Developing a Decentralized Application: Launching Derivative Tokens to avoid inflation.

One of the most discussible questions concerning the modern economy is the inflation level and Quantitative Easing as well as the monetary policy of world-leading countries. Speaking about the crypto market, there are also plenty of projects where developers emit tokens without limits. And, obviously, it affects its price. Moreover, the high level of crypto market volatility rose by speculators turning investments in blockchain projects highly risky. One of the ways to save capital from inflation is by investing in deflation tools. In this article, I will explain the benefits of investment in deflation tokens, some ways to do it as well as the concept of launching your own token.

Inflation in the DeFi sector

Investments in deflationary tokens are becoming highly demanded because of the prospects for asset growth in the future. Their economics are designed so that deficits increase, demand rises, and therefore the price too.

Moreover, a reduced supply of tokens can counteract inflationary pressures caused by external factors, including government policy or economic events.

What is a deflationary token?

There are two types of such tokens on the market.

Firstly, Limited-issue digital assets. The developer immediately sets a number of cryptocurrencies that cannot be increased. The volume can then be reduced to increase investor interest and price.

Secondly, Tokens are based on a deflationary economic system. With each transaction, a certain percentage of coins is automatically deducted, followed by distribution to the holder, burning, adding to liquidity, etc.

High volatility in the DeFi sector.

Nowadays, protocols like the Dai Stablecoin System are used to protect the decentralized market from speculators. This protocol is one of the largest applications (dApps) in the Ethereum blockchain. It is one of the first applications for decentralized finance (DeFi) which has been widely adopted. It requires no third-party trust and, at the same time, can guarantee the safety of funds in an imbalance of supply and demand.

The Maker Protocol is called the Multi-Collateral Dai (MCD) system. It is a system that enables users to generate smart contracts (DAI). Also, users can use collateral — another cryptocurrency — after getting approval from the “Maker Governance.”

According to the White Paper, “DAI is resistant to hyperinflation due to its low volatility. Their community operates in appliance with the rules of MakerDAO and ensures DAI remains a decentralized, collateral-backed stablecoin that aims to maintain a stable 1:1 value with the U.S. dollar.

However, the problem with using such a scheme is that its participants, unlike others, cannot receive the dividends created by the growth of the digital economy, making the terms of participation in price stabilization less attractive.

In addition, at the moment, part of the collateral pool used for price stabilization is USDC tokens, which means that the protocol is vulnerable to the regulator.

Derivatives on the crypto market

Because of the above-mentioned crypto market specifics, professional participants use such a tool as a derivative. Crypto derivatives allow us to hedge risk and increase profits when speculating as well.

Crypto derivatives are secondary contracts or financial instruments whose value is determined by the underlying asset. For example, BTC, ETH, or another one.

Despite the wide supply of such instruments on the market, there are currently no projects that allow hedging the level of volatility and at the same time provide a high profitability level. In the next section, I will review DeWrap, which is characterized by a constant increase in value due to an increase in the number of investors.

Decentralized Derivative Bitcoin (DDBTC)

The first official deflationary token DDBTC was created with the Decentralized DeWrap application.

DDBTC (Decentralized Derivative Bitcoin) is an ERC20 standard deflationary token with built-in protection against speculation.

1. Each emission includes a deflationary mechanism. Whenever new tokens are emitted on the blockchain, a certain percentage of that amount is automatically debited. This is called a deflationary commission, which is usually distributed to holders, adds liquidity to the liquidity pool, etc. In this way, this mechanism encourages users to hold the currency for a long time.

2. There is no predetermined emission. The token is printed at purchase and burned at sale (by sale we mean exchange back to WBTC)

3. 3. token is always more expensive than WBTC due to the smart contract that redistributes tokens’ value (by value redistribution we mean increasing the value of the token and fixing its price, without the ability to reduce the value back)

4. 4) BTC itself has a great potential for constant growth (according to BTC Lifetime Chart) By holding tokens you not only increase the amount of BTC, moreover BTC itself is gradually growing in value. Thereby holders will receive super profits if they hold the asset longer than a certain period.

Why DDBTC does not depend on inflation and high volatility?

The algorithms and formula of the smart contract are designed in a such way that the token only has an upward line, which other deflationary tokens do not have.

This token is deflationary, it is technically impossible to issue tokens without collateral at the same time, and is burned immediately after reducing the collateral one to one (e.g. 1 BTC = 1 DDBTC)

It is protected from speculation due to the inability to be sold earlier than the terms set by the smart contract (90 days).

Scheme of DDBTC liquidity redistribution.

After purchasing 1 DDBTC, 14% of the total amount transfers to the liquidity pool in order to redistribute all liquidity within all participants. This principle makes the token’s price depend on the number of holders.

Liquidity distribution

9% are transferred to the liquidity pool

4% — for marketing purposes.

2% — to developers.

Withdrawal prescriptions

‒ A withdrawal is restricted for 90 days, otherwise, a penalty is going to be 8 % of contributed funds.

‒ The 8% penalty goes to token growth (its liquidity) and 2% to developers.

‒ After 90 days, you can withdraw your investment without penalty.

Loss of the tokens

Tokens will be considered as lost after 365 days — when the holder has not performed any operation with the token (to show that the token is not lost, you only need to perform the transaction to yourself).

If tokens are assumed to be lost — then every month 10% will be deducted from your tokens and distributed to all token holders.

Community growth and benefits to take part in.

Based on the official DDBTC derivative — other individuals and companies, will be able to establish their own derivatives (the franchise concept). The underlying DDBTC token also grows in value by increasing liquidity through the development of other derivatives.

Conclusion

In general, crypto derivatives are excellent tools to hedge risks on the market as well as increase profit because of their high volatility. There are a lot of examples of derivatives as well as deflation tokens on the market today. However, if you use the DeWrap application and its deflationary token DDBTC you will be able to invest in BTC and hedge the risks of its volatility because of the deflation mechanism of the token.

By Catherine Adiyak