October 29, 2020 View Online
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Stocks continue to dip for the third day in a row. US jobless claims continue to go up. Covid-19 cases continue to rise across the U.S. and Europe. Crab Market is back, and everything is gloomy… Oh the nostalgia of our summer gains!

Thank God it’s Friday.

In today’s edition: Seal Finance, Bancor v2.1 upgrades, Lido’s ETH 2.0 staking solution, and NFY Finance’s DeFi vault products that mint NFTs.

What is Seal Finance? DeFi Farming with Elastic Supply

Seal finance provides DeFi through elastic supply token
Seal Finance aims to bring stability to markets of existing major DeFi tokens. This is done via a new approach to liquidity mining, one with a fixed APY and incentives to remain a provider. Additionally, stakers earn rewards in LP tokens to promote stability and avoid simply farming to dump.

What is Seal Finance? Currently the DeFi sector is going through a period of exponential growth, which has attracted many new crypto investors into the space. This has led to various developers continuously cloning one protocol after another, meaning there is no longevity and farming operations are not sustainable. Seals Finance is taking a new approach, similar to Bancor, by using an elastic supply token to enable single-side deposits. Thus, the idea is to become an intermediary between major DeFi protocols and stabilize their markets through deeper liquidity.
The magic happens when new SEAL tokens are minted to distribute as rewards. Instead of letting users claim the tokens directly, these go into the Uniswap pools. As a result, rewards come in the form of LP tokens. Additionally, the designs stops farmers periodically selling their reward tokens which generally crashes markets. Currently, the whitepaper doesn’t go into details on how this works. Does the protocol market sell a portion of the newly minted SEAL tokens first? It would be great for the team to provide more technical details around this process.

Single-side deposits… Users just have to deposit a supported asset, as of time of writing: YFI, UNI, HAKKA, SNX, or PICKLE. The protocol will automatically do the rest, minting the corresponding amount of SEAL tokens to add liquidity to the Uniswap pools.
  • Users then stake the LP tokens to breed additional SEAL tokens as rewards, with a fixed APY and compound interest. These parameters are governable by token holders.
Withdraw penalty… the protocol's design is to promote being a long term liquidity provider. For example, withdrawing any liquidity from Seal pools, will incur a 5% net loss of the total value. Note this platform has not gone through any security audits as of yet, and is very experimental.

Bancor V2.1 Eliminates Impermanent Loss

bancor v2.1 upgrade will enable single side deposits and governance token rewards
Bancor, a DeFi powered Automated Market Maker (AMM), announced impermanent loss will be eliminated with its v2.1 upgrade. Along with providing single-sided exposure via an elastic BNT supply. Additionally, the upgrade will launch Bancor’s new governance token: vBNT.

In the new model, liquidity providers earn liquidity protection over time along with trading fees from the token swaps. The idea is to make being a long term liquidity provider on Bancor more attractive. Currently, decentralized liquidity protocols are facing an ever-growing amount of vampire attacks from new innovative platforms or even just exact clones. Bancor’s new approach aims to provide a sustainable protocol that remains profitable long term. Meaning that users can finally feel the DeFi promise of passive market making rewards.
Bancor V2.1 Eliminates Impermanent Loss
Bancor is changing its tokenomics with the v2.1 upgrade to introduce an elastic supply for BNT. It works by minting BNT tokens when a user deposits assets into a protected pool. Essentially, the counterpart asset in every pool in BNT. To summarize, the protocol is co-investing in the pool with the liquidity provider which it uses to cover the cost of impairment loss.

Bancor governance token is live. Users will also be able to earn rewards in the form of vBNT, by staking in a protected pool. Currently, there are over 60 ERC20 tokens in the protocol’s whitelist. As it stands, given the big change in tokenomics the upgrade to v2.1 is waiting for community approval. However, given the design should increase the ROI of liquidity providers it seems certain the community will vote it through.

The puzzle of solving impermanent loss for good is being tackled by various AMM protocols. All with their unique approach to the problem, however, most require a user to take on exposure to additional assets. Because you nearly always need to deposit two assets into the pool. With Bancor’s fresh design enabling single-sided exposure along with impermanent loss protection, it will make them stand out from the crowd. Expect growth!

Lido plans to make staked ETH 2.0 liquid

lido makes ethereum 2.0 liquid
Lido is a staking solution for ETH 2.0 built to solve several transition problems. Essentially, it will bridge the gap between ETH 2.0 and ETH 1.0 - enabling users to access their staked funds and rewards ahead of time.

What is Lido? Ethereum is finally gearing up to launch ETH 2.0, starting a transition period towards Proof of Stake (PoS). Once the migration is complete Ethereum will be the largest PoS network in cryptocurrency by a large margin. However, it is the transition period itself that poses several problems.
  • Early stakers will be agreeing to lock up their ETH until transactions are enabled on ETH 2.0, which could be years.
  • Stakers will not be able to move or access their staked funds at all. Resulting in staked ETH becoming illiquid and unusable by any DeFi product.
  • Users can only stake in multiples of 32 ETH.
These three major concerns could severely impact participation in staking on ETH 2.0 because the early adopter is taking significantly more risk. Additionally, this creates a paradox situation as without early adopters the migration to ETH 2.0 will not be successful.

Staked funds are always illiquid. Lido also raises another question: staked funds will always be illiquid and inaccessible for the DeFi ecosystem. Meaning that even when transactions are enabled on ETH 2.0 and it becomes possible to claim rewards along with unstaking. The network needs stakers to achieve consensus and stay secure, but that means a lot of capital will be locked up. Users will be faced with a dilemma: secure the network or stake with DeFi protocols to earn yields? Currently, we do not know which option will offer the best incentives.

Lido makes staked ETH liquid. Users who choose to stake through Lido will receive a corresponding token that represents their stake 1:1, called bETH. Furthermore, as your ETH generates rewards on ETH 2.0 so will your bETH balance increase. Essentially, all your funds will remain accessible and liquid. Lido also enables users to stake ETH with any amount, so there is no need to have exactly 32 ETH available. You could compare it to a form of flexible farming by Value DeFi.
As an ERC20 token bETH can be compatible with all the major DeFi protocols. It will be tradable on Uniswap, usable as collateral on Aave, or be a liquidity provider on Balancer. And once transactions do start on ETH 2.0, holders can redeem bETH for ETH. Lido aims to mitigate the risks of being an early adopter for ETH 2.0, keeping funds liquid, while also providing yield generating opportunities for bETH.

We don’t have any tech details yet for the platform, they should be released over the next few weeks. Keep watching!

What is Non-Fungible Yearn? DeFi Vaults with NFTs

What is non fungible yearn
Non-Fungible Yearn is a DeFi platform where users can stake in various pools to earn NFY tokens. On the surface, NFY Finance may sound like another yield generating staking platform using the popular Vault strategies - but it's not. Here we have a platform taking a different approach to DeFi by minting non-fungible tokens (NFTs). These unique NFTs then represent the rights to a stake.

What is Non-Fungible Yearn? While it is common practice for platforms to represent yield based on the amount a user stakes, this causes several problems. Notably, the expensive gas costs incurred by constantly staking and unstaking funds. Generally, as these types of transactions interact with smart contracts they always need more gas to confirm. As a result, you have a vicious circle where farming protocols congest the network making it slow and expensive for everyone.
what is non-fungible yearn
A Better Way To DeFi. NFY Finance believes the solution is by using the ERC-721 token standard. Meaning all the details of your stake, along with the interest accrued will be stored in a unique crypto collectible. Anyone holding the NFT has the right to claim accrued interest or redeem the underlying tokens.

Essentially, the team is putting forth the notion that users should not need to unstake when they’re done with a protocol. We could be saving a lot of time and gas fees by simply trading the rights of the stake itself. Because a simple token transfer as an NFT is not an expensive transaction, which you can do via OpenSea or Rarible.

Unstaking… Users can still unstake their deposits from a vault, which will destroy the NFT and return the stake funds. However, to encourage an ecosystem of trading NFTs a 5% fee will be taken to redistribute to the protocol.
  • NFY, the governance token for the platform, has a total supply of 100,000 to avoid over-emission problems. Additionally, all earned rewards tokens will be locked for the first 21 days.
Liquidity locking… the team is also planning to reward NFY/ETH liquidity providers who agree to lock their liquidity tokens in the platform forever. This may sound scary, but remember that you will still be able to trade the rights of being a LP (and its rewards) through the minted non-fungible token.
Mint NFT tokens to represent the stake of your DeFi strategy via NFY finance.
The platform will even enable you to break it down into smaller portions by minting another NFT, making it easier for a whale to sell a massive stake.

Also take note

The information provided on this email should not be taken as investment advice, financial advice, trading advice, or any other sort of advice. dExplain does not recommend the use of any decentralized application nor that any cryptocurrency should be bought, sold, or held by you. You should do your own research and consult a financial advisor before making any investments.

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