Editor's Note: This article comes fromMars FinanceEditor's Note: This article comes from
Mars Finance
(ID: hxcj24h), author: Chu Xingjuan, reproduced by Odaily with authorization.
The attributes of encrypted assets are changing from non-productive assets to productive assets.
With the popularity of decentralized finance (DeFi), token holders can use DeFi to obtain economic value from the ever-changing production attributes of tokens. The core difference between DeFi and technological finance and traditional finance is that DeFi transactions do not require the permission of banks or financial institutions, and users can obtain more equal financial service opportunities and richer ways of freely disposing of wealth.
So how to efficiently use the attributes of token production to obtain considerable passive income? Staking Rewards, a vertical website focusing on "Staking economy", summed up 7 ways to play. Some have matured, and some have yet to develop in depth, but they all represent the gradual improvement of the encryption ecosystem and more and more opportunities.
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We prioritize introducing opportunities in mature markets, starting with Staking. Staking is essentially a kind of mining, but it is different from Bitcoin mining. Bitcoin mining is based on the PoW mechanism, while staking is usually based on proof of stake (PoS) and proxy proof of stake (DPoS). In the mining process of Staking, the node does not need too much computing power, but it needs to pledge a certain amount of tokens. After running the node for a period of time, new currency will be generated. The new currency generated is the income obtained through pledge. And the more assets mortgaged, the more income. This is similar to the reason that we can get a certain amount of interest every year after depositing money in the bank.
As Ethereum shifts to the PoS mechanism, top projects like Polkadot and Hedera will also increase significantly. Once interoperability is achieved, additional growth can result. The new chain will choose to run on Cosmos or Polkadot and provide Staking services. At present, there are 85 staking projects in the world, with a market value of about 21.85 billion US dollars. The locked market value of staking is 6.96 billion US dollars, accounting for about 31.87% of the market value of all staking projects. The current average return on these projects is 10.42%.
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A typical representative company in the Staking ecosystem. Image source: www.theblockcrypto.com Investment Opportunities: Projects that have applied the Staking mode so far include: Tezos, Cosmos, Decred, Qtum, Loom, Ark, etc.
Projects under development include: Polkadot, Dfinity, Hedera, etc. The average return rate of all Staking projects is 10.42%
Similar traditional investment behaviors: mortgage lending, bank deposits
As a supplement, full node rewards deserve a separate mention.
A full node is a node that synchronizes all blockchain data and requires users to mortgage a certain amount of tokens to start. Full nodes can provide additional functions for the entire blockchain, improving the ease of use and reliability of the system. We can provide services for the network by running a full node, so as to share the benefits in the block reward. However, the full node has a very high inflation rate, so it needs to be treated with caution. Specifically including DASH, PIVX, Zcoin, Horizen, Waltonchain and other projects. Projects using full nodes: DASH, PIVX, Zcoin, Horizen, Waltonchain, etc.
Similar to traditional investment behavior: poker table betting
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Work Tokens (Resource Type)
Work tokens are collateral that can be paid to perform work or provide resources to the network, such work or resources can include code conversion, storage, data and computing resource provisioning. In the work token system, participants need to pledge a certain amount of tokens in advance to provide services on the network and obtain corresponding benefits in the form of inflation rewards or work remuneration.
This model is similar to the fact that people have to pay a certain upfront cost to obtain a taxi license before being entitled to earn revenue by driving a taxi or leasing a taxi license.
Work tokens create blockchain-powered marketplaces that link supply and demand for services such as transcoding, storage, data ingestion, computing, and more. Most work tokens have a relatively high rate of inflation as a means of supplying the network and accommodating future scaling.
Token holders can also earn rewards by acting as trusted data providers. In this case, data acts as a resource provided in a trusted manner. Investment Opportunities: Such projects under development: FOAM, Filecoin, Flyingcarpet, etc.
Corresponding traditional project: Yahoo Finance
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Crypto Asset Lending
Currently, there are off-chain lenders like Genesis Capital, which have the largest loan volumes, but have some counterparty risk. If you want to lend in a trustless way, you can do it on the chain through smart contracts using protocols such as Dharma and dYdX.
The loan market is heavily dependent on user demand, so its rate of return will fluctuate greatly. In order to stabilize the price of DAI against USD, MakerDAO increased the stabilization fee. Interest is currently as high as 14% due to the growing demand for DAI. A mature and well-developed lending market can help sustain a fiat-pegged stablecoin system.
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Lending market size Image source: defipulse.com Corresponding traditional institutions: banks
market maker
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market maker
Starting with Part 4, we will cover the market opportunity that is still developing. Let's start with the market maker.
Becoming a market maker and providing liquidity to liquidity pools is another opportunity to generate revenue.
In December 2017, the price of Bitcoin fluctuated violently, and the price difference could never be stable, providing a huge opportunity for market makers. Assuming that the bid price of Bitcoin is $9,900 and the ask price is $10,000, then the spread is $100. If you were able to buy one bitcoin for $9,900 and immediately sell it for $10,000, you made a $100 profit.
Market maker returns are usually around 10%. However, due to the heavy reliance on market trading volume and price fluctuations, the risk is higher.
At present, about $40 million of assets are used as production capital in the market maker market, which is still very low compared to more developed methods of asset growth such as staking. The corresponding traditional investment: traditional market market makers
payment channel
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The current volume of payment channels is quite low, only about $6 million. However, it also represents a huge opportunity, the most widely known of which is the Bitcoin Lightning Network.
The Bitcoin network is currently less than 1% efficient, making it necessary to use the Lightning Network. The Lightning Network is an effective method of batch processing transactions, which is implemented through network routing nodes. The Lightning Network currently has 8,950 nodes, 34,200 channels, and a network capacity of 937.4 BTC.
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Lightning network distribution image source: explorer.acinq.co
Currently, more than 99% of the $6 billion security fees paid to Bitcoin miners come from block rewards. In order to adapt to the transition from an inflation-guaranteed model to a fee-based model, the fees paid to miners may increase significantly, and some even give an estimate of 100 times. The Lightning Network has increased the overall value of the Bitcoin network. If it is applied on a large scale, the benefits will increase for everyone in the upstream and downstream of the Bitcoin industry chain. The same goes for miners.
BitMEX, an encryption trading platform, believes that "the return on investment of Lightning Network liquidity providers does not seem compelling during the network formation stage, but we do see the potential value of this business model." It may set up a dedicated business to provide liquidity for the Lightning Network.
The developers of the Lightning Network also believe that at the beginning of the system design, operating nodes will only pay fees, but by betting on Bitcoin or other cryptocurrencies, an actual profit model will develop. Corresponding traditional investment products: none
security token
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security token
Security tokens are at the intersection of digital assets and traditional financial products, and are the closest encrypted assets to traditional assets. Holding tokens has the right to own assets or profit sharing, and can obtain dividends, asset returns and corresponding profits within a certain period of time. They are usually issued through STOs and are highly regulated. The core infrastructure and rules for acquiring and trading these tokens are still being refined.
Depending on the asset, the corresponding passive income can vary widely. The market size for security tokens today is difficult to determine due to the lack of infrastructure. However, the potential market size of security tokens under regulation could exceed hundreds of billions of dollars, as all assets such as stocks, bonds, derivatives and real estate can be tokenized. The data shows that the scale of security tokens has become larger and larger, and fixed-income products deserve special attention.
Fixed income products are more stable, predictable, and adjustable than other types of income that are dynamically determined by network conditions and market conditions, thereby attracting more traditional investors. Most notably the BitBond token. Bitbond is Germany's first blockchain loan company regulated by BaFin and in compliance with transparent rules. It guarantees users a 1% rate of return every quarter.
This market is currently in its infancy, but will grow significantly with the development of security tokens. Security token projects: Kucoin Shares, Neufund, tZero, Nexo
Corresponding traditional investment products: stocks, real estate
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algorithmic trading
The latest addition to the DeFi space is the token collection of the SET protocol and its products. The token collection consists of tokens obtained after fully staking specific encrypted assets (such as BTC, ETH, DAI, etc.). These collections of tokens are automatically rebalanced by executing pre-programmed portfolio strategies such as range bound trades. They can also be connected to other DeFi products, such as decentralized exchanges (DEX).
Like most DeFi products today, the algorithmic trading represented by the SET protocol is currently only targeting the customer-facing market. Like all trading, algorithmic trading has no fixed expected return and is the riskiest way to earn passive income. The rewards of algorithmic trading largely depend on the chosen strategy and market conditions. Unlike staking, its returns cannot be guaranteed.
However, some believe that algorithmic trading will have a positive impact on the crypto industry. For example, Binance Chief Financial Officer Wei Zhou once said that algorithmic trading will become a new star in the encryption industry.
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Conclusion: The development of DeFi will bring us more income opportunities
Many people are familiar with the term "HODL", which represents our firm belief in the bright future of encrypted assets. But most people keep encrypted assets in their wallets, ignoring the potential productivity of encrypted assets. We missed a lot of opportunities because of this.
