Key Takeaways from Solana Hacker House in Krakow
Impermanent loss, yield farming, oracles, hardware wallets… are just some topics discussed while coding at Solana x jump_ Hacker House in the medieval seat of Polish kings and queens — Krakow.
Key Takeaways
- 60% of yield farmers do not make any revenue due to the impermanent loss. With the continuous liquidity AMM you can mitigate the it.
- Oracle business is monopolized with ChainLink, having 51% of the business.
- Hardware wallets proved to be most secure
- Crypto market might be down, but there were no better times to be a rust developer.
Fixing Yield Farming with Continuous Liquidity
At first, Invariant app looks like just another DEX at Solana. However, as explained by Wojciech Cichocki, the Invariant applies continuous liquidity to protect your yield farming.
According to Bancor report, 60% of yield farmers made losses due to the impermanent loss. So what is impermanent loss and how it affect you?
CEX vs DEX
CEXs (centralized exchanges) such as Binance or CoinBase enable you to exchange fiat money (e.g USD) into crypto-currencies (e.g. SOL). The exchange price, e.g. USD-SOL, is calculated using the so-called order-book model, which matches buyers and sellers.
Although CEXs make DeFi possible, they are not part of DeFi (decentralized finance), but CeFi (centralized finance). From IT-architecture point of view, CEXs are centralized and off-chain IT systems.
DEXs (decentralized exchanges) also enable you to swap between crypto tokens, but DEXs are dApps (decentralized application) that execute the swap transaction fully on blockchain. DEXs are a (big) part of DeFi.
Impermanent loss
DEXs uses so called AMM (automated market making) model that applies the formula to calculate the token buy or sell price
x*y= constant
where x is the price one token (e.g SOL) and y is the price of other (e.g USDH). I hope you are still with me.
To yield farm, you acquire tokens x and y, (e.g SOL and USDH) and add the pair to the liquidity pool and get some return in the future. However, it can happen than the return just from holding x and y (e.g SOL and USDH) might be higher than yield farming. The difference is called the impermanent loss.
Continuous Liquidity
The continuous liquidity is a new model for DEX that mitigates the impermanent loss (IL). It modifies the formula x*y = const to make it more resistant to IL. You can read more on the topic in the Invariant blogs — DEX vs CEX, difference between yield farming, liquidity mining and staking.
Oracles
Oracles are essential building blocks that allow dApps — application running on blockchain — to access data from the real data.
According to Redstone, the oracle business today is dominated by ChainLink, which has more then a half of it.
In order to get the truly decentralized finance (DeFi), we need the decentralization of the whole tech stack, including oracles. Luckily, there are new challengers, like Redstone Finance, that are here to help and challenge the status quo.
Recent Hacks
In early August the Solana community was struct by new news that 8'000 wallets were compromised and estimated US$8mn stolen. The investigation showed that the theft was possible because of the bug in the code behind one of the wallets — Slope.
The holders of the hardware wallets were not affected by the hack. Go for the hardware wallet, now!
Closing Thoughts
Crypto markets might be down, but builders keep building. What is more, blockchain developers are still in the need! Bering Waters University is there to help you to learn Rust — one of the programming langue for smart contract development. Solana smart contracts are developed in Rust. Worth learning! If you want to keep working on you project, or start something new, do not miss the next Hacker House — in Stockholm.
References:
1. Impermanent Loss in Uniswap v3, Bancor, 2021
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