The founder of YFI used three articles to explain the origin of the concept of "fluid mining"
Original title:"Introduce the origin of | "fluid mining" concept & NBSP;"
Original article by Andre Cronje& NBSP; YFI founder;
Ethereum enthusiasts
This article is the result of a series of blogs written by YFI founder Andre Cronje before he launched the yearn Finance project. In a few words, the most important of the three essays is the first, which Outlines the origins of the concept of "fluid mining" and the challenges it poses to the DeFi world. The following two essays introduce the author's ideas for solving problems. They are not easy to understand, but they are also of literature significance.
101 Yield Farming
We've developed a new product for Yield Farming, but Before we do, I'd like to explain a few concepts.
When we developed iEarn, the choices we had were simple: Aave, Compound, Dydx, and Fulcrum. Each product provides a lending market for different assets. You can lend out your assets and earn a passive income.
Simple age.
Incentivized pool is introduced in the SNX (Synthetix) project. They wanted people to provide liquidity to their sETH pool, and they realized that the best way to do this was to reward early participants: if you provide liquidity to sETH/ETH trading pairs on UNiswap, you get SNX tokens as a reward.
Older players like me may remember Havven, and SNX's goal was to make a new stability currency, sUSD, on the Synthetix exchange. But at that time there was only Uniswap V1, there was only asset /ETH as a liquidity pool, so they could not incentivise just one liquidity pool with sUSD/ETH, they could only incentivise multiple pools.
Then there is CRV (Curve), a new, simpler automated market maker (AMM). By simpler, I don't mean that the formula is simpler, but that it is simpler in design. With Curve, you have a new way to participate in passive income with stability COINS, and you can earn fees just by providing DAI and/or USDT.
So, those of you who have been paying attention to this area will know that there are ways in which we can earn passive returns:
1. Obtain transaction fees by providing assets to the Uniswap market
2. Obtain SNX tokens by providing liquidity to the sETH/ETH trading team
3. Obtain transaction fees by providing DAI or USDT for the CRV market
Earn a savings interest rate by putting assets in the Aave, Compound, Fulcrum, or Dydx lending market.
Iearn V1 is a simple lending market LP (Liquidity Provider). Every time users deposit/withdraw money, they switch between different Liquidity pools.
We started talking to CRV about a yield switching pool, which became a Y pool for CRV. Y Pool combines the best of iEarn and CRV to become a Pool that optimizes lending efficiency and automatically switches fees.
When you trade y.cive.fi, you are actually trading Y tokens, such as yDAI, yUSDT, etc., but the pool itself will recognize that yToken is exchanging tokens and will deposit/withdraw the underlying token assets.
Then we started talking to SNX, because they were about to launch their stabilization pool (just for sUSD), and we added another layer. This allows the liquidity provider to get yToken (deposit return), curve.fi fees, and SNX rewards.
So by then, we had the ultimate combination: token + transaction fees that automatically switch passive yields + liquidity incentives for projects.
Such good times are gone.
Then the programs began a war to encourage mobility. The Compound took their first shot with their COMP Token, and everyone piled in. Balancer soon came out with BAL, mStable came out with MTA, Fulcrum came out with BZX, and Curve was poised to launch CRV. The core of the liquidity incentive model for these projects is similar: a protocol native token for issuance in proportion to the volume of assets provided by the user; Curve introduced the CRV on Aug. 16, 2020.)
However, this makes Yield Farming more complex, and simply switching options based on the deposit rate is not enough.
Now, the strategy would look something like this:
1. Keep DAI in compound, and cDAI in Balancer.
2. COMP earned by DAI, BAL earned by cDAI, plus DAI's available deposit interest rate, and cDAI's fee in the Balancer pool.
3. Put DAI on curve and curve Token on Synthetix Mintr exchange. Earn CRV through DAI and SNX through Curve Token. Add in transaction fees available in the Curve trading pool.
4. Put DAI in mStable, and mStable in Balancer. DAI gets an interest rate, and mStable Token gets BAL in Balancer; Plus the possibility of earning fees from Balancer's trading pool.
5. Save USDC in Maker, cast DAI, and repeat options 1,2,3.
And the above strategies are just a few examples. A few weeks ago, the best strategy was to borrow BAT from the Compound market. Now I'm using Compound as DAI's leverage. But the next week, maybe it's the SNX pool that's participating in Curve. The common problem with all the above strategies is that their meaning is based on the value of COMP, BAL, MTA, SNX, CRV, and so on. The price of all these tokens will fluctuate.
This also means that all these policies rely on the price information transmission mechanism. At the time of writing, there were no mechanisms for the transmission of price information in COMP, BAL, MTA, SNX, and CRV, unless you used the price in the Uniswap or Balancer trade pool as an index; But once you do, prepare to have your liquidity sucked up by the flash loan.
The purpose of this article is to show you that passive Yield Farming has become quite sophisticated, and we expect it to become more so in the future. So we need to provide a new product, instead of simply choosing between these options, we need to cultivate new options (instead of trying to choose between these options, seeds these options). We've got the idea. Starting with the next article, we'll elaborate on the solution.
102 Automated market makers with a better sense of return
Let's start with a few basic examples:
Assuming that you hold BAT, you have the following options:
1. Put BAT into Compound and earn interest on deposit and COMP as governance token
2. Deposit BAT in Aave to earn interest
3. Sell 50% BAT and use the money to buy ETH, deposit BAT and ETH into the BAT/ETH liquidity pool of Uniswap, earn fees and bear impermanent loss.
4. Sell 50% BAT, buy ETH with the money, and deposit BAT and ETH into the BAT/ETH capital pool in Balancer to earn commission fee and management token BAL, and bear the volatile loss.
Get a little more complicated: put BAT into a Compound, get cBAT, put cBAT and ETH into Balancer's cBAT/ETH pool, earn fees and BAL, and take volatile losses. On the face of it, you think you're earning interest on COMP and cBAT.
In fact, it is Balancer's pool that is making COMP (not you), and Balancer's pool is making cBAT (that part of the income will go to arbitrager, so technically you are making transaction fees, not cBAT interest income). While your investment strategy may seem smart, the payoff is similar to putting BAT and ETH directly into the balancer pool.
From this, we can find the following problems:
1. The liquidity pool (but not the liquidity provider) earned incentive tokens, such as COMP, BAL, etc
2. The liquidity pool (rather than the liquidity provider) earned deposit interest on the token
3. You must sell 50% of BAT to provide liquidity to the pool (this is crucial to our solution and will be discussed in a special article)
From the above points, we can see that the existing AMM (automated market maker) liquidity pool cannot meet our needs, so we need AMM that is more revenue-sensitive. It's easy to support Aave tokens. AToken supports a function called redirectInterestStream, which lets you configure an address to receive interest. But that means that the interest you earn is not compounded.
Although Compound Ctokens can grow in value based on their supply index, that's why they're hard to manage. This requires AMM to be able to perceive the underlying value of a cToken rather than the value of a cToken.
Therefore, all swap transactions and quote checks should measure the underlying value, not the value of the cToken itself. The solution that works for cToken also works for aToken, and solves the compounding problem. With this change introduced, AMM is able to conduct transactions between BAT/ETH token pairs while holding either cBAT or aBAT.
The solution for COMP is simple. We measure the change of COMP balance according to each internal balance (cBAT) change and assign an index to it.
However, we would like to support all tokens that might be added in the future and realallocate them when the balance does not change. Therefore, we have modified the above to apply to any token and added an address lookup function for the core token. That's the first part -- the perceived return AMM, which allows liquidity providers to earn interest from lending markets that offer the highest interest rates, while also receiving incentive tokens (e.g., COMP). The next article will detail how we can help you avoid selling 50% to buy another token when you only have one.
103 stable currency
Before we get to the next section, we need to know about stabilizers.
Why is 1 USDT worth 1 dollar? So in a nutshell, if I'm holding 1 USDT, I can go to Tether, the issuer and exchange 1 USDT for 1 dollar. So if the price of USDT goes down to $0.9, I'll try to buy USDT and convert it to $1 to arbitrage until the price returns to $1. If the price of the USDT goes up to $1.10, I will try to "coin" the USDT in dollars and arbitrage until the price returns to $1.
The same is true of USDC and its issuer Circle, as well as TUSD and its issuer Trust.
What about DAI? DAI is endorsed by the ETH, not the dollar. We can offer $100 worth of ETH and then cast $100 worth of DAI (in reality only $66 worth of DAI can be cast, which is the way the clearing system keeps DAI price stable, but for simplicity, assume a guarantee rate of 100 per cent).
If the price of DAI 1 is $1.10, we can use THE ETH to make DAI, and then replace DAI with THE ETH. Suppose you have previously minted $1 worth of DAI using a $1.50 ETH. Now the DAI is worth $1.1, which you can exchange for the equivalent ETH, still $0.40 less than the value of your pledge. (This is why DAI sometimes delinks from the dollar.)
It's easy to solve these problems, isn't it? As long as we can make $1 worth of DAI with a $1 WORTH of ETH. The problem here is that the ETH itself is volatile, and if the price of the ETH falls 1 per cent, the whole system is unstable because there are not enough ETH to pay DAI.
That's why companies like Tether are getting so many lawsuits. Tether claims that its USDT issue is endorsed in full at 1:1. That is, can Tether come up with enough DOLLARS if all USDT holders simultaneously demand Tether for payment? This is the key to ensuring the stability of the system: the system always provides enough underlying assets when the owners demand payment.
So we designed a new type of stabilizers (we know there are enough of them, but technically, ours are different). We designed the AMM (automatic market maker) transfer mechanism.
Whenever we create a new UNISwap liquidity pool, we need to provide two tokens of equal value. Suppose you provide $1 worth of BAT and $1 worth of ETH to create a BAT/ETH liquidity pool. At this point, DAI/ETH liquidity pool was created by offering $1 worth of DAI and $1 worth of ETH. If you want to exchange a BAT for DAI in the BAT/ETH pool, you must first exchange a BAT worth $1 into the ETH of the same value in the BAT/ETH pool, and then exchange it into the DAI/ETH pool of the same value.
In the example above, the ETH serves only as a transfer of value. As long as 1 ETH = 1 ETH, a $1 BAT = a $1 DAI.
With the introduction of value transfer assets, we can do some interesting things. If you provide $1 worth of BAT to this new AMM transfer mechanism, you can create equivalent value transfer tokens. If someone else offers DAI worth $1, an equivalent value transfer token can also be created.
And then something interesting happens:
1. We only need to provide a form of token liquidity
2. Value transfer The value of the token is equal to the sum of all the tokens in the system
3. If the trader has injected more A tokens into the system, he will withdraw the same amount of B tokens, thus complying with Rule 2.
4. 如果价值转移代币的价值高于系统中所有代币的价值总和，交易者就面向该系统出售价值转移代币，并取出其它代币，从而遵守规则 2。
We have launched a liquidity delivery system called Stable AMM. The system can guarantee the internal stability and obtain higher profit.
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