DeFi 2.0 with More Innovative Incentive Mechanism| SnapFingers Weekly #14

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📂 Key Takeaways of the Week

• DeFi 2.0 with more innovative incentive mechanism and higher composability; Olympus DAO is one of the most eye-catching protocols applying DeFi 2.0.
• Vitalik talks DAOs, Ethereum and NFTs in his recent interview: “I think DAOs are definitely going to be more important over time… In terms of what’s still missing from the DAO space, I don’t think there’s any one big thing, but more a lot of little things.
• Summary of Coopahtroopa’s article DAO Landscape.

📂 №1 Potential areas

What is DeFi 2.0

The concept of DeFi 2.0 came into being as a result of the outrageous growth of some DeFi project. As is known to all, typical DeFi 1.0 projects include MakerDAO, Compound, Aave, Uniswap, Sushiswap and yearn.finance. Based on the settings from the traditional financial market, DeFi 1.0 implements the following:

• Central banks of a decentralized financial world (e.g. MakerDAO)
• Commercial banks (e.g. currency markets Aave and Compound)
• Non-bank financial institutions (e.g. trading platform Uniswap and aggregator Yearn.finance)

The development of DeFi has been carried out in the following two dimensions:

• Unleash the potential of credit from over-collateralization to income document (such as cToken for Compound), LP Token, to synthetic assets (such as the synthetic assets sToken on Synthetix) step by step.
• Improve the capital efficiency. Provide different kinds of products according to long-term management and risk appetite of the users and reducing mortgage rate by setting up tiered interest rate and credit lending.

Without going astray from the two dimension, the typical case of DeFi 2.0, Abracadabra (governance tokens $SPELL) and the pairing of Alchemix and MakerDAO where the locked assets can have liquidity. Through LP Token mortgage, the locked assets can regain liquidity. In other words, the credit value of LP Token can be unlocked and the capital utilization will be improved. In addition, the reason why DeFi 2.0 becomes popular is its higher composability and more encrypted organization and governance construction. Models supporting LP token mortgage, fixed interest rates and stablecoin have always been in the market. However, the challenge lies in how to build a perfect incentive model. For instance, AMM model has been created long before, but the reason why DeFi kicked off is the liquidity mining.

DeFi 2.0 Feature 1: Innovative incentive mechanism

Olympus DAO is the most eye-catching protocol applying DeFi 2.0, creating a new type of stablecoin which gives up the peg to the USD. Its stablecoin mechanism has been frequently mentioned in the previous SnapFingers Weekly. To put it more simply:

• Each DAI owned by the Ministry of Finance can only issue 1 OHM.
• If the price of OHM is lower than 1 DAI, DAO will buy back and burn OHM.
• If the OHM price is higher than 1 DAI, 1 OHM is purchased through the bond mechanism, and the part exceeding 1 DAI is allocated to the pledge contract and DAO.

For example, the current price of OHM is 901 U.S. dollars, and Alice buys 1 OHM with 901 DAI through the bond mechanism. At this time, the agreement receives 901 DAI and mints 901 OHM, one of which is given to Alice, 810 OHM (900*90% ) Enter the pledge contract, and the remaining 90 OHM (900*10%) are stored in the DAO.

Another bond mechanism is to purchase the LP token of the Sushiswap OHM-DAI trading pool at a discount. This mechanism ensures the liquidity of the market while keeping the liquidity in the hands of the DAO itself. The current agreement holds up to 99.90% of the liquidity.

• Users who participate in OHM pledge will get 90% of the profit of the agreement. This mechanism encourages OHM holders to not only purchase OHM, but also pledge and continue to hold OHM. The current OHM pledge rate is as high as 91.4%.

Without attracting liquidity for the protocol through liquidity mining, OlympusDAO applies protocol controlled value and its innovative lending mechanism, which overthrows the traditional DeFi liquidity model. The higher the price of OHM, the more DAI entering the pledge contract, and the more returns for pledging OHM, which supports the price of OHM that is way higher than 1 DAI. By over-issuing to create high staking APY and constant game, the OHM price approaches the total value of the assets in the treasury.

The treasury of OlympusDAO is worth $447 million by market capitalization, where risk-free assets worth over $117 million. According to the statistics of the treasury balance, the APY on pledge can last for half a year.

The incentive model of OlympusDAO and the strategy of fully control of its own liquidity are a masterpiece of incentive design. — Three Body Capital

DeFi 2.0 Feature 2: High composability

There are currently five DeFi agreements in cooperation with Olympus Pro: Abracadabra, Alchemix, Float, Pendle and StakeDAO. They are the starting point for each other and promote each other to build an ecosystem.

• $TIME: Olympus’s imitation of Wonderland’s platform token on Avalanche, and Wonderland ranks 10th in Avalanche’s TVL volume.
• $OHM: The stable currency of Olympus DAO.
• $MIM: Abracadabra’s stablecoin Magic Internet Money (MIM), with a circulation of nearly 1.5 billion U.S. dollars. The LP Token of the OHM-DAI liquidity pool can be mortgaged in Abracadabra to lend out MIM.
• $SPELL: Abracadabra stablecoin pool (MIM-DAI\USDT\USDC) liquidity incentive token.
• $ICE: IRON Finance’s governance token.

-Projects featuring DeFi 2.0

If we consider the high composability as a symbolic feature of DeFi 2.0, we can identify multiple projects such as:

• Based on YFI, Alchemix, a stablecoin and borrowing protocol in partnership with Olympus, unlocks the liquidity of yDAI and minted its stablecoin called alUSD.
• Tokemak serves as a liquidity router between different decentralized exchange platforms and protocols, making the liquidity flow.
• Built on Opyn, Ribbon liberalizes the access to futures products and allows users to yield returns by depositing in the asset pool according to their expectation for the future market.

If we take a closer look at the hottest protocol Olympus, Abracadabra, we can conclude that they both innovate in their incentive mechanism. So what differentiates a project featuring DeFi 2.0 is the innovation in incentive mechanism.

-Risk

There always comes with greater risks for new model and protocols. The price of Olympus token OHM firstly soared and then swiftly plummeted, manifesting a high volatility. As for the token distribution of Spell, the holding of its own team takes up 30% and 50% of its position is unlocked in the first year. Therefore, investors should control the risks when dealing with new concepts and raise the awareness of risks when participating in anonymous projects.

Olympus: A masterclass in incentive design - Three Body Capital

📂 №2 Potential areas

The DAO Landscape

Vitalik talks DAOs, Ethereum and NFTs in his recent interview

“I think DAOs are definitely going to be more important over time… In terms of what’s still missing from the DAO space, I don’t think there’s any one big thing, but more a lot of little things. When will be the first time a DAO decides to make a strategy pivot, or when will two DAOs decide to merge? It’s the ability to make big decisions and not just continue incrementally on the same path, that’s something I think we’ll see soon.”

According to Coopahtroopa’s article DAO Landscape:

The DAO’s operating system: DAO Operating Systems make it easy for anyone to start a DAO with limited technical skills, offering different templates, frameworks and tools for communities to pool resources and start their first DAO.

Tools include:

Snapshot — Off-chain voting platform for easy token-based governance.

Gnosis Safe — Multisig wallets commonly used to manage community treasuries.

Tally — Governance dashboard to track on-chain voting history across different protocols.

Boardroom — Governance hub for tokenholder management to empower key decision making.

2.1 Types of DAO:

2.1.1 Grants DAO

Use a DAO to vote on how that capital is allocated to various contributors in the form of governance proposals.

2.1.2 Protocol DAO

Protocol DAOs transition power from a core team into the hands of the community, spawning a new way for projects to issue fungible tokens into the market.

These tokens are commonly used to govern protocols, meaning tokenholders have the sole authority to propose, vote on and implement changes to the underlying mechanics of the network.

Uniswap is a great example of the Protocol DAO.

2.1.3 Service DAO

Service DAO explores the future of work in the crypto native world.

Service DAOs are talent allocators, using on-chain credentials to funnel and allocate resources from one DAO to another.

Service DAOs create decentralized working groups for individuals to work for the open internet — essentially acting as crypto-native talent agencies.

2.1.4 Social DAO

Social DAOs focus on social capital over financial capital. Social DAOs are the natural evolution of group chats, where friends become co-workers.

Bankless is a great example of the Social DAO. Currently, 13 guilds have been established, corresponding to different talent pools such as writers, developers, analytics etc. Every guild is like a department, with its own expertise, hoping to create around a shared mission.

2.1.5 Collectors DAO

Collector DAOs seek to curate which NFTs have long-term value. FlamingoDAO is a great example of the Collectors DAO.

2.1.6 Media DAO

Media DAOs give the power of the narrative ownership back to those who consume the content. Media DAOs turn consumption into a two-way street.

According to the DAO survey report jointly issued by Gitcoin and Bankless, the five most popular DAOs are Bankless, Gitcoin, Index Coop, DAOSquare, dOrg and the five most popular tools are Snapshot, Gnosis Safe, Compound, DAOStack and Aragon.

DAO Landscape - Mirror

SnapFingers compiled the top recent headlines, 50 in total.

📂 №1 Market Data

#Integrity #Market Value #Lock-up Value #Hash Power

• On October 16, the total market value of cryptocurrencies topped $2.6 trillion, hitting an all-time high.
• On October 13, DeFi’s total lock-up value exceeded $200 billion, and the current total lock-up value is $220.7 billion (October 19), with Curve ranking first, Aave and MakerDAO second and third.
• Data from Cambridge University’s Center for Alternative Finance (CCAF) shows that by the end of August, bitcoin hash power in the United States has reached 35.4% of the total network, more than double from 16.8% at the end of April, followed by Kazakhstan and Russia.

#ETF #Crypto Fund

• ProShares’ Bitcoin futures ETF BITO was approved by the SEC for issuance and will be launched on the New York Stock Exchange on Tuesday. It is the first product listed in the United States among a series of Bitcoin futures-based ETFs.
• Valkyrie Bitcoin Strategy ETF has been approved for listing and registration on NASDAQ and has been submitted to the US SEC for approval.
• Grayscale confirmed that it plans to apply to convert its BTC Trust into a spot ETF.
• Bitwise applied to the SEC to launch an ETP trust based on physical bitcoin.
• Ark Investment plans to cooperate with 21Shares, a cryptocurrency ETP issuer, to launch futures-based Bitcoin ETFs.
• Australian trading fund provider BetaShares will list cryptocurrency-related ETFs on ASX. The ETF aims to track the Bitwise Crypto Industry Innovator Index, which may include Coinbase (COIN), Riot Blockchain (RIOT), MicroStrategy (MSTR).
• Asset manager Jacobi will launch a physically-backed Bitcoin ETF with plans to list on Cboe Europe, one of Europe’s largest pan-European stock exchanges, having received regulatory approval in Guernsey pending further approval from the UK’s Financial Conduct Authority.
• Subversive Capital, a US venture capital company, has applied for the registration of Metaverse ETF, and will invest in the securities of global listed companies that provide products and services to Metaverse.
• Crypto fund inflows totaled $226 million in the first week of October, according to CoinShares Research, with the vast majority of net inflows coming from bitcoin funds, which totaled $66.715 billion, the all-time high of $67 billion.

*CoinShares statistical range includes Grayscale, CoinShares XBT, CoinShares Physical, 3iQ, 21Shares, Purpose, ETC Group, Bitwise, and other cryptocurrency funds.

📂 №2 Project Developments

#Ethereum

• Ethereum core developer Tim Beiko said that it is expected that the code required for the merger (The Merge) may be ready in February next year, and the Ethereum PoS merger will be completed in June.

#Layer2

• Matter Labs announced the launch of UniSync, the first migrated zksync 2.0 test application, which marks that zkEVM has achieved full compatibility with Solidity, and existing Ethereum applications will be able to seamlessly migrate to the zksync 2.0 Layer 2 network.
• Offchain Labs announced that it will release Arbitrum Nitro, which is compatible with EVM. Compared with the current version, the execution speed will be increased by 20–50 times, and the cost will be greatly reduced.

#DeFi

• dYdX has accumulated over $100 billion in volume, with close to $1 billion in lock-up value on October 18.
• Algorithmic stablecoin protocol OlympusDAO will launch the V2 version and initiate on-chain governance.
• MetaMask’s cumulative gains in 2021 reach $168 million, according to dune.xyz (Oct. 18). MetaMask Swaps ranked seventh in the use of burning ETH.

#NFT

• MekaVerse, an 8,888-character Ethereum NFT series that launched On Thursday, didn’t actually release all of the actual NFT imagery, but investors were also enthusiastic. Beeple also created meka-Boner on the same theme on launch day, as if to build momentum for the project
• AR Metaverse platform OVR plans to release the first version of the game engine OVR Unity plug-in in the coming weeks, enabling developers to create complex games on the AR Metaverse.
• Hashmasks will launch its second art collection series “The Greats” on October 18.
• NFT + DeFi platform CryptoVerified deployed on BSC is conducting IFO on BurgerSwap.

#Web3.0 Application

• Mirror opens the rest of the Web3 tool component to everyone, all of the Web3 tool components are currently available, That includes Publishing, Crowdfunds, NFT Editions, Sales Revenue Sharing, Token Race, and Auctions. Anyone can access their wallet and start building Web3 projects.

#Ecological incentives

• Binance launched a $1 billion cryptocurrency growth fund to support the Binance Smart Chain. About half of the funds will be invested in games, virtual reality, and blockchain-based financial services.

📂 №3 CeFi/Large Corporations

#Service Providers

• FTX.US has launched “FTX NFTs”, the Solana-based NFT trading market, which allows users to trade, mint, auction, and authenticate Solana-based NFTs, and will soon support NFTs on Ethereum.
• Coinbase announced that it will launch its NFT platform soon. Over 1 million users applied for the waiting list on the first day.
• CriptoLoja, the first approved crypto exchange in Portugal, has launched the cryptocurrency trading service that can support to purchase 94 cryptocurrencies in Euro.
• The lightning network payment platform Strike launched the “Pay Me In Bitcoin” function in the United States, which can automatically help users to convert wages into Bitcoin for free.

#Blockchain +#NFT+

• Fox enters NFT marketplace with “MaskVerse” based on “The Masked Singer” and will mint it on Eluvio.
• ViacomCBS, the third-largest media company in the United States, will cooperate with RECUR to launch a fan-centric NFT platform.

#Financing #M&A #Going Public

• Bakkt and VIH completed the merger with a combined valuation of 2.1 billion U.S. dollars. They began trading on the New York Stock Exchange on October 18, and fell 7% on the first trading day.
• The lending platform Celsius, completed a $400m financing, led by WestCap and CDPQ.
• According to the Financial Times, ConsenSys is conducting a new round of financing at a valuation of US$3 billion.
• Fintech company Tala completed a US$145m E round of financing, led by Upstart. *Tala announced its cooperation with Visa and Circle in May this year, allowing Tala users to send, receive and hold stablecoins.
• MoonPay, the encrypted payment application, is raising US$500 million at a valuation of US$3.4 billion.
• India’s short video sharing platform Chingari completed a $19 million financing, with Alameda Research and others participating in the investment. Chingari plans to issue GARI tokens on the Solana blockchain.
• The investment application Plum received US$14 million in Series A financing and plans to launch products in 2022.

#Mining Enterprise

• Cipher Mining, a listed US mining company, has signed an agreement with Bitfury to purchase about 28,000–56,000 Bitcoin mining machines, which will increase its computing power by 50% by then.
• Bitcoin mining company BitFury plans to go public in the next 12 months, with a valuation of several billion pounds.

📂 №4 Project Financing

#Metaverse #Game

• Immersive music experience startup Stage11 just closed a €5 million seed round led by Otium Capital, a European venture capital fund.
• Metaverse Game “DeHorizon” Closes $8.5M Pre-A Round Led By Sfermion, Dragonfly Capital and Everest Ventures Group.
• Treeverse, the browser-based Metaverse gaming platform, recently raised $25M in funds from IdeoCo Labs, Animoca Brands, Skyvision Capital and Stani Kulechove.
• Multi-blockchain NFT game Blockchain Monster Hunt Raises 3.8M USD in the first funding round.
• Laguna Games announced a $5 million see round to make make its blockchain-based game, Crypto Unicorns. The seed round was led by by Bitkraft Ventures and Delphi Digital.
• Highstreet has raised a second seed investment led by Binance Labs and Animoca Brands to supercharge its commerce-focused Metaverse.

#Scaling #DeFi

• Aurora, an Ethereum Virtual Machine (EVM) for scaling decentralized applications on NEAR, recently closed its first private round of funding by raising a total of $12M. Over 100 investors took part in Aurora’s funding round including Pantera, Dragonfly etc.
• Futureswap has raised $12 million in a new funding round. [Oct 14th news: Futureswap V4 Mainnet Beta Launch!]

#Data

• The blockchain intelligence firm Elliptic announced the company has raised $60 million in a Series C financing round.

#Crypto Funds

• Republic Capital, the private venture arm of crowd equity platform Republic, launched a $60 million seed fund. The new fund has already deployed around $11 to $12 million to companies that include video game Star Atlas, TikTok competitor Chingari, and a “handful” of other companies.
• Bella Foundation launches $20M venture fund to scale Bella Ecosystem。
• Tribe Capital, a venture capital firm with investments in crypto exchanges FTX and Kraken and other companies in the crypto sector, is launching a $75 million crypto fund.
• Paradigm onboards new partner amid $1.5 billion raise.

📂 №5 Security

• Crypto firms Tether, Bitfinex to pay $42.5 mln to settle U.S. (U.S. Commodity Futures Trading Commission) CFTC charges.
• A hacker ran off with $16 million from DeFi project Indexed Finance.

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