HaloDAO: An Overview
Stablecoins and the Growth of Decentralized Finance
In the past four years, we have seen the adoption and creation of decentralized finance (DeFi) protocols accelerate at a rapid pace — particularly since the Spring of 2020. This is largely thanks to the creation of new use cases on the blockchain, including but not limited to yield farming, the non-fungible tokens (NFT) market and the booming gaming metaverse. Alongside all of this demand, there had to be a backstop of new liquidity on-chain and on exchanges to transact — that’s where stablecoins came in.
Since April 2020, we have seen an increase in the total stablecoin supply from $10b to over $100b in circulation. This rise was mainly led by USDT and USDC, two asset-backed stablecoins pegged to the USD. These stablecoins grew the fastest because they are directly backed by and easily minted off of real world fiat, of which the world has $130 trillion in circulating supply.
As more and more people around the world have begun investing in DeFi, NFTs and the gaming metaverse on a regular basis, there is now a pressing need for more asset-backed stablecoins pegged to local currencies — not just the USD. This is especially true when you consider the developing regulatory environment in the US which may not be as friendly to cryptocurrency users as it has been in the past.
The ideal user experience within DeFi is one in which an individual can easily manage and track the current and projected future value of their investment in their own local stablecoin, with the ability to seamlessly convert to and from fiat.
HaloDAO accomplishes this task in two steps:
- Increasing the available liquidity for various asset-backed stablecoins, beginning with Asian local stablecoins such as XSGD and THKD.
- The second step is that which sets HaloDAO’s ecosystem strategy apart from many of its competitors — the provision of on-off ramps for the conversion of local currencies into local stablecoins and vice versa.
This combination enables the user to have complete control of the local currency that their cryptocurrency portfolio is composed of, and gives them the ability to immediately add or subtract from that amount in that very currency. This is an important tool not only for those generating yield from liquidity provision, but for any instance of e-commerce that could be performed on the blockchain once the liquidity for these local stablecoins is made available by HaloDAO and the other products we have planned for the future.
Decentralization and the Purpose of a DAO
A decentralized autonomous organization (DAO) is a system created by a group of collaborators within which participants can coordinate and maintain a personal stake in a protocol. DAOs usually begin as a team with a common goal, but can quickly grow into a massive community with dedicated members as its core products gain adoption.
HaloDAO is a Decentralized Finance Protocol built upon open source blockchain technology and available open source money legos to build fiat-backed stablecoin liquidity networks. With this technology, our protocol utilizes smart contracts to program assets in the form of tokens that store value. This enables our protocol to self-execute complex financial transactions based on inputs provided by signers so as to generate outputs upon the fulfillment of predefined conditions on-chain.
For DeFi use cases, given that different assets can be deployed to generate profit, the Protocol provides yield to liquidity providers using its Governance token as a common denominator. This token has a price; based on its emission schedule and the rewards allocated to each pool, market actors can determine the Annual Percentage Yield that their liquidity can generate. Token holders collectively organize themselves as a DAO to make decisions for the Protocol. We will describe this in more detail shortly, but first…
… let’s compare this business model to that of a Traditional Financial Institution.
The operational principles are similar. Both TradFi Institutions and DeFi Protocols accept liquidity from liquidity providers to deploy it on a business case to generate profit, take a cut from profits generated and provide a return on the liquidity provided to liquidity providers.
The first key difference and advantage that a DeFi Protocol has is cost management. In TradFi, assets are managed by networks of people and systems managed by people. The average mid-sized bank has ~10,000 staffers and numerous systems. Compare that to top Protocol teams that manage billions in a scalable manner — team sizes can often be below 20 members in total. This is made possible because no human intervention is required as the smart contracts handle settlement and deployment. High profit margins and low fees can be maintained as significant operational costs have reduced given the smaller team size.
The second key difference and advantage that DeFi Protocols have is the ability to manage different types of assets more efficiently. DeFi Protocols view different forms of liquidity as fundamentally the same. Smart contracts take tokens that are stores of value and perform business cases on a single chain, whereas TradFi institutions tend to use one form of currency for business. This leads to businesses relying on different settlement networks if dealing with different currencies, often with much longer settlement times and increased costs.
Finally, the third difference is that a DeFi Protocol positions itself as decentralized, unlike centralized TradFi institutions. Decentralization means control is in the hands of the community rather than being concentrated in a few. And control exercised by stakeholders of the Protocol can be self-executed and monitored by the community instead of executed in a black box in a centralized institution.
Decentralized governance is accomplished through linear, token balance-based voting. This type of voting considers the amount of a particular protocol token that a user has to assign them a voting power, or weight. In a standard DAO, participants are assigned a weight of 1 vote per 1 token. Whenever the community decides that something about the protocol should be changed, a proposal can be made to our snapshot governance page and it will be voted on by the entire DAO before affecting the protocol.
To see some examples of proposals, check out our snapshot governance page here: 🐰🏛️💻⚖️🐰
It is this decentralization and openness that truly defines the Protocol and stakeholders are aligned with the governance token. This matters more for HaloDAO’s use case as it distinguishes the important complementary roles that DeFi Protocols play in tandem with TradFi institutions.
HaloDAO’s main purpose to develop stablecoin liquidity networks shifts the crypto global narrative from a US-centric model to a global open model where no single country has an outsized influence. With our money market fund products powered by smart contracts, local currency liquidity providers can earn superior yields compared to those provided by traditional fintech institutions.
Regarding liquidity flow, Fiat is collateralized by regulated e-money issuers that perform KYC checks on their customers for on/off ramps, to mint fiat-backed stablecoins that are in self-custody by the depositor. They can then exercise complete control and deploy it in Decentralized DeFi Protocols such as HaloDAO to generate yield. This achieves a balance between regulated on/off ramps to preserve national monetary sovereignty while enabling open global liquidity networks to be built.
We pay our liquidity providers rewards in shares of our Rainbow Pool, xRNBW. This is the vesting pool for our governance token, Rainbow Candies (RNBW), within which users will earn a portion of the fees generated by the protocol. This reward will continue to increase over time as long as the RNBW is not removed from the Rainbow Pool due to our vesting mechanism.
The price of xRNBW after each epoch can be calculated as follows:
In the example above, the user is depositing 20,000 RNBW in the Rainbow Pool at the start of the epoch to receive 20,000 xRNBW, which are worth 20,750 RNBW by the end. That’s 45% annually, and that’s just in the Rainbow Pool — not to mention the rest of the farm!
Here’s the link to the Rainbow Pool page in our dapp: 🍬🌈🍭🌈🍬
AMM & Lending Market
At HaloDAO, we have decided that the best way to incentivize and build asset-backed stablecoin liquidity is by building two foundational DeFi “money legos”:
- Automated Market Maker (AMM) — enabling efficient trades between stablecoins and popular currencies;
- Lending Market — allowing for more capital-efficient lending and borrowing of stablecoins.
The combined effect of launching the two within a single protocol focused on generating liquidity for stablecoins will be the recycling of superfluid capital. This allows a liquidity provider to deposit liquidity into an AMM to earn fees, but also allows that same liquidity provider to deposit the resultant AMM LP tokens as collateral in a lending market and then borrow more stablecoins against that locked up yield bearing collateral. This can effectively double the capital efficiency of every dollar put into HaloDAO!
We will dive into more detail on the AMM and Lending Market in the next two articles — for now make sure to participate in our meme contest and keep your eyes peeled for a very special airdrop announcement!
To keep up to date with HaloDAO Developments, please check out all of our links: 🐰🏠🌈☀️