Boxmining v2

Tag: Decentralized Finance

  • APY vs APR in DeFi: What They Actually Mean for Your Rewards

    APY vs APR in DeFi: What They Actually Mean for Your Rewards

    As savvy investors, it is easy to get carried away by flashy numbers like 1000% staking rewards. But what most beginners overlook is the three little letters standing right next to it: APY or APR.


    Although APY and APR may sound identical, there is a significant difference to the calculations for returns over a period of time. There are also underlying risk factors of certain decentralized finance (DeFi) products with very high return on investment (ROI).


    Therefore, it is crucial that you have a better understanding of the formulas used to generate these two measures as well as what they signify for the potential returns on your crypto investments.

    What is APR?

    APR, which stands for annual percentage rate, is interest you gain from your investment in a year. It is also known as “simple interest” and its formula is straightforward.

    For example, if you stake 10,000 USDT at an APR of 10%, you will earn $1,000 in interest after a year. Your interest is simply calculated by multiplying the principal amount ($10,000) and the APR (10%). In a year, your capital will amount to $11,000, and in two years, it will be $12,000, and so on.

    See also: The Pros and Cons of Stablecoins: Why You Need To Know How They Work

    As such, APR is always quoted as a fixed yearly rate, thus a simpler and more static metric. However, with APY, interest calculations become slightly more complicated with compounding taken into account.

    What is APY?

    APY, short for annual percentage yield, is the annual rate of compound return earned on an investment. The keyword here is “compound.”

    What is Compound Interest?

    Compound interest is not only earning interest on your initial investment, but you are also earning interest on the accrued interests. This effect is called “compounding.”

    A simple scenario would be like this. Let’s say this time you stake 10,000 USDT at an APY of 10% compounded monthly. This means that interest is added to your principal sum each month, and the sum on which you earn interest increases over time. In other words, you will have more money earning interest each month.

    In one year, your capital will amount to $11,047.13, which is $47.13 more in interest by adding the effect of compound interest.

    The Power of Compound Interest

    The aforementioned scenario is an instance of monthly compounding. In fact, there are different compounding periods depending on the institution. Interests can be compounded quarterly, monthly, week, or daily.

    The more frequent the compounding periods, the higher your effective yield is going to be. For example, if your staked 10,000 USDT is compounded daily at 10% APY, then you will earn $11,051.56 in one year, which is $4.43 more than monthly compounding.

    It may not seem like a big difference but the power of compounding is more significant over more extended periods. After five years, you will have earned around $16,500 if compounded, which is $1,500 more than simple interest.

    APY vs APR vs No Invest (Source: DataDrivenInvestor)

    As illustrated in the graph above, the APR line is linear, whereas the APY line is exponential, which is always higher than the linear as time progresses. The principal remains the same if no investment is made.

    You can use an APY calculator to calculate how much you can earn with different compounding periods and different time frames.

    How does APY Work in DeFi?

    The previous section is a simplified example of how compound interest works in general. However, APY investments work differently in DeFi. APYs in the crypto space constantly change due to several factors. As such, as a rule of thumb, the APY shown on DeFi products should be considered as estimates.

    Supply and Demand

    As with any market economy, the law of supply and demand influences the assets’ price. Since interest is generated based on the demand to borrow and trade crypto, market dynamics play a role in determining the rates.

    Since the crypto market is volatile in nature, the APY changes according to the level of demand for trading liquidity of the token. If there is plenty of supply, APY interest rates tend to be lower. Conversely, if the demand is high, the APY usually increases as well.

    Inflation

    Inflation refers to the loss in value of a currency over time. In crypto, inflation is brought about by adding new tokens at a predetermined rate to the blockchain. The rate of inflation affects the staking returns. If the inflation rate exceeds the interest earned on a staked token, then the investor is losing money.

    Different Compounding Periods

    Different projects have specified blockchain protocols which play a part in the calculation of the APY. As a result, compounding periods may vary for each project. For example, some projects compound interest weekly, daily, or even according to the mined block per block cycle. It is important to note that the more frequent the compounding periods, the higher the APY will be.

    Most crypto projects offer shorter compounding periods, with weekly compounding being one of the most popular ones. This is to help potential investors mitigate the effects of price swings in the long run, since crypto prices rise and fall over time. This way investors can do their compounding manually, and calculate their returns within specific time frames, so that they can strategize their entries and exits when engaging in DeFi protocols.

    Comparing APY vs APR Investments

    Although APY seems to be the obvious choice in maximizing ROI, there are also underlying risk factors when it comes to APY investments in general.

    Prevalence of Non-Sustainable APY Projects

    Projects with very high APYs, as high as 1,000% or more, are high risk/high reward investments. This is especially common for newly launched DeFi projects, because the price of a token is highly volatile during its early phase. To keep investors in the ecosystem, the project would provide trading pairs for the token also known as liquidity pools.

    Liquidity pools are one of the products that allow for staking and generating returns for providing liquidity. As such, projects will offer high APYs to offset impermanent loss, which occurs when the ratio of tokens in the liquidity pool is unbalanced. This also incentivizes users to continue providing liquidity instead of selling.

    However, there is a possibility of a dump for the project. Since most DeFi protocol tokens are inflationary in nature, the revenue capacity for the protocol might be insufficient for everyone to share. In other words, if everyone is earning 1,000% APY and the token has no real utility, it then becomes a race for the liquidity providers to see who cashes out first. As a result, this drives the token price and APY down, leaving real users of the protocol with no exit liquidity.

    Distinction of DeFi Product Yields

    Products with a higher APY will not necessarily generate more returns than those with a lower APR. It depends on what the APY and APR mean in relation to the DeFi product.

    Some products advertise the term “APY” referring to the cryptocurrency earned, and not the actual yield in fiat currency. Some beginners often mistake the APY crypto rewards for fiat currency, which blindly clouds their judgement.

    This is a critical distinction to point out because the value of your investment in fiat terms may increase or decrease depending on the volatility of crypto asset prices. Even if you continue to earn high APY in crypto, the value of your investment in fiat terms may still be lower than the initial amount you placed in fiat, should the price of the crypto asset decline.

    Key Takeaway

    APR (annual percentage rate) is interest you gain from your investment in a year. On the other hand, APY (annual percentage yield) is the annual rate of compound return earned on an investment, which means you earn interest on previous interests accrued.

    Although APY is the obvious choice in maximizing ROI, there are also underlying risk factors behind it. Therefore, it is crucial to comprehend how these two measures are determined as well as what it means for the potential returns on your digital investments.

  • How Much Money Has Been Stolen in Crypto throughout History?

    How Much Money Has Been Stolen in Crypto throughout History?

    Is Cryptocurrency Even Safe?

    The potential of blockchain applications is endless. It is based on principles of cryptography, decentralization and consensus, which ensure trust in transactions. It eliminates the need for intermediaries in a wide array of transactions, virtually transforming every corner of the global economy.

    Cryptocurrency, as a result of blockchain technology, gives us total control over our money, thereby becoming our own bank. On paper, crypto is generally safe thanks to the blockchain’s decentralized distributed ledger and the encryption process every transaction undergoes.

    However, the crypto space is still in development, and most of us still have to rely on third-party wallet providers to store our crypto. The security of our fund is only as safe as the safeguards and security measures the provider has in place.

    As crypto evolves, so do hackers and scammers. Malicious actors are getting more creative at exploiting vulnerabilities in blockchain projects, devising new tactics to bypass their security controls.

    How Much Money Has Been Stolen to Date?

    Over the years, hackers have exploited loopholes within the platforms of these third parties, especially on DeFi protocols. They have also coordinated attacks on certain cryptocurrencies directly such as utilizing flash loans to their advantage — borrowing a large amount of funds without collateral to quickly carry out pump-and-dump schemes.

    Crypto Hacks since 2011 (Source: Comparitech)

    To this date, more than $7 billion have been stolen in the crypto space. As crypto prices tend to change, that $7 billion would be worth so much more today. If the hackers were to cash it in today, they would have amassed a fortune worth more than $40 billion!

    This number alone is from exploits and thefts by hackers. It does not include other events such as rug pulls or corporate fraud. Those numbers would be even higher if they are added together.

    Five Largest Crypto Hacks in History

    Comparitech, a pro-consumer website that focuses on cyber security, has managed to track and record all attacks that have happened in the crypto space since 2011.

    There are 365 recorded attacks so far and the five largest hacks make up more than one-third of the stolen $7+ billion:

    Ronin Network (Axie Infinity) – $620 Million Stolen

    Ronin Network is an Ethereum-linked sidechain that powers Axie Infinity, one of the leading blockchain games. On 29 March 2022, Ronin Network was hacked and 173,600 ETH and 255,000 USDC were stolen as a result, worth $620 million at the time.

    See also: The Pros and Cons of Stablecoins: Why You Need To Know How They Work

    The U.S. Treasury Department attributed the hack to Lazarus, a North Korean hacking group. Lazarus reportedly reached out to developers of Axie Infinity via LinkedIn on the pretense of a fake company, offering them an “extremely generous” compensation package.

    A senior engineer took the bait and clicked a PDF which supposedly contained the “offer.” This led to the engineer’s computer being compromised as well as the validator nodes of the Ronin Network.

    Poly Network – $610 Million Stolen

    Poly Network is a cross-chain protocol that implements blockchain interoperability in DeFi. In August 2021, a hacker managed to exploit a vulnerability in Poly Network’s code which enabled them to transfer more than $600 million worth of tokens to their own account.

    Through a series of negotiation, Poly Network pleaded with the hacker to return the stolen funds, calling him “Mr. White Hat.” The platform even offered him a $500,000 bounty and a job as “chief security advisor.” Surprisingly, the hacker returned all of the stolen funds!

    Security experts believe that it was likely the hacker realized it would be impossible to launder the money and cash out, since all transactions are recorded on the blockchain.

    Coincheck – $532 Million Stolen

    Coincheck is a Japanese cryptocurrency exchange and NFT marketplace founded in 2012. In January 2018, its NEM (XEM) tokens worth more than $530 million at the time were stolen and transferred to 11 different addresses.

    Hackers exploited the fact that the tokens were being stored in a “hot wallet”, which was connected to the server. This made it susceptible to phishing attacks.

    Coincheck also did not have a multi-signature security measure in place, which requires more than one person to sign off before funds can be moved. As a result, a single point of failure would be established.

    MT Gox – $470 Million Stolen

    MT Gox was a Japanese Bitcoin exchange founded in 2010, and it was handling over 70% of all Bitcoin transactions worldwide by early 2014.

    It is arguably the most infamous case of crypto hacks in history. It was the first large-scale hack on an exchange and is still the biggest theft of Bitcoin (BTC) from an exchange to this day.

    The attack on MT Gox was not a solitary event. Rather, the exchange had been leaking funds since 2011, until it was discovered in February 2014. During this period, around 100,000 BTC were stolen from the exchange and 750,000 BTC were stolen from the exchange’s customers. At the time, these BTC were both $470 million, but today, they are worth around $4.7 billion!

    MT Gox filed for bankruptcy shortly after the hack. Only 200,000 of the stolen BTC were successfully recovered.

    Wormhole – $326 Million Stolen

    Wormhole is a blockchain bridge between Solana and other top DeFi networks, allowing users to swap Solana tokens (SOL) for other crypto on DApps across the Ethereum network.

    The attack exploited a signature verification vulnerability in the network that allowed the hacker to freely mint 120,000 wrapped ETH (wETH), worth $326 million at the time.

    Cross-chain bridges are critical infrastructure in the DeFi ecosystem as users can move their funds between blockchains. A lot of money is being moved. This means that security is a number one priority for these platforms. However, Wormhole was harshly criticized for its lack of comprehensive security audit before going live.

    According to an article by Hacken, though Solana may be blamed for providing the instrument with security flaws to its projects, Wormhole might have “prevented the incident by auditing the instruments it used.”

    The Bottom Line

    Despite improvements, the crypto industry still faces security concerns, especially in peer-to-peer ecosystems where anybody can join anonymously. It becomes almost impossible to track malicious actors when their identity is hidden.

    New forms of cyber threats are emerging that are capable of causing massive, irreparable damage. And this list will only continue to grow unless there is a solid security measure that is widely established.

    Therefore, it is important to learn about the potential security flaws that are prevalent in third-party platforms like DeFi, crypto wallets and exchanges. As investors, we should recognize the kinds of attacks that hackers pull off so that we can spot and avoid them beforehand.

  • 3 Ways You’re Losing Crypto Without You Knowing!

    3 Ways You’re Losing Crypto Without You Knowing!

    If you think you are safe on the blockchain, think again! You’re constantly being watched, and malicious actors are getting more creative at stealing your precious crypto. Here’s what might be waiting for you.

    Your Crypto and IP Address Are Exposed Interacting on DApps

    Did you know that your personal data including your crypto and IP address are exposed whenever you connect to a DApp? Here’s how it works.

    Your wallet does not actually interact with the blockchain directly. Instead, it can only do that through nodes. A node is one of the computers that run the blockchain’s software to validate and store the entire history of transactions on the network.

    Each time you connect to a DApp, make a transaction or deposit funds to a protocol, the request is sent to a node, which verifies and executes the transactions. These nodes are usually deployed and run by node providers. But what you do NOT know is that node requests are also packed with sensitive information like your IP address, web browser version, and so on.

    Now, of course, these data remain at the node company. They have strict policies not to share the data with a third party. But what if the company gets hacked or acquired by some other company? That is when your personal information is out in the open. Node providers can also ban you from accessing the blockchain entirely via their nodes.

    Crypto Sandwich Attack on Decentralized Exchanges

    Have you ever wondered why you end up paying more for the tokens you buy on certain decentralized exchanges (DEX), only to find out they are worth less afterwards? The truth is, when you trade on DEXes, you are always losing out to bots. Here’s how it works.

    When you execute a trade, a bot front-runs your trade by buying the tokens right before your transaction is mined. This increases the price, making you buy for a higher price and pushing it even further up. Afterwards, the bot profits by selling the tokens after your purchase transaction is mined. This is called the “sandwich attack” because your pending transaction is “sandwiched” between the bots’ orders.

    Each transaction is sent to a public mempool, which is a queue for the transactions that have not been added to a block and are still unconfirmed. It is visible to everyone, and bots, being quick enough, can exploit that. There is nothing much we can do about it because that is just the public nature of blockchains.

    Getting Doxxed by Your Ethereum Name Service Domain

    Showing off your Ethereum Name Service (ENS) domain is cool, but did you know that people can use that to track down your wallet addresses?

    You can check out Unstoppable Domains: Get ready for a censorship immune future on how domain name services work.

    While ENS is a huge step forward in terms of convenience, it also means several steps backward when it comes to privacy. Since most blockchains are open and transparent, anyone can use your ENS to snoop on your finances. It is the difference between sending someone an email and them being able to look at your entire inbox.

    Here’s how it works. You will need a wallet address to register an ENS domain. As a result, each ENS domain has a wallet address attached to it. Even if you do not use your main wallet address to register your ENS, it is easy to trace this address back to your other addresses.

    Let’s look at an example – neutral.eth. At first glance, there isn’t much going on. At first glance, there isn’t much going on, but when digging a little deeper, the Ethereum address that registered the name held 58,000 Ethereum at one point, worth about $15 million at the time. This address regularly received large payments from the crypto exchange Poloniex’s main wallet. And all activities stopped the same day Circle – who owned the Poloniex exchange at the time, got rid of trading fees. This shows it was a company wallet that created neutral.eth.

    Just from an ENS domain alone, you can watch people’s movements, see insights into business deals and know just how much money people really have – all by observing public blockchain data. If your valuable information falls into the wrong hands, there would be a target on your back.

    Are DApps private?

    Certain DApps are run by node providers who can see your personal information such as IP address and web browser version etc.

    What is a Sandwich Attack?

    When you execute a trade, a bot front-runs your trade by buying the tokens right before your transaction is mined. This increases the price, making you buy for a higher price and pushing it even further up. Afterwards, the bot profits by selling the tokens after your purchase transaction is mined.

    Are ENS domains private?

    Since each ENS domain has a wallet address attached to it, it is easy to trace this address back to your other addresses.

  • Top Common Myths About NFTs Debunked

    Top Common Myths About NFTs Debunked

    NFTs have become one of the most exciting trends in the blockchain and cryptocurrency space. With many existing projects and more in the works, crypto enthusiasts now consider NFTs as potentially rewarding and an attractive asset. These specialized assets have generated a lot of media hype, speculation, and commendable value for the greater crypto and blockchain ecosystem. 

    However, many people are still unaware of the specifics which make NFTs work such as minting, applications, and their general significance towards the crypto and traditional sectors. People also don’t know what to make of the trend, and whether or not they should participate in the hype. As popular as they are, NFTs suffer from the effects of many widespread myths and misconceptions, making these assets some of the most misunderstood in the finance and blockchain sector.  

    What are NFTs?

    NFTs (non-fungible tokens) are digital assets with uniquely verifiable qualities contained in their metadata. These tokens function as a popular and effective way to represent traditional or blockchain assets because they are non-fungible, meaning they cannot be freely interchanged in a one-to-one manner, duplicated, or forged. Once created, NFTs are permanently etched on the blockchain’s public ledger and are visible by all nodes on the blockchain. The unique nature of NFTs affords them significant utility across various sectors.  

    While the principle behind NFTs has real-world applications, these assets are still in their infancy. Many people, including crypto enthusiasts, are still only aware of the myths and misconceptions created by mainstream media and do not fully understand these assets which can have huge potential. Here are some of the most widespread myths about NFTs and the truths behind them.

    Click here for our in-depth explainer on what are NFTs.

    Myth #1 – NFTs Are a Kind of Cryptocurrency

    The biggest misconception is that NFTs are a kind of cryptocurrency. Although they are both developed on blockchains, the critical difference is their fungibility. Cryptocurrencies are fungible assets traded only by an asset with the same value. For example, Ethereum’s Ether (ETH) token is only tradable if exchanged for other ETH or another cryptocurrency with the same exact value. On the other hand, each NFT has a unique value and cannot be replaced with another. One Ether is always worth the same as any other Ether, but the same cannot be said about NFTs, making them a digital asset, not a currency.

    Myth #2 – NFTs Are Harmful to the Environment

    Since creators mint NFTs on energy-intensive blockchains, many people think they are harmful to the environment. However, this is not the case. People are now using the more energy-efficient Proof-of-Stake (PoS) blockchain protocol instead of the Proof-of-Work (PoW) protocol, which is more energy-intensive.   

    Click here to learn more about Proof of Work vs Proof of Stake.

    Myth #3 – NFTs Don’t Have Value

    Another common misconception about NFTs is that they do not have any value. On the contrary, am NFT derives true and inherent value from the underlying blockchain technology that enables the ownership, transparency, and security of digital assets.

    The utility of NFTs transcends digital artwork, avatars, and collectibles. For example, certain NFTs offer holders various uses and benefits ranging from VIP concert passes to private dinner reservations. Additionally, NFTs are applicable in the real estate sector to transfer land deeds or verify ownership.

    Myth #4 – NFTs Are Easily Copied and Forged 

    A common issue with digital collectibles is validating their authenticity and rarity, mainly to prevent the sale of counterfeit or pirated items. This is a problem that blockchain technology quickly solves. 

    A blockchain maintains a series of public transactions across different computers or nodes. Each node “witnesses” all transactions to ensure that they are all 100% authentic. With NFTs, the blockchain creates a clear chain of ownership making collectors confident that their NFT is the one-and-only “original,” also ensuring that buyers can verify authenticity before exchanging money.

    Myth #5 – NFTs Encourage Scams and Money Laundering

    Many still commonly believe that blockchain assets are for criminals and tax defaulters. However, cash is still much more utilized for nefarious purposes and crime-driven than cryptocurrencies and NFTs. All transactions on the blockchain are completely transparent and easily trackable if there is a need to detect fraudulent activity. Furthermore, in some cases, it is also possible to recover stolen funds from scams or money laundering. 

    Myth #6 – Buying an NFT Means Owning the Intellectual Property

    This myth is more of a technical misconception. Owning an NFT does not automatically give ownership of the underlying asset or its intellectual property rights. Unless otherwise stated, ownership of the intellectual property stays with the creator of the NFT. Even after the purchase, buyers or collectors do not have the right to use the NFT outside the scope outlined by the creator. Think of it as a collectable book or movie; just because you purchase it doesn’t mean you have the right to reproduce or monetize the intellectual property.

    Myth #7 – NFTs Are Just a Fad

    Like the internet, many people thought NFTs would not catch on or only find applications for illicit activity. Some also believe that these tokens are just hype and will suddenly disappear, leaving many people holding worthless assets. However, given the many possible use cases, NFTs are unlikely to disappear.  

    We can see that NFTs are not dead or just a fad from the launch of video game retailer GameStop’s NFT marketplace. GameStop launched its NFT marketplace on 12th July 2022, ahead of its initial anticipated release after hinting at this for over a year. GameStop has in May 2022 already released its digital asset wallet for users to store, send and receive cryptocurrencies and NFTs in anticipation for this marketplace launch.

    The launch of GameStop’s NFT marketplace also appears to be a success, with trade volumes exceeding US$1mil (over 1,028 ETH) in 24 hours. Commentators on Twitter also suggest that GameStop’s launch was even more successful than that of the Coinbase NFT marketplace, since GameStop’s trade volume in 24 hours was equivalent to 60% of Coinbase NFT marketplace’s entire lifetime sales.

    Conclusion: NFT Myths?

    NFTs are here to stay and are slowly gaining massive traction across the crypto space. Although popularity is on the rise as creators are continuously minting new ones every day, crypto enthusiasts worldwide still need to stay informed about utility to better understand the technology, how it works, and how creators can sustain the NFT market well into the future.

  • Will the Launch of Ethereum 2.0 Crash Crypto Prices?

    Will the Launch of Ethereum 2.0 Crash Crypto Prices?

    Ethereum 2.0 is coming soon and the question everyone wants to know is “will it cause crypto prices to crash?” This is particularly as markets around the globe are not looking great, and that includes the crypto industry. Everything has been bleeding heavily for months without a sign of stopping, as central banks keep hiking rates, global supply chains struggle, and spending and investment dry up. Stagflation is a very real possibility, and there is no telling how long it will take for us to cool down the overheated markets that have been going only up since the last recession more than ten years ago. 

    The aforementioned notwithstanding, active development in the blockchain space continues to march forward. Although investments might drop significantly, many builders keep on building no matter the state of the markets. As Ethereum is steadily approaching the long-awaited transition from proof-of-work (PoW) to proof-of-stake (PoS), dubbed The Merge, it might be interesting to think about potential impacts of The Merge on the crypto market prices, especially in the context of a potential extended bear market.

    Learn more: 

    Ethereum 2.0 is coming- Here’s what you NEED to know

    Proof of Stake (PoS) explained

    Ethereum ($ETH) Merge: What is it and everything you need to know

    Plus check out our video!

    About Ethereum 2.0

    In short, The Merge will result in Eth2.0’s Beacon chain (the coordination mechanism of the new network) merging with the current Ethereum mainnet, signifying the move to a fully PoS chain. To secure the network, enormous amounts of ETH will be staked in addition to the ETH already staked in the Beacon chain, making all of this locked ETH illiquid. Combined with the EIP-1559 upgrade, which now burns 70-80% of the fees, The Merge is expected to cause the equivalent of 3 bitcoin halvenings, dropping Ethereum’s inflation rate to 0.43% and locking up a lot of ETH, potentially reducing sell pressure by up to 90%. In addition, the PoS mechanism will reduce Ethereum’s energy consumption by up to 99.95%.

    So all is looking great for Ethereum and projects building on top of it, right? Possibly. However, there is still a decent chance that, given the current market conditions, ETH’s price pump might be short-lived, and would continue to drop, bringing down a lot of other projects with it.

    The Potential Impacts of The Merge

    There are two possible scenarios to look at when discussing the downside impact of The Merge on crypto prices:

    1. The external effect would be caused by Ethereum sucking out liquidity from other PoS alt-L1s and the projects built on top of them (especially if they’re EVM-compatible), as one of the more critical selling points compared to Ethereum is environmental sustainability.
    2. Beacon chain staked ETH unlocks, extended bear market, and poor treasury management of Ethereum-backed projects could see more capitulation events as HODLers and projects sell off their ETH to stay afloat as new investments dry up and stagflation looms.

    1. Ethereum Sucks Liquidity From Other PoS alt-L1’s

    By offering lower gas fees, fast transactions, and relatively high throughput at the expense of decentralization and economic sustainability, many PoS chains have attracted developers, investors, and NFT ecosystems to their networks away from Ethereum. Ethereum’s high demand (=high fees), poor L1 scalability, and the concerning PoW mechanism have severely limited its growth. (https://rpdrlatino.com) Understandably, regular people simply do not want to pay exorbitant fees when minting and trading NFTs, and developing inaccessible dApps on a network that is supposedly destroying trees and warming up the planet.

    The environmental argument will be completely invalid after the merge. Coupled with the enormous innovations in Ethereum’s L2 ecosystem, which have already reduced transaction fees to sub-$1 with no signs of stopping, Ethereum is set to once again become the most sought-after smart contract development platform. As post-Merge buy pressure of ETH increases and scalability improves, alt-L1’s could struggle to offer any significant unique selling points, making new projects opt to build on top of the most secure, established and decentralized smart contract chain out there.

    As more and more people flock to Ethereum, established projects might also decide to migrate to the platform with the most demand and upside potential, effectively sucking out liquidity from other chains, and leaving them dry with evaporated treasuries, limited runway, and reduced demand. The strategy of subsidizing transaction fees during a bull market when funds are plentiful will likely not work when no new investments are coming in during a bear market, and an exodus of users is reducing demand and network revenues.

    Of course, there is plenty of room for growth in this space, and projects existing on other chains might not find it too beneficial to move to Ethereum even though short-term liquidity issues might prove challenging.

    2. Beacon Chain ETH Unlocks in Extended Bear Market Cause Mass Capitulation

    The Merge will unlock a lot of ETH, resulting in a potential aggressive selling spree that might have trickle-down effects on a lot of other coins, especially those that have tight correlation with their ETH pair, are ERC-20 tokens, or have been sitting on ETH treasuries to fund their development. A lot more downside risk due to a selloff is also a very real possibility for ETH and other coins simply due to bad timing (i.e. bear market – with recession slowly creeping into our daily lives due to central banks raising interest rates, supply chain issues, energy crises etc.), the unlocked ETH might serve as a critical lifeline for those who had confidently staked their ETH during the bull market.

    During the bear market, investments will be scarce, and projects that during the bull market had made the decision to not convert their treasury ETH to stablecoins are now seeing their wallets drop in value significantly, forcing them to capitulate by selling at low prices to cover their expenses.

    However, it is important to note that the ETH unlocked from the ETH staked on the Beacon chain will not be immediately available right after The Merge. Rather, this feature – EIP-4895: “Beacon chain push withdrawals as operations”, will be enabled during the Shanghai upgrade. It will probably be deployed much later after The Merge, with estimates ranging from a month to 6 months. This means that any amount of potential sell-off of unlocked ETH would come with a significant delay post-Merge, at which point it’s impossible to predict where the market might be in 6-12 months and how it will behave, with contradicting bullish and bearish narratives clashing against one another in an attempt to drive price in either direction.

    This option does seem a bit far-fetched, however, and no one knows how much more pain we will have to suffer before the momentum shifts towards the upside, so it’s best to be prepared for both the upside and downside, and not fall prey to only bullish narratives.

    Conclusion

    As outlined in the two main points, post-Merge many alt-L1 coins could face a risk of crashing even further due to risks associated with reduced liquidity in a bear market (for non-Ethereum coins), liquidity that might flow towards the Ethereum ecosystem due to its established security, track record, and newly acquired environmental sustainability.

    On the other hand, ETH and other ERC-20 tokens living on Ethereum also run a risk of crashing, if the post-Merge ETH unlock from the Beacon chain results in a mass sell-off of ETH, which could crash other coins and project treasuries.

    As this will be the first time the crypto industry experiences a recession or a stagflation, there is a lot of uncertainty about how low the market could go and, most importantly, how long it could stay so low. This is uncharted territory, so making comparisons with past cycles might not be particularly useful. Nations and companies will keep tightening their belts, and spending will significantly decrease across the board, leaving risk-on markets such as crypto vulnerable to a continued mass exodus to safer investments.

  • Crypto BEAR MARKET NOW (2022) VS 2018: Similarities & Differences

    Crypto BEAR MARKET NOW (2022) VS 2018: Similarities & Differences

    The crypto market, together with stock markets and the global economy in general, have been experiencing a significant drawdown for the past 6 months, leading to a confluence of factors ranging from high inflation, rate hikes, supply chain issues, energy crisis, to geopolitical instability. This combination packs a powerful punch for any risk-on markets, such as stocks and crypto, forcing retail and institutional investors to exit their capital from markets during these uncertain times.

    With Bitcoin currently at $20k, down 70% from its $69k ATH, and the total altcoin marketcap being down 72% from its ATH, it is hard to deny that we’ve entered a bear market. But one question remains – is this anything like the bear market of 2018 and will it last equally as long as the previous one? Let’s dissect the situation and understand if this time is truly different, or if this is just a small bump in the road before an accelerated bull market.

    Check out our video comparing the crypto bear market now (2022) and in 2018- and more importantly, how to STILL make money during this downturn:

    2018 Bear Market

    2017 saw the first true mass influx of retail interest into the crypto space. Bitcoin saw a rapid increase in price, everyone’s friend and grandma were kickstarting their own ICOs to attract funds, and regular companies added the blockchain keyword to their names to increase their share prices. 2017 was the wild west, as there was even less regulation than currently, and the space was rife with opportunists spawning scam projects to extract money from ignorant first-time crypto investors.

    But, as with any bubble, it eventually pops. The crypto space was heavily overheated, with investors throwing money at everything that moved, doing minimal to no due diligence, just to get on the crypto hype train. Come 2018, things were starting to cool down and people were beginning to feel the pain. In less than 6 months after the peak ICO craze, over 90% of all the projects were already dead, with many more to go down with them in the rest of the 18-month long bear market.

    At the peak of the market, a lot of FUD (fear, uncertainty and doubt) was beginning to circulate. Fear of regulation due to the prevalence of scams, and with China/Korea considering banning cryptocurrencies, things were not looking great for the crypto space. Right around the peak of the market, the Chicago Mercantile Exchange (CME) launched their Bitcoin futures product, which allowed institutional investors to get their hands dirty with Bitcoin. And, naturally, they did just that. With all of the FUD circulating and the market waiting to release a lot of pressure, institutions began shorting the market, creating an enormous sell pressure that brought BTC down to $7k, which kept grinding down to $3k till mid-2019.

    2022 Bear Market

    After Covid-19 hit, the market experienced a tiny two-month recession. As everyone was locked inside, demand dropped and supply shrunk as well. But once central banks began printing more money to help businesses and people via stimulus checks, many found themselves with a lot of extra cash and no way to spend it, so they turned to investing. After the March crash, the rest of 2020 saw the crypto market boom, calling it the “DeFi summer”, with BTC increasing in price by 400% by the end of the year. After that, it just kept on going. 2021 was the year of the NFTs and Metaverse, i.e. GameFi, with numerous projects sprouting up to capture some of the value amid all the hype.

    After reaching its peak in November 2021, the crypto market has kept on steadily grinding down. Those who had called the peak in November aptly understood that the markets were overheated, inflation was starting to get out of hand, and the only way for governments to keep that under control was to begin quantitative tightening through rate hikes. Unfortunately, many were still in denial about the onset of the bear market way into April, which has resulted in a lot of people holding bags that might or might not recover.

    Now the path forward seems clear. The US Federal Reserve’s hawkish monetary policy is causing markets a lot of necessary and unavoidable pain. Because the money printing since Covid-19 has been at such an unprecedented level, the Fed is finding it hard to slow down the inflation without causing a lot of damage. The result currently is a looming recession at the same time as inflation is still running rampant and driving up the prices of everything, all the while people’s incomes are stagnating and their expenses increasing.

    When is the Next Bull Cycle?

    At the moment, there are no clear signs of central banks reeling in their hawkish monetary policies. It might possibly take at least several months if not until the end of the year for the dust to settle, the bottom to come in, and for us to be ready for the next bull cycle once the Fed eases monetary restrictions. Continued geopolitical turbulence aside, the next bull cycle will certainly come, but it’s difficult to say what will be the narratives driving the rapid market expansion this time.

    The two most touted bull market catalysts are the long-awaited Bitcoin spot ETF and the Ethereum Merge, which will cause the Ethereum network to transition from its wasteful Proof-of-Work mechanism to Proof-of-Stake. However, as is common in life and in markets, the most obvious things tend not to be the ones to catalyze huge changes. Markets are irrational, and a confluence of new narratives that will be born only in 6 months might very well end up triggering the next bull run.

    How to Still Make Money During the Crypto Bear Market?

    With great pain come great opportunities, and this bear market is no exception. This is the time for learning, accumulating, and paying attention to the market. In our latest video about the current bear market, we outline a few strategies that you can use as an investor to maximize upside potential come next bull run:

    1) Dollar cost averaging (DCA) into your investments – instead of trying to catch the generational bottom and investing your whole capital in one go, better invest 20% of your capital at a time during a longer time period, so that way you are more likely to get a great average entry price and reap the profits in the future.

    2) Doing lots of research – fundamental analysis of projects is the best way to ensure you invest in projects that have a real potential, and this is the time to be doing just that. Many projects will die during this bear market, so it’s important to source trustworthy information and be critical of everything in order to position yourself properly during the next stage of growth.

    3) Diversify your portfolio – as we’ve seen in the past months, there’s no such thing as too big to fail in the crypto space. Instead of going all-in on one project, spreading risk across several projects will ensure your capital is better protected from a few bad investments.

     4) Shorting the market – this should not be practiced by anyone who doesn’t have experience trading, as without proper risk management things can get pretty ugly very fast. During a downtrend, a way to make money is by shorting an asset, which essentially means you’re betting on an asset to go down in value.

    Of course, none of this is financial advice, and we implore our readers to do their own research and never invest more than they are willing to lose. It’s a highly volatile market and not for the faint of heart.

  • STEPN Guide and Review

    STEPN Guide and Review

    STEPN is the most popular move-to-earn blockchain game in the crypto market this year after some significant adoption by the market and big moves with other major exchanges and well-known sneaker brands.

    Move-to-earn is a new way to earn money through gaming with the novelty that it rewards not only digital activity within a game or app, but also physical activity. In short, the more you move in the real world, the more you are rewarded in your digital app.

    STEPN has been crushing it lately after surpassing 300K daily active users (DAUs), receiving a strategic investment from the venture capital arm of Binance, and launching a unique collection of NFT sneakers on Binance NFT marketplace in partnership with sports brand ASICS.

    What is STEPN?

    STEPN is a move-to-earn health and fitness app with game elements built on Solana. Users equipped with sneaker NFTs can run and walk outdoors to earn tokens and NFT rewards. The funds earned can either be used to increase earnings in the app or can be withdrawn and sold. The mobile app has a built-in wallet, swap, marketplace, and rental system that allows non-crypto users to onboard.

    How does STEPN work?

    Anybody can earn tokens and NFTs in STEPN by downloading an app, buying NFT sneakers, and completing various forms of exercise. Similar to how Bitcoin mining works, users in STEPN have to prove they have physically worked out, at the cost of their own time and energy. This is validated by the app’s anti-cheating mechanics using GPS and machine-learning technology. 

    The tokens and NFTs are then minted to users’ wallets from the people, not from the game developer FindSatoshi Lab, known for its work on cryptocurrency wallet Solwallet. In this way, people can trade their tokens and NFTs 100% peer-to-peer and over time. STEPN has created an ecosystem where the value of tokens and NFTs is based on supply and demand.

    STEPN tokens: GMT and GST

    There are two types of tokens available to players, GMT (total supply of 6 billion) and GST (unlimited supply). GMT is a management token that allows users to increase their income. GST is an in-game token that users receive for in-game activity.

    To create a balanced token ecosystem, the developers have decided not to limit the GMT governance token earning to a small group of people. Instead, they have made GMT and GST broadly accessible to ensure balance in the mining of these two tokens.

    Since many GameFi projects with a similar dual-token economy have tended not to thrive, the question is raised about whether GST, with its unlimited supply, will go into a death spiral. STEPN’s model addresses this by making GST earning irrelevant at a higher level. As people approach the higher levels, they are presented with the option to choose which token to earn, and they would naturally want to earn the limited supply of GMT. 

    This will get amplified over time as more GMT is burned and more GMT use cases are released. This should reduce the GST token supply enough to balance the token value. If too many people are mining GMT, they will earn less than what they can with GST, so they will switch to earning GST. This will reduce the competition for earning GMT, and, in turn, make GMT mining profitable again.

    Getting started with STEPN

    To get started with STEPN, you must first download the app to your smartphone via Google Play or Apple Store. Then, following the on-screen instructions, you will need to create an account and receive an activation code. 

    You will be able to use the app fully once you have purchased your NFT sneakers from the in-app STEPN shop. Choose your sneakers based on your abilities. Once you have purchased the sneakers, open the game and start walking or running. You will start earning immediately.

    How to join STEPN: Step-by-step guide

    1. Download the App

    First, you have to install the app on your smartphone. Depending on the model of your phone, you can do this either from the App Store or from Google Play.

    2. Create an Account

    After launching the app, you will need to enter your email address, to which you will receive a registration confirmation code. Enter your email address and press the ‘Send Code’ button. A code will be sent to your email address, and you will need to enter it in the corresponding field.

    3. Obtain Activation Code

    You then need to obtain an app activation code. To obtain the activation code, register in the STEPN community on one of the official social networks. Choose the social network that suits you best (Twitter, Telegram, Discord, etc.) and proceed according to the on-screen prompts. An activation code can also be received from a friend via invitation or bought from another user.

    Once you have received the activation code, the main app screen will open. Click on the ‘Get activation code’ button. After you have entered your activation code, the app will open and the tutorial will start. Several screens will explain to you how to use the app.

    4. Create a Crypto Wallet

    You then need to create a crypto wallet in the STEPN app. Click on the wallet image in the top-right corner of the app. This will start the process of creating a crypto wallet, which will take a couple of minutes. While creating the wallet, you will be shown a secret phrase that you need to write down and keep in a safe place. Once the crypto wallet has been created, you will be taken back to the main app screen.

    5. Start the Game

    In the top-right corner, the token column will show zeros. To start the game, you need to deposit Solana (SOL) tokens into the crypto wallet you just created, in the amount that will allow you to purchase an NFT in the form of a sneaker. SOL can be bought on almost any major CEX or DEX.

    6. Buy NFT Sneakers

    TIP: Before you buy sneakers in STEPN, open the app and run for 10 minutes in running mode without sneakers. This is so that you can find the right type of sneaker for you. NFT sneakers are purchased in the shop. After buying the sneakers, wait until 25% of the energy has accumulated (approximately 6 hours) and then start the game. You are now ready to move-to-earn!

    Playing and Moving to Earn

    STEPN currently has solo mode only, in which users receive GST tokens as a reward for moving in the real world. This consumes virtual energy at a rate of 1 unit per 5 minutes of movement. All of these processes are only triggered after the purchase of NFT trainers. If the energy is at zero, no tokens are earned. 

    GST tokens, and subsequently GMT, are paid out depending on the following factors:

    • The level and attributes of NFT sneakers – more efficient sneakers cost more. Up until Level 29, users can only earn GST, and from Level 30 onwards, they can switch to earning GMT if they wish.
    • Sneaker comfort parameter – the higher it is, the more tokens are earned every minute.
    • Running speed – it is necessary to maintain the recommended speed range for the sneaker. If you deviate too much from it, earnings will be reduced by up to 90%.

    Marathon and background modes are set to be added later. Marathon mode will be an entirely new playstyle and is aimed for release towards the end of 2022. Background mode will be added when the STEPN team feels the time is right to approach non-crypto users.

    The Importance of Energy

    Energy plays an important role in earning tokens in STEPN. As soon as you run out of energy, your earnings will stop. Only when energy is available will your movement be rewarded. The amount of energy determines how many tokens you can earn for walking and running. 

    To increase the amount of energy you have, you can buy more NFT sneakers or get hold of rarer ones. The more NFT sneakers you own in your inventory, the more energy they will automatically generate. Higher levels and rarity sneakers will give you more energy.

    Strengths of STEPN

    One of STEPN’s biggest strengths in the current market is the successful combination and implementation of GameFi and sports. This could be seen as a clear advantage over any competition as many crypto-native builders don’t have the connections or knowledge to replicate STEPN’s GPS technology and machine-learning anti-cheating mechanics. 

    Because the health concept of the game and its everyday practicality is relatively simple compared to other games and apps in crypto, STEPN is a prime candidate for mainstream adoption.

    Weaknesses of STEPN

    There are still quite large barriers to entry for the average person. The registration process is too complicated, and to start playing, new users need to first learn how to open and fund a crypto wallet and buy an NFT item. For a newbie, this is not as straightforward as it should be.

    NFTs also cost between 2.5 and 10 SOL, and way upwards of $100 if you want the best sneakers. This means there is an element of ‘pay-to-earn’ about STEPN. However, at the moment, the return on investment (ROI) is in the region of a few weeks, which is not bad at all.

    Conclusion

    Making money while keeping healthy is a win-win, and as a sports GameFi product, STEPN has struck a decent balance between game elements that are not too rich and complex to stop non-gamers from entering, and sports elements that are not too difficult to stop non-athletic people from trying it out. 

    The tokenomics also create value for both users and the platform. As long as the concept remains simple and participating remains profitable for the average user, STEPN should continue its impressive adoption rate.

    For more information on STEPN, follow their official channels:

    Website | Twitter | Telegram | Discord | Reddit | Medium | Email

  • Stablecoin Comparisons: Which is the Best?

    Stablecoin Comparisons: Which is the Best?

    Table of contents

    One major question all new cryptocurrency investors ask is how to actually spend their cryptocurrencies. Unfortunately, cryptocurrency is just not as widely accepted as fiat currencies. Cryptocurrencies are also subject to huge price fluctuations and volatility. Therefore, to “lock in” the price of your cryptocurrencies and as a springboard to cashing out crypto to fiat, many have converted their cryptocurrencies to stablecoins instead. This allows one to keep their dollar-pegged coins in exchanges or cold/hot wallets, so when the moment to jump back into the bull run comes, they can do so within minutes without having to deal with fiat on-ramps. Alternatively, to easily convert their stablecoins to fiat currencies for spending. 

    Most have considered stablecoins to be a safe means of preserving their capital without experiencing volatility and having to leave the crypto ecosystem. After all, they’re… stable, right?

    In most cases, they have been, but the most recent collapse of one of the largest and well-respected stablecoins, terraUSD (UST), and other less known ones, like neutrino USD (USDN) and DEI, has led people to question the stability of all stablecoins. But is this warranted? Isn’t there a bit more nuance to the mechanisms by which a coin retains its dollar or other fiat currency peg, each with their own risks and advantages?

    Although a seemingly straightforward idea, stablecoins can be quite tricky to unpack and analyze, especially when talking about non-collateralized algorithmic stablecoins, which sound too good to be true, and in some cases, are. With this in mind, let’s take a look at stablecoins, what kinds are out there, how well they are doing, and what makes them tick.

    Check out our latest video- Stablecoins: Are they safe? ($UST, $USDT, $USDC, $BUSD)

    Stablecoins: Are they safe? ($UST, $USDT, $USDC, $BUSD)

    Stablecoins – What Are They and How Are They Different?

    Stablecoins are cryptocurrencies that are pegged 1:1 to the value of a fiat currency, meaning that, for example, every 1 USDT (USD Tether, the biggest market cap stablecoin) is worth 1 US Dollar. There are numerous stablecoins in circulation, with different coins having different mechanisms for collateralizing their stablecoins.

    The most commonly used feature to categorize stablecoins is by looking at how each of them backs their tokens, e.g. their collateral/reserves. By doing that, we can focus on using more narrow criteria for evaluating and comparing stablecoins based on the risks and advantages that stem from the chosen collateralization mechanism. Broadly speaking, there are three main types of stablecoins: Fiat-collaterized stablecoins, crypto-collaterized stablecoins and algorithmic stablecoins. 

    Fiat-collateralized Stablecoins

    By far the most popular type, fiat-collateralized stablecoins occupy the top 3 spots (USDT, USDC, BUSD) among stablecoins by market cap, accounting for roughly 94% of the total ~$155 billion stablecoin supply.

    (Total Stablecoin Supply)

    Their working principle is the most straightforward to understand. Each of these coins is backed by a combination of real USD cash reserves, US Treasury Bills, and commercial papers (liquid short-term debt issued by companies).

    Crypto-collateralized Stablecoins

    Similar to fiat-backed stablecoins, crypto-backed stablecoins use cryptocurrencies as collateral, and smart contracts and, typically, governance tokens to monitor price stability. Due to the volatile nature of cryptocurrencies, crypto-backed stablecoins are over-collateralized (150% for DAI, for example) to account for periods in the market when prices of the collateral assets keep going down. Learn more about DAI.

    Compared to fiat-backed stablecoins, they’ve witnessed a much slower rate of adoption. However, based on data, it does seem that they are slowly starting to gain momentum and dominance over the past years, as people begin to develop trust in the previously experimental mechanisms, which is to be expected.

    There are also hybrid collateral tokens such as Reserve Tokens (RSV) that are backed by both digital and fiat assets.

    (Share of Total Stablecoin Supply)

    Algorithmic Stablecoins

    By far the most technically complex and technologically least mature, algorithmic stablecoins rely on on-chain algorithms to handle changes in supply and demand between the stablecoins and their sister tokens that back them by burning and minting them in both directions through a process called seigniorage, to maintain a dollar peg. This, however, only works while there isn’t a strong downward pressure on the peg that keeps stressing the mechanism, which can lead to a downward death spiral during which both tokens keep losing value as users keep panic selling at the same time as the algorithm tries to stabilize the price. Although not fully collapsed, neutrinoUSD and its Waves protocol have been experiencing extreme turbulence for the better part of two months, making users lose confidence in its stability, especially as its working mechanism is very similar to that of UST.

    On the less extreme side of algo-stables lie hybrid stablecoins, or fractional-algorithmic stablecoins, such as FRAX, which is partly backed by collateral, and partly algorithmically by adjusting the collateral based on the deviation of FRAX from the $1 peg.

    Learn more with our Ultimate Guide to Algorithmic Stablecoins:

    https://www.youtube.com/watch?v=hdmotWPNVdQ

    Criteria for Comparing Stablecoins

    Decentralization

    The impact of regional regulations can be a risk many would not find appealing. It’s completely reasonable to expect that the industry would be capable of creating largely decentralized stablecoins that are collateralized by one or more decentralized cryptocurrencies, and governed by a DAO. Such is the nature of MakerDAO and its DAI stablecoin, which has shown its peg strength throughout this year and especially during the most recent catastrophic UST collapse. There is a small caveat, however. 

    The largest crypto-asset backed stablecoin with a $6.5 billion market cap, DAI, is still heavily backed by the second largest market cap stablecoin, USDC, which itself is backed by fiat reserves, calling into question whether it truly is as decentralized as it purports itself to be. The reality is not as grim as it might seem. Even though USDC and USDP (another fiat-backed stablecoin) comprise 28.1% of the total DAI collateral, ETH and WBTC (Wrapped BTC) boast an impressive 58.6% collateral, tipping the collateralization balance in favour of decentralized digital currencies instead of centralized stablecoins. In addition, the Maker platform with the MKR and DAI tokens, together with all of its smart contracts, lives on the Ethereum blockchain, making it truly trustless and decentralized, even if a good portion of the collateral is not.

    (DAI collateralization)

    On the other hand, the decentralization of all stablecoins might not be necessary, or even desirable, as properly regulated stablecoins almost by definition require a legal entity or a consortium of entities with exposure to major governmental bodies (especially in the US) to be behind the stablecoins, so that there is little doubt about who is responsible for ensuring a full fiat backing of their stablecoins. However, this would imply heavy centralization of control over the stablecoin supply and the general mechanisms for issuance, governance, and, crucially, potential censorship. 

    A centralized stablecoin is a double-edged sword. On one hand, it gives unprecedented  power over a vast supply of stablecoins that a decentralization-focused industry heavily relies on to do daily business. On the other hand, it allows for companies like Binance, who are behind the popular BUSD stablecoin, to prioritize user safety and regulatory compliance, giving users peace of mind about the safety of their assets.

    Thus, a strong argument can be made to safely onboard millions of new users through reasonably regulated stablecoins. It’s important for this industry to appreciate the need to offer a wide range of stablecoin alternatives, from centralized to decentralized, for users with different risk appetites and technical competencies in order to accelerate crypto adoption worldwide.

    Compliance & Transparency

    Closely tied with the level of decentralization of a stablecoin, regulatory compliance and transparency are absolutely crucial for companies who are backing their coins with cash reserves, and who desire to find strong and growing support by institutions, companies, and investors looking to enter the space, but who have been apprehensive to do so due to concerns about a potential inability to redeem their tokens for dollars.

    It’s important to note that regulatory compliance is largely a concern for stablecoins operated by corporations, as they are the ones operating mostly behind closed doors, with most of the details about their inner workings, decisions, and collateralization mechanisms being hidden from the end-users and legislators. In such situations, it is more than reasonable to expect a regulatory body to force at least some oversight over how exactly these companies are operating their stablecoins and whether they do possess the collateral they claim to have.

    The same can’t be said about open-source, decentralized governance-powered, blockchain-native, crypto asset-backed, and over-collateralized stablecoins that are being operated completely out in the open, with every decision, piece of code, and capital relocation in smart contract escrow accounts being registered on-chain. For coins such as DAI, compliance and transparency are baked into the protocol, and it can be reasonably argued that the necessity for any kind of regulatory oversight is moot, as the community and the free market cryptoeconomic pressures have organically grown a robust and freely auditable stablecoin that’s fully backed by digital currencies.

    For fiat-backed currencies, the two large-cap extremes in the range of transparency and compliance are BUSD and USDT. While BUSD has been extensively cooperating with the New York State Department of Financial Services (NYFDS), and showing that every BUSD is backed by an equivalent amount of cash, USDT has been under significant scrutiny over the past years regarding its executives and the USDT backing. These allegations, combined with the lack of transparency by Tether, have made many worry whether USDT is a house of cards about to crumble as the Chinese real estate bubble begins to pop.

    Financial Sustainability

    In addition to the existential risks posed by the type of collateral chosen for stablecoin reserves, another source of risk that can be analyzed for a project is its cashflow. Changes in the cashflow of a protocol can offer clues about the health of the ecosystem and its ability to withstand market shocks.

    Understanding how a stablecoin protocol spends and, most importantly, earns its money, is key to making predictions about the long term sustainability of such projects. Without proper long term revenue models, protocols are left to come up with highly appealing but unsustainable practices such as incredibly high yields on stablecoin deposits (such as UST had) or very low to non-existent trading fees to make it appealing for users to use that stablecoin as their dominant medium of exchange. These kinds of practices sooner or later come back to bite them in the ass, as there is a very high probability that the high yields and low fees are paid for not from organic revenues, but rather from alternative revenue sources (as is the case for Binance), or from project’s treasury/VC investment money, in hopes that they would be able to subsidize the attractive rates for long enough to reach a critical mass of users to then eventually either lower the yields and increase the fees, or simply keep running a ponzi-like operation for as long as possible.

    Risks are High, always DYOR (Do Your Own Research)

    If something in crypto sounds too good to be true, it very likely is. The most recent example of this was the Anchor Protocol’s 19.5% yield for UST deposits, which should’ve been a huge red flag, and yet many, many individuals chose to deposit their life savings into a supposedly stable UST in hopes of an unsustainably high APY.

    For a $50 billion project to go down to virtually nothing in a matter of weeks is nothing short of astonishing, and should serve us all as a warning to do our due diligence thoroughly, and ask uncomfortable questions, even if the whole market seems to be fully on-board with a project. 

    As the saying goes, “Follow the money.” If a protocol is promising unbelievable returns, if the company behind a stablecoin year after year refuses to prove their fiat reserves, and if a algorithmic stablecoin seems to have a fishy peg stabilizing mechanism that can only work in an up-only environment, then you should exercise caution. And as with everything, whether it be cryptocurrencies or stocks etc, ask yourself if you have really fully done your research and never put in more money than you can afford to lose. 

  • Crypto Airdrops: The Good, The Bad, and The Ugly

    Crypto Airdrops: The Good, The Bad, and The Ugly

    Whether a blockchain project lives or dies depends on its capability to attract and grow its user base, and projects that are unable to gather or maintain their clientele eventually fold. To kickstart or encourage engagement within the community, these projects often find themselves doing token airdrops, using them to raise awareness and value for their products while also incentivizing new and existing customers. 

    Table of contents

    What is a crypto airdrop?

    A crypto airdrop is a method used to distribute cryptocurrencies to a project’s community of users for free, usually in exchange for participating in a campaign or owning other related assets. Airdrops are typically used as a marketing and awareness strategy to draw attention to a product or event. These projects may share tokens to existing users’ crypto wallets or encourage prospective users to register accounts to receive assets.

    Types of Airdrops

    Over the years, the airdrop marketing strategy has taken many different forms. Several projects have used airdrops to create awareness, promote features, and attract users. For instance, gaming metaverse ArcadeLand launched an airdrop in March where 850 participants shared a 2,000 USDT prize pool. Eligibility required simple tasks, including social media activity such as following ArcadeLand’s Twitter and participating in the project’s announcement channel on Telegram.

    There also was a MetaGods airdrop in November for 800 winners, including bonuses for the top 50 referrers. Participants also qualified for a $2,000 prize pool by completing tasks on Twitter and Telegram.

    The Sukhavati Network also launched an airdrop of 10,000 $SKT worth 6000 USDT to celebrate achievements, including an official startup sale on Gate.io and a MEXC listing. The prize pool was for a total of 1050 winners, with 1000 $SKT reserved for the top 50 referrers. Although projects use different types of airdrops depending on their aim for each one, the most common types include:

    Standard Airdrops

    During a standard airdrop, wallet holders receive small amounts of the new cryptocurrency in return for completing tasks, such as signing up for a newsletter or creating an account with the crypto project. Some projects require participants to complete a KYC (Know Your Customer) verification or provide their email and wallet addresses before receiving the tokens.

    Standard airdrops often serve as a good preface for projects to introduce themselves to the public. New projects, such as this recent airdrop hosted by Questian, attempts to pull in more attention by asking their community to complete tasks for USDT.

    Bounty Airdrops

    Projects that use bounty airdrops distribute their tokens among users who help to create awareness – usually across social media platforms. To be eligible for these airdrops, participants must perform simple tasks such as retweeting an official tweet, sharing a Facebook post, or creating Instagram media. Participants may also earn by referring new users. Although this type is similar to standard airdrops, the main difference is that crypto projects usually reserve bounty airdrops for people who help create public awareness. Standard airdrops are simply open to anyone who joins the project’s community via accounts, newsletters, or other similar channels.

    Exclusive Airdrops

    Blockchain projects usually reserve exclusive airdrops for loyal followers. In many cases, these airdrops automatically go to early adopters or users who are frequently active on the platform. Eligible members of the community receive these exclusive airdrops with no strings attached.

    Examples include a recent sudden airdrop hosted by MetaGods, which asks their community to simply drop their wallet address for an exclusive prize. The method was also utilized by AkiralGal, whose tweet asked their followers to screenshot their brand new AkiraGal wallpaper for more rewards.

    Holder Airdrops

    These are airdrops for users who already hold specific cryptocurrencies or tokens. So, to be eligible for these holder airdrops, users need to be holding a specified type and/or amount of a particular token by a specified date.  For instance, a new Ethereum-based project may offer free tokens to the Ethereum blockchain community, or a new exchange may offer its tokens to holders who own the native cryptocurrency of a competing exchange. 

    Hard Fork Airdrops

    This type of airdrop occurs when a permanent blockchain split creates the need for a new token to go with the new chain. While the previous blockchain still exists along with old tokens, users may receive tokens from the new blockchain via an airdrop. However, this does not happen with every fork, only with hard forks. A hard fork occurs when the community cannot decide how to move forward, and a new chain must be created via a split.

    Growth and Popularity of Airdrops

    Since the inception of cryptocurrencies, people have used digital assets to move finance to decentralized platforms. Several decentralized cryptocurrency projects have also emerged to satisfy the global need for decentralized finance, with many of them using airdrops to attract users. These projects usually airdrop a percentage of their total token supply shortly before or after an official launch. A recent example is the Looks Rare airdrop, distributing 12% of the total $LOOKS token supply to anyone in the OpenSea community that spent more than 3 ETH on the NFT exchange. 

    Another example of the popularity of airdrops was the recent MetaWars Alliance Gleam Campaign which features an extensive collaboration between multiple projects. Running from April 17 to April 22, the campaign had a prize pool of more than $20,000 open to 100 winners. The MetaWars Alliance Campaign had 9 partners, including Souls of Meta, MetaLand, Battle Saga, The Three Kingdoms (TTK), Bit Hotel, Age of Tanks, Mouse Hunt, MechaChain, and FitEvo. The initiative was yet another prime example of how multiple projects can use airdrops for cross-promotion that can help all involved projects gain much-needed traction. MetaWars successfully achieved this aim as the campaign saw nearly 232,000 different entries.

    The Dark Side of Crypto Airdrops: Scams and Controversies

    The need for blockchain projects to launch airdrops spurred the creation of several platforms that aggregate airdrops from promising projects. These platforms made airdrops a lot more popular, increasing the number of people who consider the method a channel for passive income and an opportunity to earn new crypto assets.

    (Beware of scams! This recent ApeCoin attack stole $1 million through hacked verified accounts)

    Unfortunately, the airdrop method has suffered its fair share of scams and controversies. As with anything tagged “free,” illicit players exploit community members’ innocence and use deceptive means to obtain funds from unsuspecting people. In March, a Twitter phishing scam pretending to airdrop ApeCoin tokens successfully stole $1 million from unsuspecting users. The Ape Coin scam promised users a rare NFT airdrop which can only be received after paying an ETH gas fee. The scammers then not only made off with the ETH fee, but because users had to approve and sign the transaction with their cryptocurrency wallets, the scammers were able to take the rare and often valuable NFTs contained in those wallets. Some notable NFTs stolen in this scam included Jay Chou’s Phantabears, Bored Ape Yacht Club, Mutant Ape Yacht Club and Doodles. 

    There was also a fake Azuki NFT airdrop where self-proclaimed Azuki affiliates hijacked verified user handles, got users to connect their Ethereum wallets, and made away with their highly valuable NFTs.

    How to Protect Yourself Against Airdrop Scams

    In light of these scams, members of the crypto community should adhere to certain precautions when participating in airdrops. The most important is the DYOR (Do Your Own Research) rule, which requires people to do extensive research on projects advertising airdrops before buying in. 

    However, scammers are keeping ahead of the game. For example in the ApeCoin airdrop scam, the scammers hacked into and hijacked the Discord servers for Doodle and BAYC, posting the faked website on the server to make it look like a legitimate announcement. The scammers also used faked Twitter accounts (including some from verified Twitter handles) to spread the fake links. 

    The following are other steps that help avoid airdrop scams:

    • Never pay for airdrops;
    • Check multiple sources and social media accounts belonging to the project to see if the airdrop is legitimate. For example, if a projects’ Discord server is being compromised they may make an announcement on their official Twitter or Telegram;
    • Never participate in an airdrop that requires user private keys or mnemonic phrases;
    • Protect personal identity and data as much as possible;
    • Avoid KYC airdrops if possible (although not always the case); and
    • Most airdrops require an email address. Users should create a new ‘burner’ email address to use only for airdrops.

    It might be impossible to create an exhaustive list of steps required to avoid scams because fraudsters get more creative with their illicit activities, but participants should always be on the lookout for airdrops that do not tick security boxes or have little to no information obtainable from research.

    Airdrops have many benefits in the blockchain space, such as marketing, building communities, and providing additional value to loyal users of crypto assets. Authentic airdrops help people earn extra income and provide additional utility with little to no effort. However, airdrops may be harmful to people who do inadequate due diligence or personal research. If an airdrop seems too good to be true, there’s a good chance it is.

  • What is AAVE ($LEND)?

    What is AAVE ($LEND)?

    Aave Protocol with their native token $LEND is a leading company within the decentralized finance (DeFi) sphere. The Company allows its users access to its open-source and non-custodial protocol to create money markets, joining a growing list of projects like Compound to bring decentralized options to the masses. We look at who is Aave ($LEND), its uses and how it differs from other projects such as Compound Finance.

    What is Aave?

    Named after the Finnish word for “ghost”, London-based company Aave was set up in September 2018 after a successful initial coin offering (ICO) the previous year for its ETHLend token which raised USD$16.2 million. The executive team under ETHLend migrated to Aave upon its establishment with ETHLend becoming a subsidiary of Aave. In January 2020, ETHLend announced it was no longer in operation and its website would only remain active for current users to close down their existing loans.

    Aave’s aim is to fill in the gaps left by centralised fintech industry giants like PayPal, Skrill and Coinbase. Their main product is Aave Protocol, an open source and non-custodial protocol for creating money markets on the Ethereum blockchain.

    Who is the team behind Aave?

    Aave has a wealth of talent and experience within its team. Stani Kulechov (CEO) and Jordan Lazaro Gustave (COO) have retained and migrated their roles from ETHLend, bringing their wealth of knowledge to Aave. Their diverse 18 man team bring together a wealth of experience in the startup scene.

    What is Aave Protocol?

    Aave’s biggest and most integral aspect is Aave Protocol which was launched in January 2020. Its shift from ETHLend marked a significant shift in strategy for the Company. Going from decentralized P2P lending to a pool-based strategy, Aave Protocol is an open source an non-custodial protocol that allows users to create their own decentralized money markets on the Ethereum blockchain.

    Aave Protocol
    Aave Protocol

    Depositors provide liquidity by depositing cryptocurrencies into lending pools which will then allow them to earn interest. Meanwhile, borrowers can obtain loans by tapping into these lending pools in either an overcollateralized or undercollateralized way. The loans do not need to be individually matched i.e. one lender to one borrower. Instead, deposits into the pool and the amounts borrowed/ collateral are used to make instant loans based on the pool’s state. There are currently 2 money markets that users can enter into, these are Aave and Uniswap.

    Aave markets
    Aave markets

    Flash Loans

    Aave has one feature that sets it apart from the rest. Flash loans allow customers or to take out loans without any collateral. These flash loans enable a customised smart contract to borrow assets from Aave’s reserve pools within one transaction. The loan is made on the condition that the liquidity is returned to the pool before the transaction ends. However, if it’s not repaid by that time, the transaction gets reversed- which will effectively undo any actions executed until that point and guarantee the safety of the funds in the reserve pool.

    The Fast Loan feature is designed for developers to make tools that require capital for arbitrage, refinancing, or liquidating purposes. Aave explained Flash Loans saying it is “designed for developers/people with some technical knowledge”, with the benefit of risk-free loans. Aave charges a 0.09% fee on flash loans.

    Rate Switching

    Rate switching is another unique selling point for Aave, which arrived during the May upgrade of their borrowing/interest rates. Rate switching allows borrowers to switch between fixed and floating interest rates, something useful in a volatile decentralized market. For high-interest rates, users will usually opt for the fixed-rate but when it is more volatile and expected to be lower, one might go for the floating option to reduce borrowing costs. The fixed-rate can change but only when the deposit earning rate increases above the fixed borrow rate as the system could get unstable by paying out more than its being paid. If so, the fixed rate is rebalanced to the new stable rate. On the other hand, when the variable rate is lower than the fixed-rate by 20%, the loan will automatically decrease to account for the difference.

    Which Cryptocurrency Tokens are linked?

    There are 19 tokens available on Aave. These include DAI, USD Coin (USDC), TrueUSD (TUSD), USDT Coin (USDT), sUSD, Binance USD (BUSD), Ethereum (ETH), Basic Attention Token (BAT), Kyber Network (KNC), ChainLink (LINK), Decentraland (MANA), Maker (MKR), Augur (REP), SNK, Enjin Coin (ENJ), REN, WBTC Coin (WBTC), Yearn.finance (YFI) and Ox Coin (ZRX).

    Please note: Each asset has a different collateral requirement. This is because of the differences in price volatility. Stablecoins naturally give loan-to-value ratios, due to their price stability. A full breakdown of Aave’s grading process can be found in their Risk Framework.

    Alongside these tokens, there is also a native token that Aave uses and which is called Lend. An explanation and analysis of the token can be found below.

    LEND ($LEND) Token

    Often referred too as ETHLend, the LEND cryptocurrency token has rolled over to become the native token of Aave following the winding-up of operations by ETHLend in January this year. Although it has kept the name, the new Aave version of Lend is largely different from the previous one.

    LEND token metrics
    LEND token metrics

    Binance Key metrics on Lend

    Built based on the ERC-20 standard, $LEND tokens can be used for fee reductions. The tokens are burnt from the fees collected from the Aave Protocol, with around 80% of platform fees used. This appears to suggest that Lend tokens will be worth more over time. LEND owners can also claim on protocol fees in exchange for acting as the first line of defense in the case of liquidity events by malicious borrowers.

    In addition, $LEND tokens can be used for voting on Aave Improvement Proposals (AIPs). What’s more, LEND holders can vote with their LEND deposited on the Aave platform, even if it is currently being used as collateral. Currently, this feature is pre-launched on the Ropsten test network before it is launched on the Ethereum mainnet. This is so the Aave community can vote on proposals without incurring huge gas costs, try out the module and provide feedback to the Aave team before it is formally launched. It is also worth noting that the outcomes of all votes on the testnet are not considered as valid for the long term.

    How to lend on Aave

    Depositing and earning interest on Aave is a simple process. Before you start, you must visit https://app.aave.com/ and connect using a web 3.0 wallet such as Metamask, Coinbase Wallet or Fortmatic.

    Depositing is easy, just simply pick your desired asset in which to invest and then allow Aave access to the asset. Once the transaction is processed, and the interest rate is confirmed you can check the rate changes on the Aave app. The interest-earning tokens are called aTokens which are similar to Compound’s C tokens.

    Interest generating tokens

    There are some differences between Compound’s tokens and the aToken. The main one being that the aToken’s keep their underlying assets price and will increase the amount of owned tokens when the price goes up rather than increasing the tokens price.

    Aave vs Compound ($COMP)

    Both Compound Finance and Aave appear to be the two top DeFi lending platforms. However, both have unique features that set them apart. Compound does have USDT as a usable asset, but Aave has a wider range of tokens on offer. For Aave, their new interest rates and regulations, like rate switching gives them a slight edge. For first time users, Aave offers great incentive rates. However, lending rates and Borrow fees are higher on average with Aave. Either way though, Aave has proven a good addition to the Defi community and should prove popular. You can read more about Compound ($COMP) here.

    Key features of Aave 2.0

    Aave 2.0 was announced on 14th August 2020. Aave Market now offers 19 assets, plus the Uniswap Market offers different Uniswap pairs as collateral. The platform has also grown to over 15,000 users. Here are some of the key new features which can be expected in Phase 2 of Aave.

    Pay with collateral

    Currently, if users want to repay their loan with part of their collateral they need to do 4 separate transactions on several protocols: withdraw the collateral, buy the cryptocurrency which is borrowed, repay the debt and unlock all the deposited collateral. With this new function, Aave users can deleverage or close their positions by directly paying with collateral in 1 transaction.

    Debt tokenization and native credit delegation

    Users’ debt positions will be tokens i.e. users will receive tokens which represent their debt. This enables native credit delegation within the Aave Protocol, in addition to other features such as native position management from cold wallets and user-specific yield farming strategies.

    Fixed rate deposit

    Deposits on Aave can generate predictable interest rates which are not bound by market variations.

    Improved Stable Borrow Rate

    This will further ensure the predictability of interest rates by locking down their borrow interest rate to a specified time period.

    Private markets

    Aave will allow governance to open private markets to open private markets to support all types of tokenized assets. The Aave team are also working on a collaboration with RealT which will bring mortgages onto Ethereum.

    Improved aTokens

    aTokens are Aave’s interest bearing tokens which are minted when a deposit is made and subsequently burned when redeemed. The aToken is pegged 1:1 to the value of the underlying asset deposited with Aave. In Aave 2.0, there will now be a version 2 of the aToken which integrates the EIP 2612 which allows for gasless approvals.

    Gas Optimizations

    This feature is currently in the works and will lead to a significant drop in transaction costs for most of the interactions on Aave. For some interactions the gas cost may even be reduced by 50%. Aave version 2 will also implement native GasToken Support.

    Security

    In version 2, the internal design has been made simpler, the architecture is also improved so it is more formal verification friendly. Aave is also working with top auditors such as Consensys Diligence and Certora- a leading company in automatic verification technologies.

    Native trading functionalities

    Aave v2 will introduce the ability for users to natively trade their debt position from one asset to another, i.e. you can borrow DAI, and if USDC becomes cheaper to borrow, you could change your debt position to USDC in one transaction.

    Users can also trade their deposited assets across the various cryptocurrencies supported by Aave, even when it is being used as collateral.

    Margin trading is also introduced in version 2, so users can directly take long and short leveraged positions without using third party services. Conversely with margin lending, liquidity providers can increase the weight of their deposits to take opportunities.

    Governance

    Aave version 2 also introduces several new governance features. Now, AAVE token holders can delegate their voting weight to any other address. Aave believes this may lead to the emergence of Protocol Politicians, who will represent the interests of their peers to delegated their votes to them. But unlike most representative democracies we see around the world today, vote delegation is a liquid democracy so this means a user can instantly remove the delegation in a single transaction if they so wish.

    The Aave team also recognises the pain points of the need to move tokens to another location to participate in governance. So Aave now allows users to be able to sign messages from their cold wallet to participate in Aave Governance. This will in turn reduce the security risk.

    References:

    AsiaCryptoToday: https://www.asiacryptotoday.com/aave/

    Decentralised Finance (DeFi) series: tutorials, guides and more

    With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. As well as a deep dive into popular DeFi topics such as decentralized exchanges, borrowing-lending platforms and NFT marketplaces

    The DeFi series on this website also covers topics not explored on YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency

    Tutorials and guides for the ESSENTIAL DEFI TOOLS:

    More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel so you can be notified as soon as they come out!

    Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.