Clutter and jargon is the disease of DeFi ecosystem. It can be challenging to understand what a DeFi project does and what purpose it serves. All of us have seen intricate whitepapers that nobody comprehends up until an audit report appears with major disclaimers.
To be revolutionary, DeFi has to be for everyone and stakeholders should be a part of something that they can understand. A transparent, clean, straightforward
project and a genuine, supportive community is what creates the value.A Brief History
It all started with staking
. Community realized they can extract passive value from their holdings. However, there are two sides in every story. The passive value from staking has to be generated from somewhere. Often this is achieved by lending
facilities. Lending facilities makes sense at the first glance but the proceeds are often used in shorting activites, which is detrimental to the value.
Afterwards, there comes the era of alt-coins with gamified selling schemes. With referral bonuses and unlimited minting attached to their extremely convoluted contracts, they brought more harm than good.
Holding and staking is not enough. There has to be plenty of liquidity
. Ability to sell is what gives a token value. Traditional order-book based exchanges couldn't satify the demand. Swap exchanges responded:
"Let there be light"
. And there was light.
Initially, there were attempts to solve the liquidity problem with manual liquidity locks
. This gave way to rug pulls. Discretion
almost always kills a DeFi project. In smart contract, we trust. Safecoins
solved the liquidity problem by attaching an auto-liquidity feature to the smart contract. However, there comes the million dollar question: "Who owns this liquidity?"
Safecoins rewarded its holders but rewards were financed by a tax cut from transactors. High transaction tax gave way to extremely high slippage. It was a feast for frontrunning bots and the community felt stuck.The Trilemma of the Decade
As things stood, the community is faced with the following three-way problem:
- If a token has value and depend on its owners discretion, than rug pull of liquidity is highly likely.
- If a token has value and liquidity is time-locked, developer has to exert significant amount of discretion during and after the lock.
- If a token's liquidity is locked and owner has no discretion, there is nothing left to drive the value up.