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21/10/2022

Airdrop Farming

A crypto airdrop is a promotional activity typically performed by blockchain-based startups to help bootstrap a virtual currency project. Its aim is to spread awareness about the cryptocurrency project and to get more people trading in it when it lists on an exchange as an initial coin offering (ICO). Airdrops are generally promoted on the company's website, social media, and cryptocurrency forums. Coins or tokens are sent only to specific wallets based on the blockchain network or coins held in existing wallets.

To qualify for the free gift, a recipient may need to hold a minimum quantity of crypto coins in their wallet. Alternatively, they may need to perform a certain task, such as posting about the currency on a social media forum, connecting with a particular member of the blockchain project, or writing a blog post.

Airdrop farming, as the name suggests, is actively looking for “airdrop” events. There are a few different kinds of airdrops.

Standard airdrops: In a standard crypto airdrop, participants interested in receiving an airdrop simply express their interest in order to receive the airdrop. The individual must provide a valid wallet address, and some airdrops require no additional information beyond this. Standard airdrops often have a set amount of tokens to distribute with a limit on how many tokens each individual may receive.

Bounty airdrops: Bounty crypto airdrops occur when users perform certain tasks. These tasks often entail raising awareness of a project by posting on social media and tagging the company or retweeting a recent tweet about the project. There may also be referral bonuses or finder's fees for individuals who recruit other users, sign up for the project's newsletter, or join the company's Discord channel.

Holder airdrop: Holder crypto airdrops occur automatically based on who is holding existing tokens and how many tokens they hold. Because wallets and blockchain information are part of a publicly distributed ledger, all users of blockchain have full transparency into the wallets and distribution of tokens.

Exclusive airdrop: A more specific type of holder airdrop, an exclusive crypto airdrop occurs when specific people are individually selected for the airdrop. An exclusive airdrop is an even more centralized way of rewarding those closest to the project and may give airdrops to wallets that may not hold any tokens at all.

The first cryptocurrency airdrop was attributed to AuroraCoin (AUR) on March 25, 2014. Intended to be the cryptocurrency for the nation of Iceland, every citizen or permanent resident who submitted their national ID received 31.8 AUR.

21/10/2022

Monolithic vs. Modular Blockchains

Every blockchain has the same core tasks: providing consensus and security, guaranteeing data availability, and executing transactions. Typically, most blockchains handle these duties on the same layer and are hence called monolithic blockchains.

A monolithic blockchain functions according to the consensus protocol set down for the blockchain. To participate, you need to run a node aligning with the requirements set by the network. Let’s take the example of Ethereum. Any user wanting to run their own node first needs to identify which kind of node they want to run. After setting it up, they download the blockchain data from the network and start participating in the network following the protocol rules. In the case of PoW, validators are required to put up their computational hardware at stake to be selected to mine blocks on the network. In the case of PoS, their stake is utilized.

Bitcoin is one of the biggest examples of a monolithic blockchain, although the Lightning Network has attempted to be a scalable modular aspect of the chain. However, given its current architecture and consensus mechanisms in place, it still is a monolithic blockchain.

One of the biggest benefits of a monolithic blockchain is that if it focuses on keeping itself decentralized and secure, it becomes a trustless blockchain. This decentralization lowers the barrier to entry for all users who wish to utilize the blockchain to execute transactions.

The framework behind modular blockchains is rooted in the principle of modular design, which is the concept of dividing a system into smaller parts that can be independently created or exchanged between different systems. A modular blockchain is a type of blockchain that specializes in only a few functions, rather than all of them. In a nutshell, it can be said that all the limitations of a monolithic blockchain are effectively transformed into modular factors, thereby increasing its efficiency by high orders of magnitude.

One of the biggest benefits of a modular blockchain is its ability to split various tasks into segments. This fragmentation of tasks/responsibilities helps the blockchain scale without compromising security. As block space increases with data shards and as rollups introduce scalability, the overall throughput of the blockchain increases.

21/10/2022

Automated Market Makers

Trading of crypto assets in DeFi relies on new and unique matching mechanisms. One widely used mechanism in traditional finance is the centralized limit order book, which entails keeping electronic records of all outstanding orders. However, DeFi does not use order books because the networks are usually too slow and expensive to support the matching of orders and bids, which require many operations to be performed in a decentralized system. This is where the Automated Market Maker (AMM) protocol comes into use. An AMM is a type of decentralized exchange (DEX) protocol that relies on a mathematical formula to price assets to help automatically facilitate buy and sell orders.

x * y = k, where x is the amount of one token in the liquidity pool, and y is the amount of the other. In this formula, k is a fixed constant, meaning the pool’s total liquidity always has to remain the same.

They build on the idea that traders can become liquidity providers by making their crypto assets available in liquidity pools. In turn, protocols allow other traders demanding liquidity to buy or sell the crypto assets in the pool, with relative prices set on the basis of their respective quantities. The AMM protocol incentivizes liquidity provision since liquidity takers pay a fee to liquidity providers that could go up to several basis points. The ex*****on of trades in AMMs requires validations based on the blockchain's consensus protocol, i.e. buy and sell orders are stored in a public memory pool, so that validators (also known as "miners") can add them to the blockchain.

Automated market makers are a staple of the DeFi space – they enable essentially anyone to create markets seamlessly and efficiently. Current AMMs like Uniswap and PancakeSwap are elegant in design, and the overall innovation they bring to crypto is invaluable.

30/09/2022

Soulbound Tokens

Proposed by Ethereum's creator Vitalik Buterin, Souldbound Tokens (SBTs) are non-Transferable, non-financial tokens which would form an essential building block for a Decentralized Society. These are essentially non-transferable NFTs used to represent credentials and affiliations within a Decentralized Society that are linked to "Souls", a type of address that establishes provenance.

The term "Souldbound" actually comes from the game World of Warcraft. A Souldbound item is essentially an item that when picked up, cannot be sold or transferred to other players. As a fan of the game, Vitalik borrowed this concept and used it in the form of a non-transferable NFT.

This idea sounds puzzling to many at first as many consider the value of an NFT to be its ability to be traded and sold for profit. This can be seen during the NFT boom where popular projects such as Bored Ape Yacht Club and CryptoPunks where resold for prices many times higher than what they were initially bought for. Having an NFT that cannot be transferred seems to defeat the point of NFTs as a whole.

However, upon deeper inspection, we can see how the concept of SBTs work in a Decentralized Society. While items like art and access passes seem to be perfectly suited for trading, other forms of certificates such as education history and health records are not. If we were to use traditional NFTs for these certificates, we will not know if the records presented by an individual were earned or bought on the open market.

This is where SBTs truly shine. In the case of Education records or Proof of Attendance Protocols, only the people that earn the SBTs will be awarded the NFTs. Subsequently, these SBTs will be bounded to their wallet addresses for its entirety and will not be able to be sold on the open market. As such, if an organization wants to see if a person was present at an event, they will just need to check the user's account for the particular SBT without the fear of the user cheating the system by buying the Proof of Attendance NFT from another user.

SBTs have become a hot topic in the Web3 community and is expected to arrive by the end of 2022. SBTs definitely has its use cases in Web3 and DeFi, however, its ability to serve as a universal online Identity Card has still yet to be seen. We can only speculate on its effectiveness while we wait for its deployment. Only then can we truly see the impacts SBTs have in building a truly Decentralized Society.

30/09/2022

SWIFT and DeFi

The amount of interest the Traditional Finance (TradFi) space has shown into Decentralized Finance (DeFi) is undeniable at this point. It seems that DeFi which was once touted to be the replacement for TradFi has instead formed a symbiotic relationship with the TradFi incumbents.

For TradFi, DeFi helps them solve the overall inefficiencies in their industry which has been plagued with middlemen and high administrative fees. For DeFi, collaborating with TradFi gives them a greater enhanced liquidity and user base. The cost of acquiring users is also much higher for retail clients as compared to marketing products to institutions. As such, this new "Institutional DeFi" is the one of the more recent developments in the DeFi space and is one that has the potential to introduce DeFi into our daily lives.

Another milestone in Institutional DeFi has been reached today when the Society for Worldwide International Financial Telecommunications (SWIFT) network announced its partnership with Decentralized Oracle network, Chainlink to build a Cross-Chain protocol for TradFi to further integrate into DeFi.

Today the SWIFT network is the interbank messaging system that allows for cross border payments. SWIFT recently announced that it will be partnering with Chainlink to a Cross-Chain interoperability protocol (CCIP) in an initial Proof of Concept.

CCIP will enable SWIFT messages to instruct Smart Contracts on the Blockchain to execute on-chain token transfers, helping the interbank network operate and communicate across all Blockchain environments. Having SWIFT, the cornerstone of international finance today investing this heavily into DeFi will no doubt help to accelerate the adoption of Distributed Ledger Technology Blockchains and benefit various institutions across capital markets.

SWIFT's Strategy Director Jonathan Ehrenfeld Solé said that one of the reasons working with Chainlink on CCIP has been successful is that there is "undeniable interest" in crypto from institutional investors. Traditional finance (TradFi) players want access to various digital and traditional assets on one network that can connect different types of asset classes, Solé said.

This partnership between SWIFT and Chainlink is a huge leap forward in bridging the gap between traditional and digital assets for TradFi institutions. This collaboration further cements Institutional DeFi as the way forward to bring the benefits of DeFi into our everyday lives.

27/09/2022

Blockchain Bridges

A Blockchain bridge, otherwise known as a cross chain bridge, connects two Blockchain and allows users to send cryptocurrency from one chain to the other. It works just like bridges we know in the real world. Just as a physical bridge connects two physical locations together, a Blockchain Bridge connects two Blockchain ecosystems together.

One of the biggest issues with cryptocurrencies today is their inability to work together. While dynamic and full of functionalities, cryptocurrencies are limited by the walls of their own domain. Blockchain bridges solves this problem by enabling token transfers, smart contracts, and data to be shared between independent Blockchain. This allows Blockchains to be interoperable and this interoperability is the cornerstone of how the internet works today.

However, not all bridges function the same way. Some bridges are known as unidirectional bridges. As such, they only allow the user to port assets only to a target Blockchain and not the other way around. For example, wrapped bitcoin allows you to send Bitcoin to the Ethereum Blockchain but not the other way around as Ethereum cannot be sent to Bitcoin. The other type of bridge are bidirectional bridges that allow the two-way transfer of assets to and from Blockchains. As such, you can freely convert assets to and from Blockchains just like how a user may send Solana to Ethereum and likewise Ethereum to Solana.

Bridges can also be custodial or noncustodial. In a centralized bridge such as BitGo, all wrapped tokens are held in custody of the custodial company whereas in noncustodial bridges such as Wormhole, the tokens are held by the protocol which allows for greater decentralization. While proponents of decentralization argue that the centralized approach makes the bridge less secure, the decentralized approach is still vulnerable to exploits such as the one in Wormhole. As such, investors should always do their own research about the bridges they plan to use.

Blockchain bridges allow users to tap onto the benefits of multiple protocols and Blockchains. Building the future of an open interoperable decentralized web requires the spirit of collaboration. Blockchain bridges provide a promising way to move beyond walled networks to promote greater innovation, user adoption and technological relevance. By tapping onto the strengths of multiple Blockchains and its protocols, the next generation of the decentralized web can be formulated and turned into reality.

19/09/2022

Impermanent Loss

Now that we know about Decentralized Exchanges and their use of Automated Market Makers and Liquidity Pools to facilitate trade from the previous post, we will now learn about a potential risk associated with Liquidity Mining. That risk is known as Impermanent Loss.

Some might ask, if I am rewarded for providing liquidity to the pool through transaction fees, how can I still lose money? The answer to that question is mainly due to Impermanent Loss. Impermanent Loss occurs when a Liquidity Provider provides liquidity to a Liquidity Pool and the price of the deposited assets changes to when the tokens were first deposited.

The ultimate cause of impermanent loss is unequal price changes. For example, let's say an ETH/BTC pool is programmed to keep the value of both baskets set at a 1:1 ratio. Meaning, the value of all BTC should be the same as all ETH. At the time of your deposit, 1 BTC equals 10 ETH across most other exchanges, so you deposit 4 BTC and 40 ETH. At the time of depositing the tokens, the size of the pool was 20 BTC and 200 ETH, so your total share of liquidity is 20%. A month later, ETH doubled in value while BTC's price stayed the same. But the value of both token baskets in the pool don't yet reflect the ETH market-wide price of 0.2 BTC. So, arbitrage traders rush in to buy ETH at the discount until the pool ratio and token prices match the market rate. So once the pool supply reaches 20 BTC and 100 ETH, your 20% deposit will be worth 4 BTC and 20 ETH. That is a 20 ETH price difference from the initial 40 ETH deposit, resulting in an impermanent loss of 20 ETH.

Coins such as Stablecoins whose values are usually pegged to the price of fiat currencies are less exposed to Impermanent Losses. However, liquidity in the Pools can still cause these Stablecoins to "lose their pegs" whereby they can be valued either higher or lower than their pegs based on their liquidity in the Pools.

Knowing the risk of Impermanent Losses, why are Liquidity Providers still providing Liquidity to the AMMs if they are exposed to this risk. This is due to the fact that the Losses experienced here are "impermanent". They only become permanent the moment you withdraw your tokens from the Liquidity Pool. By then, the fees that you have earned could have more than compensated for the losses.

Nonetheless, one must be cautious when depositing funds into Liquidity Pools as some are more exposed to the risk of Impermanent Losses as compared to others. A general rule of thumb to take note of is that the volatile the assets are in the pool, the more likely they will be exposed to impermanent Losses. One should also take note of Liquidity Pools that promise supernormal rate of returns as the associated risk for these pools also tend to be higher.

19/09/2022

Liquidity Pools

In the previous article, we talked about Decentralized Exchanges (DEXes) and how they work by using Automated Market Makers (AMM). In today's post, we will dive deeper into understanding how AMMs operate through Liquidity Pools.

The AMM is a system where investors and liquidity providers add equal values of Stablecoins and Cryptocurrency coins into the pool. This allows other people to be able to trade a Stablecoin for another coin by exchanging the same value of Cryptocurrency with Stablecoins. Liquidity Providers provide a service to DEX traders by allowing for a pool of tokens that are easily tradable within the same Blockchain.

Liquidity Providers are especially important in cases where there are no sellers for a coin, in this case, the Liquidity Providers play the role of the seller and sells the tokens that they supply to the liquidity pool willing buyers. As such, Liquidity Providers are essential in DEXes, to facilitate trade between buyers and sellers.

So now that we understand how important Liquidity Providers are to the DEXes, one has to wonder what the rewards are for these people. These Liquidity Providers are essentially rewarded in the form of interest from trading fees, this is known as Liquidity Mining. On Uniswap example, there is a fixed transaction fee of 0.3%. Some Liquidity Providers even switch between Liquidity Pools to maximize their earnings, this is known as yield farming. Depending on the investment pool invested and the amount of transactions on the platform, Liquidity Providers can stand to earn anywhere from 2% to 50% annual interest from fees.

Liquidity Pools have a direct correlation with trade prices and volume and as such, affect the token's prices. In fact, the difference in liquidity from different platforms account for the small difference in prices of Cryptocurrencies that you see from platform to platform (For example, the price of Bitcoin on Binance could be slightly different than on Crypto(dot)com or on Uniswap). Investors should also take note of liquidity as Cryptocurrencies with higher liquidities have higher trading volume and lower volatility, whereas those with little or no liquidity have much higher volatility.

As DEXes become more popular, Liquidity Pools will see more and more relevance amongst Cryptocurrency investors.

19/09/2022

CEX vs DEX

Decentralized Exchanges (DEX) have seen an increase in popularity over the years partly driven by the hype of Decentralized Finance (DeFi). But the rise of DEXes like Uniswap and the fall of many Centralized Exchanges (CEX) has brought back the debate between DEXes and CEXes.

To first understand what a DEX is we must first understand what a CEX is. A CEX, such as Crypto(dot)com, Binance, OKEx, is an exchange that keeps its own order book. Every order and transaction that is carried out in the exchange is recorded and validated by the dedicated servers of these Centralized Operators of these exchanges. These centralized exchanges usually operate under regulatory supervision and have many Know-Your-Customer (KYC) measures to ensure that customers are not carrying out illicit activity. The volume of orders and transactions is usually a lot higher than on DEXes as the network nodes do not need to be updated in real time resulting in high trading speeds and high liquidities. However, the biggest con behind CCU is its custodial nature. The coins that you own from a CEX is entirely custodial in nature, the Blockchain does not record the coins belonging to you, but instead records the coins as belonging to the CEX operator. Only the CEX keeps data on which coins belong to which individuals, however, in the cases whereby CEXes become insolvent, it is very hard to retrieve your funds from the CEXes and it is very hard to prove that the coins belong to you as that record is not stored on the Blockchain. Finally, one must understand that the companies behind CEXs are usually profit making in nature. As a result, they tend to charge high transaction fees or increase the spread of the buying and selling price to make profits for themselves at the expense of the users.

DEXes offer the same core functionality as CEXes as essentially a matchmaking algorithm that regulates supply and demand. However, the main difference is that it uses a decentralized Automated Market Maker (AMM) to facilitate these transactions. As such, a DEX is not based on internal servers and its own IT infrastructure but acts as a Decentralized Application (dApp) on a Blockchain. Furthermore, DEXes, are free from government requirements, regulations and monitoring. Users also deal with each other directly with no third-party profit-making company in between to facilitate transactions. Lastly and most importantly, DEXes completely non-custodial in nature. As a result, each user has full access to their private keys and therefore their crypto assets. All ownership rights of the tokens are recorded on the publicly viewable Blockchain. Furthermore, due to DEXes running directly on the Blockchain, it is less susceptible to hacks and server failures unlike CEXes.

In conclusion, the insolvency of many Crypto CEXes recently and the difficulty in investors recuperating funds has brought back even more attention to DEXes. Their non-custodial nature and lack of a centralized profit making third parties facilitating transactions are strong arguments made for DEXes. However, the high liquidities and fast transaction exchanges on CEXes are still good reasons as to why an individual might still want to choose to use CEXes rather than DEXes. In the end, it is up to the investors to weigh the pros and cons of CEXes and DEXes to decide which is the more appropriate investment tool for them.

09/09/2022

Why is DeFi Targeting Institutions?

When Decentralized Finance (DeFi) was first introduced, it was heralded as the replacement to Traditional Finance (TradFi). Its open, transparent yet secure manner of making financial transactions was poised as a potential disruptor to TradFi which comprised mostly of large centrally governed institutions acting as financial intermediaries.

However, increasingly, DeFi companies are targeting the sector they once sought to take over. The shift also seems to occur across the board. Ethereum's lending projects Aave and Compound have started offering institutional versions of their products in 2021.

Institutional DeFi growing at a rapid pace and there seems to be interests coming from both the DeFi and TradFi community to make it happen sooner rather than later. From the TradFi, they see Blockchain as a way to improve the overall efficiencies in their industry which has been traditionally plagued with middlemen and high administrative costs. In fact, DBS Bank's CEO Piyush Gupta was even quoted in saying that "Blockchain will power the back office of the world in 5 to 10 years".

From the DeEi sector, they are moving to where Maker developer Nik Kunkel refers to as "where the growth is". Many DeFi projects have found that user base as well as liquidity can be greatly enhanced by collaborating with the TradFi market. Cost of acquiring a user is also much higher for retail clients as compared to marketing products to institutions. As such, many players in the DeFi space see upgrading TradFi much more viable alternative than replacing it entirely.

Institutional DeFi is a relatively new and promising symbiotic development that may usher in a new age of Finance that leverages heavily on the Blockchain Technology to remove inefficiencies faced in our traditional financial markets today.

09/09/2022

Rentable NFT Protocol

A rentable NFT standard EIP-4907 submitted by NFT rental marketplace Double Protocol has passed the final review by the Ethereum network development team and has officially become the 30th ERC token standard.

This new standard realizes the separation of NFT ownership and usage rights and will immediately withdraw usage rights upon expiration.

In the very near future when NFTs are fully utilized as access passes to virtual experiences, rentable NFTs allow for users to rent instead of owning NFTs. NFT owners can also stand to generate income for themselves by renting out their NFTs when not in use, allowing for more people to have access to the virtual experiences and thus making their assets more liquid.

ERC-4907 is a great new protocol that will greatly reduce the development and integration costs of utility NFTs and is a great addition to the Ethereum network for everyone.

06/09/2022

Ethereum Merge: Opportunities & Risks

Ethereum's full transition to Proof of Stake (PoS) will set it apart further from Bitcoin which still relies on Proof of Work (PoW). This upgrade is set to improve security, reduce energy consumption and make the Ethereum Network more scalable. Issuance of ETH will also fall to 1,600 per day, a decrease of almost 90% reinforcing the narrative of it becoming a deflationary asset.

However, as the day of The Merge draw near, many investors are wondering about the various opportunities and risks involved with the new upgrade. In todays post, we will be exploring this question and demystify one of the most anticipated moments in all of cryptocurrency history.

We will first begin by exploring all the opportunities. By transitioning to PoS, the power consumption needed to secure the Ethereum network is slashed by 99.95%. This in turn brings down many of the detractor's arguments that Crypto and Blockchain is "Killing the Planet". This also makes Ethereum more friendly to users who are concerned about the environmental impact that they now are able to use the network guilt free. Furthermore, PoS will bring about further decentralization as everyday Ethereum enthusiast will be able to secure the network from their homes. No longer will there be a need for expensive and specialized mining hardware that are monopolized by institutions and sophisticated mining pools. This further decentralization will make the network even more resistant to majority attacks such as the much dreaded 51% attack. Lastly, with improved scalability, more users will be able to use the network with less congestion and lower gas fees especially with the help of layer 2 solutions that will further accentuate the scalability benefits. This increase usage will lead to greater demand, more mainstream adoption and hopefully and increase in the price of ETH.

However, along with the opportunities come the risk. One potential risk is that The Merge fails. While the Ethereum Foundation has taken care in preparing themselves for The Merge by practicing it on three testnets, there is still a non-zero chance that the final Merge may fail. As The Merge is set to take place without any downtime, a failure here could lead to dApps, running on Ethereum network failing, potentially costing users of these dApps, a lot of money. Furthermore, a failure here would catch the attention of the US Government who are keeping a watchful eye on the entire Crypto space very intently. They may potentially sanction Ethereum with huge implications for the rest of the Crypto industry just like how they recently did for Tornado Cash in light of money laundering and terror related allegations.

The Merge that is set to take place this month is one of the most hotly anticipated events in all of Crypto history with implications that are ever reaching in the entire world of Crypto and Blockchain. While there is tremendous opportunity to be made here, one must always watch out for the risk. Now more than ever, investors should Do Your Own Research (DYOR) here and make sure the risks are fully understood before making an investment decision.

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