Browsing Tag: DeFi

    DeFi developers
    DeFi

    How do developers of the DeFi protocol make money?

    July 10, 2020

    I don’t know if you have ever thought about such a question, why would someone like to do DeFi? If you are a DeFi developer, what is the purpose of your DeFi?

    1. Interest
    2. Make money by collecting service charges
    3. Meet your DeFi needs
    4. Other

    DeFi: decentralized finance.

    Therefore, the basic principle and precondition of DeFi is “decentralization”. As for the financial attribute and financial demand, it depends on the audience size and development level of the whole encryption market.

    DeFi can be very simple. For example, if there is such a contract on the chain, if you transfer into an ETH, you can generate two DETHs. If you transfer these two DETHs in, you can exchange one ETH. The contract on the chain is a DeFi protocol. It is very simple and pure. It conforms to the basic definition of DeFi. Its financial attributes and financial needs need its developers and interested users to mine together.

    Defi decentralization

    The essence of DeFi is decentralization (disintermediation), which also requires that DeFi must be open source. Since it is open source, there will inevitably be a homogeneous difi protocol.

    In this case, can developers charge users a fee?

    The same smart contract running on the chain, for users, they are no difference; moreover, they are indeed no difference.

    If we say that developer team a is more well-known under the chain, while team B, which develops the same protocol (with the same code), is very common, but the agreement fee of B is lower; if the market data shows that the difi developed by team a is more popular, what are the users choosing? Are you choosing DeFi? Or are you choosing a development team?

    If the user is choosing the DeFi, the agreement developed by team a and team B is essentially the same, and there is no difference between the advantages and disadvantages; if the user is choosing the development team, then the difi will lose its significance of existence, which is also contrary to the spirit of the blockchain!

    After the open source of the DeFi protocol, there will inevitably be homogenization competition, which will lead to the final free of charge. Therefore, it is obviously not logical for the developers of difi to charge the service fees to the users. In other words, it is impossible to charge for a long time, which will eventually be eliminated by the market.

    DeFi service fee

    However, the developer of the interaction tool can charge users a service fee.

    You can make a front-end interactive tool to provide users with a better experience of the interactive service of difi. At this time, the tool developer can charge the service fee from the difi users. However, the fee is not paid by users for using the DeFi protocol, but for the interactive experience in the process of using the DeFi protocol. The protocol is indistinguishable, but the service is different and can be perceived.

    So, back to the question we asked at the beginning of the article: why do developers develop DeFi?

    Maybe it’s really interesting for developers to develop a DeFi protocol for a sense of achievement. However, most of the DeFi developers are supposed to make money or meet their needs.

    According to the traditional Internet thinking, if a product has no demand from the developers themselves, it is almost impossible for it to be developed.

    From this point of view, the original intention of developers to develop the DeFi protocol should also have the same logic: first of all, the developers themselves have this kind of demand, and there is also a wide range of such demand in the pre-determined encryption user group; therefore, it will urge the developers to have the idea to do such a DeFi protocol to meet everyone’s needs and make money “by the way”.

    As for whether to make money by the way or the goal is to make money, we do not make a specific analysis; in short, most of the developers of profi have expectations of making money.

    DeFi protocol

    As we have already analyzed, it is impossible for a DeFi developer to charge user fees. So, how can developers make money from the DeFi protocol?

    Next, we analyze the different types of DeFi protocols. There are two types of DeFi protocols:

    The first category: the non incentive mechanism of the DeFi protocol

    The so-called no incentive mechanism means that the agreement itself has no economic model and no token issued. A typical case is the uniswap protocol.

    In this type of DeFi agreement, it is the liquidity provider, commonly known as the market maker, who can make money.

    If a DeFi developer wants to make money in this kind of DeFi protocol, he needs to participate in it and become a member of the protocol ecology. For example, he also goes to market makers to earn what he should earn.

    However, at this time, whether you are a developer of the DeFi protocol or other participants, you are on the same starting line, and there is no difference between the advantages and disadvantages. Maybe the only advantage of developers is that they have a better understanding of the protocol itself, can participate in the shortest time, provide services, and start to make money; after the market is balanced, this only advantage will no longer exist.

    Therefore, if developers want to make money in the non incentive mechanism of the DeFi protocol, they should participate like other users, otherwise there will be no chance to make money.

    The second category: DeFi protocol with incentive mechanism

    The DeFi protocol with incentive mechanism has its own token economic model. Under normal circumstances, the economic model tends to solve the “cold start” problem of the DeFi protocol; in other words, the earlier the participants are involved, the lower the cost of obtaining token, and of course, the greater the risk.

    At this time, for the developers of the DeFi protocol, they can be the first to participate, obtain token, participate in and promote consensus building.

    It should be noted here that users have costs in acquiring token or using the DeFi protocol, which can be understood as a handling fee. However, the handling fee here is not paid to the developer of the DeFi protocol, but is paid to the difi protocol system itself, and belongs to the agreement consensus holders (the people who hold the Token).

    Therefore, in this kind of DFI protocol with incentive mechanism, the developer of DFI has a very obvious first mover advantage, which also conforms to their own interest needs and the development proposition of the agreement. With the development of the agreement and the application value of the protocol itself, developers will get good returns after a period of development. Typical example: Satoshi Nakamoto wrote a white paper on the bitcoin protocol. He also participated in bitcoin mining in the early days. As you can see, the bitcoin held by Nakamoto has been worth tens of billions of US dollars.

    Through the above analysis, we basically clarify the causes and consequences of the birth of a DeFi protocol. No matter you are a developer, a participant, or an ordinary user, you can know your rights and responsibilities as long as you make clear the cause and effect logic.

    The DeFi agreement is pure, objective and reasonable. There are no so-called moral problems in it. If there is to be said, it is imposed on it by human beings. Therefore, we should not use the defects of human nature to try to prove the failure of DeFi, which is a kind of incompetence!

    Blockchain public chain

    From the perspective of consensus cost, why is the market value of EOS less than 20% of eth?

    June 21, 2020

    Consensus mechanism is the most special thing of blockchain, which is different from the consensus in the real world. Based on algorithmic program, blockchain reaches an agreement on the transaction data on the chain, thus creating value. The value in our life is also based on consensus. Except for the exchange price, most of the consensus does not have a serious process or force, so it is difficult to quantify. What’s interesting about blockchain is that this consensus can be measured, such as BTC reference computing power index, POS passing currency holding test, dpos voting based and so on. Do these differences in consensus represent differences in value and risk?

    We believe that this is true, that is, the cost of consensus determines the value of the blockchain. According to the current BTC model, this cost is computing power. Many people may focus on the application of blockchain, and think that as long as there are enough applications on the chain, its value is the greatest, which is a typical product thinking, not applicable to blockchain. A public chain, if its consensus cost is high enough, that is, its computing power is large enough, it is indeed more valuable than a public chain with low computing power. Many people will question this sentence, saying how can the computing power maintained by the central organization represent value? In fact, this sentence confuses value and risk. Computing power determines value, and the composition and application of computing power determine risk.

    Calculation determines value

    Computing power is provided by an organization. If it can not effectively share the cost of computing power, this kind of consumption is unsustainable. Computing power is provided by the market, which is the result of thousands of rational individual calculations. Each of them tries to achieve their own economic closed-loop. As long as they still provide computing power, it shows that they can achieve the net efficiency of input-output. These people who provide computing power are different, thus effectively avoiding the situation of both damage and prosperity.

    No matter how the incentive of the public chain fluctuates, there are always people in and people out, and there will be no collective exit at the same time. This decentralized structure reduces the risk of consensus.

    If the public chain or the corresponding token has a usage scenario, it will also indirectly reduce the consensus risk. On the one hand, the consumption of tokens has been settled, on the other hand, the secondary market of tokens has a stable expectation, which enhances the purchasing power, thus bringing certainty to the computing power provider. These two aspects regulate the consensus risk of public chain, but the consensus cost always determines the value.

    Consensus risk of public chain

    According to the BTC design, when the computing power is large enough, the cost of completing 51% attack will become exaggerated. Even if the computing power attack is successfully implemented, the miner can split out of the attacked block and maintain the original consensus again. The attacker can get a block chain system without consensus, which is meaningless. Therefore, once a public chain is maintained based on a decentralized consensus, it will become very powerful. The cost of this consensus, seemingly unrelated to actual production, is the foundation of value, and production activities only reduce the risk of consensus.

    To exaggerate, even if BTC can’t be used anywhere, or no one wants to use it, its consensus cost will remain at tens of billions every year, and it still has the current value.

    Ethereum 2.0 will change the consensus mechanism from POW to POS, which has a great impact on Ethereum. This impact is mainly reflected in the evaluation of consensus cost. At present, the industry is not fully aware of this problem, but simply analyzes the impact of consensus change on application and development. I think this is putting the cart before the horse, because how much application is for a blockchain system is only a risk issue, not a value issue.

    Transfer of consensus mechanism

    The risk of maintaining value is low for the public chain with application, and potential risk may exist for the public chain without application under the same consensus cost. We need to spend more time thinking about the comparative analysis between POW and POS, and how to compare the cost of both in a framework. In fact, many people know that for a long time, even now, the number of applications on EOS is no less than eth from participants, but the market value is less than 20% of eth. Some people think that it is because heavy asset projects like usdt or defi are not released on EOS, which is incorrect. The root cause is that the consensus cost of dpos is far lower than that of pow. No matter how many applications there are, it can only appear that the risk is low under the given consensus cost, which cannot represent the high value. But for the cost comparison between POS and POW, there is no good framework, which needs more people to study and improve.