Author: FC, Partner, SevenX Ventures Source: X, @FC_0X0
Is the Decentralized Finance boom coming back? It’s time to get ready.
This is the ‘on-chain Mining Secret Guide’ summarized by the three winners of the ‘Decentralized Finance Summer’ after two cycles. It explains ‘how to choose targets’ and ‘what issues you should care about’.
Why is on-chain Mining in this cycle so weak?
Smrti Lab Co-founder 0x992 @0x992eth has been following & participating in Decentralized Finance since 2018, and started as a Liquidity Provider during the Decentralized Finance Summer in 2020. At the same time, they established their own Decentralized Finance Fund.
He believes that the core of the 2020 cycle was the overflow of Liquidity from the Decentralized Finance Summer, with nearly 800 launch coin projects, and there were almost 2 listing projects every day for those two years.
And the obvious problem with this so-called Point Summer cycle is that no one dares to do a real Token Generation, and no one has figured out what the four-year unlocked coin should incentivize, and how to maintain it as a four-year valid innovation as a bribe or vToken.
He also mentioned that the concept of Point Summer’s earnings is relatively vague, and the core issue lies in the insufficient liquidity of the buying side, which is manifested in two aspects:
- Unable to find periodic returns
2）Decentralized Finance lacks innovation and fails to attract new users
His personal opinion, Liquid Staking is actually a field that is very well-suited to market demand and has the potential for cash flow and TVLrise. However, the key lies in how to unlock the profit mechanism to continuously promote market prosperity.
Can we have another ‘Decentralized Finance Summer’?
Jimmy @0xJimmyYin started with developing Dapps, later worked on DEX, and founded iZUMi Finance in 2020, focusing on providing LaaS for multi-chain ecosystems and offering various services to projects, including Liquidity.
Jimmy mentioned that in the previous market cycle, a large amount of off-chain liquidity was distributed layer by layer through the complex design of Tokenomics to create a huge wealth effect, attracting a continuous stream of new players. Many MM transferred funds from centralized strategies to on-chain operations. The current trend is to move on-chain funds back to centralized platforms for RWA operations, reflecting the lack of on-chain returns.
Jimmy believes that the previous round of Decentralized Finance has left a significant value for the entire financial sector, and there is still a real user demand. For example, although some projects do not have issuance tokens, they still create practical use cases through methods such as interest rate arbitrage incentives.
If the current market can maintain stability, the influx of new capital will not be in vain, but if certain projects eventually drop to zero, lacking real business and alternative value, it will be difficult to rekindle user interest in the future.
Therefore, whether the product innovation can reach the level of the previous round of Decentralized Finance will be a key factor in determining the value of these Paper Money in the future.
When and how to choose the timing and target of Mining?
Neo @0xNeoSu began working as an angel investor in 2018, and founded Arcane Group in 2011.
Neo believes that the essence of on-chain mining is to create transaction liquidity and TVL for Decentralized Finance projects, and to help projects with cold start.
The two stages that on-chain Mining should participate in the most are:
- Cold start phase
- In the middle and later stages, that is, when TOKEN has a clear purpose and a definite stage.
In the middle stage, when the project has just launched the coin and completed the incentive, it is usually the most difficult period. At this stage, investors need to follow the long-term plan of the project, the help of TOKEN incentives to the ecosystem, and whether the project’s business model can support the unlocking period of the next 4 years.
When evaluating which projects are worth participating in Mining, NEO emphasizes two key factors:
- Diversity of income sources and the richness of protocol
- The project’s ceiling needs to be high enough, i.e., whether the project has quality endorsements, resources, and Liquidity Providers (LP), which directly affect the project’s valuation and long-term development potential.
NEO mentioned Berachain, and he said that it is a project that performs well in terms of Liquidity. Their Points model clearly informs users how many Tokens they can ultimately obtain, while many LRT projects have issues, often only providing points without a clear Token allocation rule or profit model.
As a Liquidity Provider, what should you care about?
0x992 believes that the core issue for Liquidity Providers is the following:
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At the end of the investment period, how much return can be obtained from the project.
The transparency and determinacy of such results are the key to the success of the project. Whether it is BTC-based LP or other forms of LP, they will follow the ratio of asset investment and withdrawal.
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Strategy transparency
This is one of the important criteria for guaranteeing income. LPs need to understand how the funds operate, especially when implementing multiple strategies, it is crucial to know when each part of the funds generates which kind of income.
3）Liquidity与策略容量
It is not only necessary to consider (such as APY or APR), but also to follow the liquidity of the asset, especially the ability to quickly withdraw the asset when the market is fluctuation or large-scale capital exit. Liquidity management and strategy capacity can protect investors’ funds from “black swan” events under extreme market conditions.
In the end, all evaluations boil down to one core question: the return on investment of the token. No matter how the project party promotes complex yield indicators (such as DPI, APY, etc.), LPs always follow how much BTC, ETH or other encrypted assets they can recover. These factors, actual returns, liquidity, and transparency, are the cornerstone of long-term success for Decentralized Finance farmers and project parties.
Where does the income of on-chain Mining come from?
Jimmy explained that the source of income mainly comes from two categories: transaction fees and interest.
Participants in transaction fees are divided into three categories based on motivation:
- Ordinary users who pay gas fees
2）Utilize on-chain and off-chain information time difference Arbitrage suppliers or Trading Bot
- Airdrop enthusiasts or scientists who obtain Airdrop rewards through on-chain transactions
A typical representative of lending protocol is Zixin. There are mainly two forms:
- Early BTC and ETH collateralized lending returns
2）The staking yield after Ethereum’s transition to PoS.
For example, Lido will allocate 10% of the revenue to the protocol to support the underlying real revenue. In addition, projects like Blast, MANTA, and Merlin from PointFi also provide revenue based on single coin stake, and you will earn revenue as long as you deposit assets.
At the same time, he also pointed out that the real sources of off-chain’s benefits, such as USDM and the Federal Reserve, as well as the revenues of CeDeFi market makers, are also important supplements.
Neo believes that the real returns of Decentralized Finance projects mainly come from two forms: one is single coin Interest, and the other is the corresponding value between the same assets.
Popular assets are usually combinations of BTC against BTC or ETH against ETH, as there are no trading differences between such assets, avoiding contract risks and interference from other external complex factors.
He pointed out that it is a challenge to effectively enhance the value of the currency through the swimming pool. Although Liquidity does not Fluctuation every day, the asset price may rise sharply when a major event occurs in the protocol. Therefore, investors hope that the assets they hold are not only safe, but also have the potential for long-term holding.
The road of trading is lonely, I hope to help everyone find like-minded partners, until the next event, goodbye.
