As DeFi evolves, more complex ways for protocols to capture value are emerging. Decentralized finance is trustless, meaning it must function without tampering or third party overseers. With the advent of automated market makers, liquidity mining and other tools of DeFi that provide yield, value in crypto is continually being leveraged and distilled.
Bonded.Finance has set out to unlock an estimated 100bn plus in dormant capital residing in altcoins via Bonded’s suite of “smart instruments.” The dormant value identified resides in less established altcoins who do not have access to the same lending and borrowing tools afforded to larger cap or often simply better known tokens.
What Bonded aims to do is to tackle a difficult problem and that is – how to generate yield from tokens without existing oracle price feeds, volume history and the liquidity of their more established brethren. Via algorithmically determined interest rates and some proprietary advanced modeling formulas, hence “smart instruments,” Bonded’s aspires to bundle these assets and collectively aggregate their value in order to generate returns.
Liquidity Provision
To date, providing liquidity to automated marketing makers (“AMM”) and collateral for lending protocols are the simplest ways to earn returns in DeFi. Liquidity helps provide AMM functionality, which in turn pays fees based on volume and performance.
Providing liquidity requires a user to deposit equal value of two assets that comprise a trading pair into a pooled basket. Users that provide liquidity to the protocol, earn fees from the trades in participating pools. AMMs incentivize providers in order to ensure low-slippage trades for users. As pricing is determined by an algorithm, it calculates the ratio changes between the tokens in the liquidity pool after a trade and rebalances to maintain equal value.
Lending Protocols
Lending protocols generate returns through the lending and borrowing of assets. These can be very straight forward and grow more complex where “flash loans,” for example, can be used for arbitrage opportunities but must be paid back before the next block is mined. These instant, uncollateralized loans require participants to take a loan, deploy the funds and repay the loan, including interest, in a single transaction. Should these conditions fail to be met, the transaction is reversed, creating a risk free profile. Should a borrower fail to repay the loan, the transaction never executes.
Bonded Finance innovation here in lending is not to reinvent the lending/borrowing space but to create markets for alternative tokens where none previously existed. As users access the network, the forthcoming more exotic products and network benefits come to the fore. Given how few markets currently exist and the continual flow of new projects into the market, there is virtually unlimited potential here.
Synthetics
Synthetic assets are becoming popularized for platforms focused on derivatives. In this case, synthetic assets are minted against equal value alternatives, so the underlying asset itself does not have to be present. This allows users to trade innumerable assets in a single trading environment.
Through synthetic assets, users can gain tangible exposure to various asset classes such as fiat currencies, stablecoins, index funds, and other digitized assets, e.g. synthetic oil, without having to hold them.
NFTs
NFTs have made headlines and the notion of limited-supply digital art is obviously new but in traditional markets, rarefied collectibles have become proven stores of value. With the only inherent value being possession of the asset, ways to leverage it are now being explored.
NFT holders looking to leverage the value of an NFT can collateralize it with platforms like CryptoPunks and Crypto art. Calculating the value of an NFT to determine what can be borrowed against it is far more art than science at this point with great potential for manipulation. It is a market that will eventually blossom but needs time to mature.
For Beginners
While innovative versions of core DeFi protocols are continually being released, there are innumerable ways to leverage funds easily with minimal risk of liquidation.
Simple ways of capturing value exist, with airdrops, network benefits and single-sided staking offering ease-of-use for novices as well as those seeking a simple solution. For example:
With continued usage and the number of options growing, DeFi platforms are now having to improve upon existing products, solve outstanding issues or simply incentivise better in order to retain locked value. For altcoin investors, the benefits are twofold- earning and token price appreciation. Incentives to sell are lessened with each new earning opportunity and further allows holders to leverage their long holds.
For more information on Bonded.Finance, check out their Twitter and Website and join their community on Telegram.
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