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DeFi and FeeFi (Fee Financing)

Hello, everyone. It’s Team Protocon.

Did you enjoy the last episode [Introducing: Fee Model, Fee Financing (FeeFi)]?

Before starting this episode, if you haven’t read the last episode, please check the link above. Today, we’re going to talk about the most distinct strengths of Protocon, FeeFi, together with the traditional DeFi.

TVL in DeFi

If you’re interested in blockchain, you probably know that DeFi has recently emerged as a very hot topic. DeFi, which first appeared in 2017, has attracted attention since June last year being called the “second ICO boom” and received great attention from the blockchain industry in 2020. In January 2020, the locked value rose from 933.96 million to 16.553 billion in less than a year, the highest ever. This shows the potential for the growth of the DeFi service.

Then why on earth are people so enthusiastic about the DeFi?

According to Coindesk, DeFi is short for “decentralized finance,” an umbrella term for a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries. DeFi can be utilized in many areas, including the following areas:

1. Lending

2. Derivatives

3. DEX

4. Assets

5. Payments

However, if you look at the data below, you can see that about half of the cryptocurrency assets are deposited in lending services, and the second largest portion of cryptocurrency is used for trading.

DeFi TVL by Category

Let’s look at two of the most used areas: lending and trading(DEX).

DeFi Lending

For example, a bank provides a service where you deposit money and receive interest in return. However, the money deposited in the bank is owned by the bank and cannot be used. However, if you use DeFi lending, you can get cash and invest in another place without selling cryptocurrency.

Initial trading (DEX) had to wait until all transactions were confirmed and pay transaction fees for all actions necessary for purchasing, selling, etc. To address this liquidity problem, an automated market maker mechanism has emerged. This means the AMM method, which creates liquidity pools that automatically exchanges more than one type of cryptocurrency, deviating from the way buyers and sellers used to trade 1:1 previously. As the name of the mechanism suggests, cryptocurrency holders that supply liquidity are called market makers. Liquidity providers are actively involved in stabilizing cryptocurrency prices and receive a certain percentage of fees in return for providing liquidity.

Examples of DEX services using this AMM protocol include Uniswap, Sushiswap, and Kyber Network, and ProconNet will also offer an automated exchange called FeeFi DEX.

There are three main stakeholders in FeeFi DEX.

FeeFi Stakeholders

First, when using dApp service, users can use the service with dApp tokens without having to obtain PEN tokens, the mainnet token, for paying fees. This provides convenience to users as if they can exchange money anytime, anywhere to enjoy overseas travel.

Second, liquidity providers form a pool of PEN liquidity by depositing their own PEN tokens. Rewards for liquidity supply through PEN staking are given. You will receive dApp tokens exchanged at a much lower price than the PEN token you deposited. In addition, like monthly installment savings, you can receive a PEN token according to the amount of your PEN deposit whenever a new block is created on the mainnet.

Third, with the help of liquidity providers, mainnet fees remain stable. The benefits of a fixed mainnet fee go straight to your dApp service provider. The dApp service providers price the dApp by adding the dApp service fee to the mainnet fee, as if they were selling it with a margin. Because the volatility of the mainnet fee, which is equivalent to the cost, is not high, it can prevent overpricing of the service standard price. Since the liquidity providers become dApp token holders through deposits, dApp service providers can increase the pool of dApp token holders in the early stage of dApp service and bring them into the dApp service. This allows dApp service providers to benefit from user inflows and reduced marketing costs.

ProtoconNet will build a token economy where liquidity providers, dApp service users and dApp service providers coexist. If you want to be part of the ProtoconNet Token Economy, please watch the next content with interest. See you in the next episode via FeeFi DEX!

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