DeFi Battle

VeradiVerdict - Issue #104

Earlier this year, Compound launched their token and the concept of farming emerged where users could provide liquidity and in return receive yield, usually in the form of a new platform’s token. The purpose of a new platform providing yield is to draw in new users and hopefully engaged and retain them through the product, use case, and further rewards/incentives. Ampleforth was one of the earliest projects post-Compound to offer liquidity rewards through Uniswap and their geyser.

Soon after, forks of well known projects started to emerge. Since most of the code of decentralized projects are open-sourced, a fork is when the code is replicated under a new brand with the intention of taking the product in another direction and/or changing the economics/cap table. It started with SushiSwap forking Uniswap, Swerve forking Curve, and Cream forking Compound and Balancer. The forks usually siphon liquidity from the incumbents, but as we’ve seen when Uniswap launched their token, the team, product, and trust are still very much important to users. Once the initial rewards have ended for these forks, the incumbents have ended up with a generous increase in liquidity and benefit.

The problem is how to engage users past the initial rewards period?

One strategy that has been emerging is to distribute rewards to users not right a way but through a vesting schedule, say daily over the next 6 months. Another trend is that we’ve seen a wave of new projects emerge in the NFT (non-fungible token) and gaming space. An NFT is a cryptographic token which represents something unique, like cryptokitties. Both NFTs and gaming are hoping to keep users engage through the product to either hold or use the platform’s tokens, thus preventing liquidity from leaving and the dumping of tokens/price.

One neat game that folks have come across recently is Yield Wars. It starts off like any other new platform giving users an opportunity to provide liquidity for certain tokens to get yield (in WAR tokens) in return. If you don’t provide liquidity for yield (aka farming), you can also just buy the token on Uniswap. Once you have the token, you can stake WAR tokens in an ETH/WAR pool on Uniswap for ~2200% APY or you can stake your WAR tokens in a battle for daily rewards.

How do Battles work?

Battles occur daily and start at 9AM PDT and end at 8AM PDT the next day. Your task is to choose the winning token army for each of the two matches based on how many votes they will garner from voters who have also staked their tokens for battle.

For each Battle, the winning team takes 50% of the losing team’s yield. There is a daily pool of rewards and they are distributed pro-rata and based on whether you won or lost. You can only vote once per day and the earlier you vote in the battle, the greater the rewards. Currently, the rewards APY is at ~2000% but really depends on the factors above. The WAR token is going to help further decentralized the platform as users can vote for different teams and shape the direction of the product. You can read more about this from their medium post.

I think we are going to see more platforms mixing gaming and liquidity mining. It’ll be fun to play and watch if these platforms can retain users and create sustainable economic models. Nevertheless, it’s progress from the earlier models of farming and shows that both entrepreneurs and users are getting smarter and adapting.

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Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. The firm invests in equity, pre-auction ICOs, and cryptocurrencies on the secondary markets. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.