increases the accessibility to users all over the world. Although people can argue that we are still at the early stage of things, the achievements so far are massive.

Also, read CURVE FINANCE: Let’s Take A Curve Into Defi Of Stablecoins.

CURVE FINANCE: Let's Take A Curve Into Defi Of Stablecoins

Introduction

Curve finance is a decentralized exchange that facilitates the swapping of crypto-tokens. But it is specifically designed for stablecoins like DAI or USDT with low slippage and low transaction fee while using the liquidity pools like those of Uniswap. Let’s back up a little and first clear the basics.

Decentralized Exchanges

Let’s say Alice wants to send money to Bob. She can transfer the assets by going to a bank. Here a bank works as a centralized entity and verifies the transfer but cryptocurrencies are known for being decentralized.

In a decentralized environment, Alice can send Bob assets without the need of a central entity, and a set of independent nodes to verify the transfer.

Representation Of Decentralized Network — Source: https://www.chainbits.com/content/uploads/2018/04/peer-to-peer-transaction.png

What is Compound Chain?

Liquidity

Liquidity is the process where liquidity providers pour in their crypto tokens in a pool and allows others to exchange the tokens. They earn a fee on every swap where slippage is the price change of a token during a transaction.

X * Y = K

Understanding this formula is extremely important as it is widely used in the decentralized exchange world to determine the price of two tokens in a particular pool. The variables x and y in the formula represent the quantities of two tokens and k being the constant.
If the value of one token increases the value of the second token automatically decreases in order to maintain the constant k. However, this formula could be problematic when dealing with stablecoins as the stablecoins should remain constant. Also, while dealing with different flavors of the same tokens, prices have to be the same for each flavor.

What is Curve Finance?

The curve finance is a platform for the exchange of tokens rather particularly famous for stable tokens. Stable tokens are tokens whose value does not fluctuate rather remain stable.

It offers different flavors of similar tokens like ETH and BTC while using a formula called the STABLE-SWAP INVARIANT for swapping.
The flat line in the graph ensures the stable swap of two coins. Uniswap uses the x * y = k formula where one token’s price can grow exponentially and the other token can lose its price and the two tokens could be dollars to pennies. Curve introduced the Stable-swap invariant in which both the tokens tend to remain stable.

Explanation

Let’s understand this with the help of an example:

Suppose, Uniswap pool has a pair of USDT/DAI, both of which are of $1 with a proportion of 50/50. After some swapping the pool becomes unstable now with a proportion of 60/40. Now we have an excess of USDT and a scarcity of DAI. So, the price of USDT will become slightly less than 1$ (0.97$) and DAI will become slightly more expensive than 1$ (1.03$) and the pool becomes lopsided. Here, Curve will incentivize the liquidity providers to pour in DAI thus making the pool stable. The formula handling this is known as the Stable-Swap Invariant.

This is what the Stable-Swap Invariant looks like:

Curve’s Growth

Stablecoins have become an integral part of De-fi with more and more varieties of stablecoins in the market. Which means that there is a bigger space for people trading stablecoins. The curve has captured the market and emerged to become a giant by offering low fees and slippage at the same time. Stablecoins on other exchanges might deviate from their price whereas Curve ensures stability, which is one of the many reasons behind Curve’s success.

Learn about Nexus Mutual, a DeFi Project.

Liquidity On Curve

Liquidity providers can earn rewards by providing liquidity in Curve pools just like Uniswap. Additionally, there is another way liquidity providers can earn extra rewards; by the concept of lending. Curve finance offers lending pools where liquidity providers can lend tokens to other exchanges like Compound. This takes place in the background and liquidity providers earn fees on top of the transaction fee, as some protocols enable lending and borrowing functionality to the users.

It’s important to note that the rewards are based on the transaction volume; they can be high or low.

You might be wondering about the security risks that might occur while lending a token to another exchange. Curve solves this issue by wrapping the token as a cToken(wrapped token) and lending it to Compound while backing the cToken to the original token.

With Curve, we can have a pool of three or four tokens as well.

Once you deposit the tokens in, you can split it among all the tokens in the pool or you can add just one token. After adding tokens to the pool you will get LP tokens. These LP tokens represent your share in the pool which can be used to stake and mine new CRV tokens.

The 3Pool is a pool with 3 tokens DAI, USDC and USDT, it does not matter in what token the user adds the liquidity as the reward generated is the same. You can get the LP tokens in all the tokens or in a single token.

A metapool is a pool where a stablecoin is paired against an LP token from another pool. For example, a liquidity provider can deposit DAI into 3Pool and earn pools liquidity token 3CRV.

CRV Token

CRV is Curve’s native token, which is generated when the user deposits and stakes the tokens on the Curve platform. It is awarded to liquidity providers, proportional to their share from the yields created by their pools. With Curve’s transition to become a DAO, CRV tokens also represent the holders’ rights to take part in its governance mechanism. That way they can make proposals and vote on them with CRV. Their Governance follows a ‘time-weighted’ voting system which simply means that the longer they hold CRVs, the greater their voting power in the DAO becomes.

Conclusion

Curve’s smart contract is audited by Trail of Bits but this doesn’t eliminate risks completely. Curve lends tokens to other exchanges and hence opens up another front to security risks. Curve finance is in the market for around a year and needless to say that hackers for sure have tried their unsuccessful attempts to steal the funds.

Here’s a link to Curve-fi: https://curve.fi/

“Curve is an exchange expressly designed for stablecoins and Bitcoin tokens on Ethereum”

- Michael Egorov (Founder and CEO of Curve)

Also read, Uniswap v3: Power To Liquidity Providers.

What is HummingBot? A Comprehensive Review

Overview

What is Hummingbot? We will answer the question but first, let us have a clear overview of what it is all about. Hummingbot went live on April 4, 2019. Since then, it has been an amazing high-frequency market-making trading bot. The software is available on several platforms like Github and docker. Since its launch, the Hummingbot community has had a massive increase in the number of its members.

HummingBot is designed for traders, developers, exchanges, and token issuers. According to CEO David Garcia, “Liquidity is a core piece for healthy markets. HummingBot is building the next generation liquidity platform by empowering users and traders to participate in the markets with the right incentives.”

There have been more than 4,000 unique Github clones as well as Docker downloads. The code has also been forked on Github more than 100 times.

Crypto exchanges and token projects spend an estimated $1.2 billion yearly on market making. Since, the cost is in the form of rebates, fees, and cost of inventory. As a result of financial and technical requirements, the crypto market makers can be likened to quantitative hedge funds that charge exorbitant fees on and may demand millions worth of inventory. All these necessitated the development of Hummingbot.

What is the Avalanche Chain?

What Is Hummingbot?

Now, it is time to answer the question we asked in the first sentence of this post. It is an open-source software client that offers users the opportunity to create and monetize automated and algorithmic trading bots. Alternatively, it is an easy-to-use command-line interface that makes it possible for you to configure, customize, and run automated bots and other strategies. With this, users can make markets on both decentralized and centralized digital asset exchanges. Market making is a trading strategy that is previously accessible to only algorithmic hedge funds.

Market making is a trading strategy where HummingBot continues to post limit bids and ask for offers on the market and then waits for the various market participants to fill their orders. As a market maker, HummingBot quotes two-sided markets by making bids and offers available on the market. If market making is still confusing to you, then consider this example. A shop X buys a product from Mr. A at a cheaper price and sells it to Mr. B at a higher price for a specific amount of profit. The shop X is the market maker in this case. This is exactly what HummingBot does through the use of bots.

Today, anyone can be a high-frequency trader, earning huge profits from market-making. The software enables users with limited technical know-how to engage in out-of-the-box frequency market making. The Hummingbot software is built for institutional-grade performance, and most importantly reliability.

It is built on technologies like Cython (Python compiled into C). Hummingbot also utilizes low-level programming to optimize the memory-efficient and speed required to carry out high-frequency trading algorithms. It will serve as a base platform where users can customize and build their market-making and trading strategies. The design philosophy of Hummingbot is to fuse simplicity and to make it easy to use with performance and flexibility. Now we have a clear understanding of what Hummingbot is. Let's go-ahead to explore the Hummingbot command-line interface (CLI).

What is Hummingbot Command Line Interface?

Every user operates Hummingbot through an interactive command-line interface (CLI). It is a text-based interface designed for entering commands. There is a “command” prompt on the CLI and it is displayed whenever the interface is ready to accept a “command.”On the CLI, you can only execute tasks by entering a command. The command-line interface employed by Hummingbot helps users to configure and run the bot. CLI also helps to generate logs of the trades that were executed. The command-line interface (CLI) splits into five panes and they include the following:

Input pane (lower left): This is where users of the software enter commands to be executed.
Output pane (Upper left): It prints the output of the command issued by users.
Top navigation bar: It displays the status or information of items like Version, paper_trade_mode, Strategy, and Strategy_file.
Bottom navigation bar: It displays the information of items like Trades, Total P&L, Return%, CPU, Mem, Threads, and Duration.

In order to start Hummingbot from the source, here are the prerequisites:

• The Crypto Inventory

To run a trading bot, users need some inventory of cryptocurrency assets available on the exchange. Or in their Ethereum wallet, if they are using Ethereum-based decentralized exchanges. Every user needs an inventory of both the base asset and the quote asset. The base asset is the asset that you are buying or selling while the quote asset is the one you exchange for the base asset.

• API Keys

To run a bot on centralized crypto exchanges like Coinbase, Binance, etc, users will need to enter the exchange API keys. You will have to do this during the Hummingbot configuration process.

• Ethereum Wallet

For users to be able to earn rewards from liquidity bounties, they will need an Ethereum wallet when running Hummingbot on an Ethereum-based decentralized exchange.

• Ethereum Node (Dex only)

When running a Hummingbot on an Ethereum-based decentralized exchange, your wallet will send signed transactions to the blockchain system through an Ethereum node.

Hummingbot Miner

The Hummingbot Miner is a liquidity mining platform that makes it possible for sponsors to incentivize liquidity provision by leveraging token rewards on order book-based exchanges. If you sign up for the Hummingbot Miner, you can earn token rewards for providing liquidity for some trading pairs.

Users can set up their liquidity mining on the Miner App in order to see real-time rates of their rewards and performance. It also allows you to keep track of your payouts and check market leaders. Liquidity mining is the term for a community-based and data-driven approach to market-making. Here, a token issuer or an exchange rewards a pool of miners to ensure liquidity is available for a particular token.

It is open, hence anyone can participate and you can track your earnings every minute. Also, it is non-custodial meaning that the platform doesn’t have control over your token. To start as a liquidity provider on Humminmgbot, you will need two sets of API Keys. Also, you can use your own trading bots and strategies to take part in liquidity mining. For those that don’t have their own trading bots, Hummingbot allows them access to quant/algo strategies.

What is Tendermint Core?

Hummingbot Supported-Installation Environments

Platform	Binary	Docker	Source
Windows	yes	yes	yes
macOS	yes	yes	yes
Linux	-	yes	yes
Raspberry Pi	-	yes	yes

For experienced and technical users, it is advisable you set up a cloud instance, then install the Docker version or from the source. Doing this enables the Hummingbot software to run 24/7. You can use Hummingbot as a long-running service using cloud platforms like Google Cloud Platforms, Amazon Web Services, and Microsoft Azure.

Hummingbot Strategic Partnership

Hummingbot is in collaboration with many well-known decentralized finance (DeFi) platforms. They received a development grant from 0x, a leading open-source protocol for DEXs. The grant was to support the 0x ecosystem with Hummingbot. Hummingbot’s collaboration with 0x will help lower the barriers to providing liquidity in the 0x ecosystem.

What Does The Future Hold For Hummingbot Protocol?

The team plans to continue to build additional capabilities on the Hummingbot network to maximize its utility for the growing users. They also, intend to continually roll-out more exchange connectors to help link Hummingbot to more exchanges. Also, there is a constant tweaking of the graphical user interface (GUI) to make it more user-friendly.

Conclusion

In this article, we have taken time to answer the question, “what is Hummingbot?” The article also explores other functions and capabilities of this open-source protocol for crypto traders. The platform is also seeking partnerships with cryptocurrency exchanges. It also welcomes the token issuers with interest in the professional deployment of Hummingbot.

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