Gain DAO Pioneers Hybrid Finance (HyFi)

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Gain.ai

8 min readJun 8, 2021

There’s a storm coming.

Everyone with their finger on the pulse of the crypto industry can feel it. Those on the outskirts of the digital assets space think crypto is just a charade — a giant bubble and a transient phenomenon that will eventually taper off as space becomes more regulated.

What they’re not realizing, however, is that crypto is not a bubble ready to implode, but one finally ready to burst onto the scenes.

The uninitiated are making the mistake of confusing the noise for the signal. Past all the hype, the controversies, the uncontrollably proliferating meme coins named after dogs and foods, there’s a revolution going on — the most peaceful revolution, as Nic Carter put it. One that will undoubtedly change the face of finance and how we understand and interact with money forever.

What we’re witnessing today, therefore, is not just the long tail of another crypto boom cycle but the second coming of crypto. After a decade of trial, error, experimentation, and innovation, the digital assets space has finally found the ideal product-market fit: decentralized finance or DeFi.

A World Made of Money Legos

DeFi is a sector within the larger digital assets space aiming to build a global, decentralized, and permissionless alternative to the legacy financial system. As opposed to traditional finance, decentralized finance doesn’t rely on various intermediaries or centralized custodians. Instead, it leverages smart contracts or self-executing code and blockchain technology to eliminate and replace these traditional dependencies.

DeFi is built on the principles of inclusion, transparency, accessibility, composability, and, obviously — decentralization.

The key advantage that DeFi has over centralized or traditional finance is permissionless innovation. By virtue of being completely open and free of controlling parties, decentralized platforms allow developers to build, experiment freely, and grow the space in organic and unexpected ways. Something that is further accentuated by the crypto community’s open-source ethos.

While traditional finance tends to work in silos, DeFi is inclusionary and prides itself on being open and cooperative. Furthermore, since DeFi isn’t burdened by patents, copyrights, trademarks, or trade secrets, it effortlessly facilitates combinatorial innovation, which allows the entire ecosystem to benefit from individual progress that builds on the efforts of others.

As a result, the current state of play in decentralized finance is one of breakneck speeds of progress and innovation. The pace at which the industry is growing is unparalleled and unlike anything, we’ve seen before.

If you’re unaware of the latest developments and remain skeptical, it’s only to be expected. There’s a saying in crypto, a sort of а clever wordplay on an old but classic Reagan quote, that one should not trust, but instead always verify.

So, if you were — in true cypherpunk spirit — to abide by this rule, you’d ideally want to start by looking at the raw numbers.

Let’s cut to the chase and do just that.

Despite that DeFi is still a very niche market, today’s total value locked (TVL) in Ethereum-based decentralized finance protocols is crossing $62 billion, and that’s after a brutal 60% market drawdown.

This represents a staggering 10,000% increase in less than a year and a half, up from just ~$600 million in TVL at the beginning of 2020. At the same time, the number of new users, as measured by the number of unique wallet addresses interacting with DeFi protocols, has grown by more than two orders of magnitude, from 10,000 to over 2.5 million.

Moving on, the weekly average trading volume on Ethereum-native decentralized exchanges is $46 billion, while the current total market capitalization of DeFi tokens is $90 billion, accounting for a 5.2% share of the entire cryptocurrency market.

And while these numbers may at first glance seem impressive, the key thing to consider here is that they’re only accounting for the easily measurable indicators. In reality, looking merely at the numbers fails to aptly capture the equally impressive innumerable — yet very tangible progress that the decentralized finance industry has made in building an entirely novel financial infrastructure parallel to the legacy one.

Somewhat quietly and behind the curtains, decentralized finance took payments, trading, lending, borrowing, insurance, stablecoins, synthetics, derivatives, market-making, yield farming, and many more of these concepts of the old and ported them to the new, more open and inclusive world built on immutable and transparent blockchains.

By leveraging blockchains and smart contracts, decentralized finance renders a blend of transparency at the market level and privacy at the user level; it replaces trusted third parties with elegant consensus algorithms in order to provide frictionless and trustless peer-to-peer transactions and grants access to novel financial products to anyone with a smartphone and access to the Internet.

With all of that said, however, decentralized finance still has its problems and isn’t yet perfect by any means. Beyond the operational, dependency, and smart contract execution risks, decentralized finance still trails behind its traditional counterpart in many aspects.

For one, DeFi is still largely unregulated, which, amongst other things, means that users of decentralized financial products aren’t subject to the various consumer protection laws and remain unprotected in cases of protocol failures, theft, hacks, and other exploits. Furthermore, even though the industry is growing at an unprecedented pace, in terms of sheer size, it’s still only a drop in the ocean compared to legacy markets.

The traditional market has a century of first-mover advantage. Consequently, it completely eclipses DeFi in terms of market size and user base; it’s significantly safer, more well-regulated, and more developed in terms of the financial products it offers. With regards to size, the fiat currency or the foreign exchange market alone accounts for $6.6 trillion in trading volume a day, which is 3,000 (three thousand) times higher than the volume of the cryptocurrency market.

The orders of magnitude higher liquidity opens up a world of profit opportunities that remain inaccessible to investors and traders in smaller markets. Which brings us to our ultimate point: wouldn’t it be nice if one could capitalize on the profit opportunities currently exclusive to the legacy markets without losing exposure to crypto?

Enter: Hybrid Finance (HyFi)

To answer the above question: yes, it would not only be nice, but it would also be revolutionary, which is why Gain DAO is pioneering a new financial paradigm we’re hereby calling Hybrid Finance or HyFi.

Hybrid finance seeks to combine the best of both words — the inclusivity, openness, transparency, and fast-paced innovation of decentralized finance with the safety, stability, and the full scope of opportunities made possible by the sheer size and sophistication of traditional finance.

Hybrid finance fills the currently wide-open gap between centralized and decentralized finance by allowing users to access and profit from the opportunities presented on the traditional markets without ever needing to exit the cryptosphere. HyFi overcomes the cumbersome barriers to entry into the traditional financial system while simultaneously minimizing operational, custody, and regulatory risks.

The key value proposition of HyFi is circumventing the bottlenecks of decentralized finance by leveraging the scale and maturity of traditional finance’s infrastructure, all the while guaranteeing users full custody over their uncensorable cryptocurrency funds.

For example, the first bottleneck traders on crypto markets face is scalability. Due to the immaturity and relatively small size of the crypto market as a whole, the market is simply too thin to allow for scaling of trading strategies from smaller to larger scale without immediately running into liquidity issues.

On decentralized exchanges, in particular, this problem is further accentuated by the fragmentation of the available liquidity pools for the same token pairs between many different exchanges, which effectively makes it impossible to trade with large volumes without incurring significant losses due to slippage. To make things worse, all trading on decentralized exchanges occurs on-chain, which means that besides the regular exchange fees, every trade is subject to very high gas or protocol/network transaction fees.

The second equally severe bottleneck crypto traders face has to do with the immaturity of the cryptocurrency market. Because the crypto market is barely a decade old, there’s a lack of high-quality historical data that traders can use to properly model and construct algorithmic trading strategies. What may work for a crypto trading bot today does not necessarily translate into a high probability of future success because of insufficient historical data to properly vet the trading strategy’s robustness.

When we combine the issues above, we quickly realize that, for funds and high-net-worth individuals or so-called whales, it’s impractical to trade high volumes on the cryptocurrency markets, which is a non-issue on the traditional markets. The traditional foreign exchange markets offer deep liquidity, superior trading venues and infrastructure, and decades’ worth of high-quality historical data, which professional traders can leverage to employ profitable algorithmic trading strategies at a considerable scale.

This is where the concept of hybrid finance shines.

HyFi opens up a new world of possibilities for individuals seeking alpha in their trading and investment endeavors by effectively porting the liquidity of TradFi to DeFi. And the possibilities here are endless — Gain DAO, in particular, is building a hybrid financial product that will enable users to grow their Ethereum holdings through profits made by algorithmic trading strategies employed on the global foreign exchange market.

Loosely translated in language crypto natives will understand, this means that Gain DAO users will be able to “farm” the foreign exchange market using their Ether-collateralized GAIN tokens.

The precise mechanism as to how this will work behind the curtains is thoroughly explained in our whitepaper, but the point being here is that Gain DAO users will able to retain their exposure to the potential appreciation of the underlying collateral (Ether) while also passively profiting from trading opportunities presented on the traditional markets.

The idea here is simple — Hybrid Finance is merging two previously unbridged worlds, bringing the best of them out in the open for everyone to access and capitalize on.

With Gain DAO at the forefront of the Hybrid Finance revolution, a new world of opportunities is opening for retail and institutional investors all around the world.

About Gain DAO

Gain is an Ether-based pool, powered by machine learning optimized trading algorithms operating in traditional financial markets. Gain serves as a bridge between centralized and decentralized financial systems, leveraging the strengths of each to provide an attractive alternative to current DeFi investment vehicles.
As a GAIN token holder, one can benefit not only from the possible appreciation of the underlying base asset (Ether) but also from algorithmic trading strategies intended to grow the amount of Ether in the Gain Pool.

To learn more about Gain DAO and how we are pioneering HyFi, visit the links below and join our community on Telegram or Discord.