Yield farming has been an immensely popular activity for cryptocurrency holders since the explosion of Decentralized Finance (DeFi) in the summer of 2020. However, with the exploration, people gradually found the disadvantages of leveraging yield farming. DeFi becomes DeFi because, apart from the underlying blockchain infrastructure (such as Ethereum), the most important thing is the provision of liquidity. This is the lifeblood of DeFi. However, this incentive model may lead to excessive utilization of projects and protocols by some liquidity providers, or even accelerate the demise of projects. In this model, liquidity providers are inconsistent with the long-term interests of the protocol, resulting in slow growth in DeFi.
The development of decentralized finance depends on the improvement of liquidity and capital efficiency. I don’t see the DeFi 2.0 trend deviating in either direction, it has to be integrated with rice scenarios and vertical combinations. In fact, all the directions and solutions can be summarized as: getting people and money moving faster, incentivizing individual users to contribute to projects through decentralized autonomous organizations (DAOs), and maximizing capital utilization through protocol stacks.
If the exchange, lending and AMM curves of DeFi 1.0 formed the foundation of DeFi, then DeFi 2.0 may not be regarded as disruptive as the DeFi 1.0 era, but it is definitely on a mission to lead the continuous innovation of DeFi.
Next, improving capital efficiency is undoubtedly the most important part of DeFi. So, in this article, I will discuss SheepDex an automated market maker (AMM), which leverages concentrated liquidity. Compared to the simpler LP strategies on V2, V3 is clearly more efficient in market making. But V3 also has a higher threshold, and there is bound to be a place for more professional V3 market-making. Nevertheless, the high gas fees on Ethereum is also frustrating when users need to update their positions frequently. I recently chose SheepDex because it makes such a market affordable for most users, who can achieve greater capital efficiency on SheepDex.
Safety
One of the most common scams in DeFi is the rug pull. We are all familiar with the term, which refers to a malicious maneuver in the cryptocurrency industry where crypto developers abandon a project and run away with investors’ funds from staked assets, liquidity mining and yield farming. As these scams or frauds have become more common, many projects have begun using various measures to protect user assets as they promised. Among the widely used methods, Timelock is one of the important ones. A Timelock is a smart contract that is used to ensure that developers and project owners cannot make quick changes to token and masterchef contracts. They provide a delay mechanism which requires the changes to be queued and then executed after the required time has passed. This allows the community to ensure that they are aware of upcoming changes.
In order to secure the SheepDex contract, it has been audited by CertiK and PeckShield. Some users may not consider it a 100% secured measure because authorization for token transactions is in the hands of the team. Therefore, only using TimeLock may not be a good solution if the contract needs a temporary deployment or encounters an emergency that cannot be immediately responded to. Therefore, to ensure security, the SheepDex team is prepared to enable multisig, which provides more security than single-signature transactions. It is also known as M-of-N transactions, where M is the number of signatures or keys required and N is the total number of signatures or keys involved in the transaction.
With multisig addresses, it is difficult for a hacker to obtain all the private keys. As a result, the loss of funds may become more difficult, as well as internal theft.
Innovation
Uniswap V3, as it is known, has also brought in impermanent loss since it shifted the liquidity pie from professional market makers to retail investors. SheepDex 2.0 even offers a new solution for some start-ups where you can provide liquidity on SheepDex with a new tool (CandyDao) and earn the fees from transactions. For example, if you are listing the ABC/USDC pool on SheepDex, LPs can earn trading fees, and you can also reward ABC tokens to the traders.
If there are users bullish on your project, they will become direct ABC holders. There’s even a lot of advanced gameplay, with lots of combinations of strategies that you can explore on SheepDex.
Transparency
Over the past few decades, share buybacks have become a popular way for companies to maintain price stability (or curb inflation). The cryptocurrency market has largely developed through strategies that integrate traditional financial markets, strategies that leverage traditional markets, and applications that cater to the needs of decentralized assets. As far as I am concerned, the SheepDex team had their first buyback and burn on November 29. This has stimulated the deflation of SPC. SheepDex will also release the announcements for token burns, which will not only allow users to calculate the circulation and market cap, but also make each buyback & burn more transparent.
Liquidity
A tokens split is similar to a stock split. A stock split is when a company divides the existing shares of its stock into multiple new shares to boost the stock’s liquidity. After a split, the stock price per share is reduced, but less capital is required to buy the shares, bringing more liquidity for the market. In addition, more potential shareholders can become holders as they become affordable, which in turn improves the stock’s circulation and transactions. This would lead to the increase of the number of the shareholders, so this could also prevent a hostile takeover.
According to SheepDex, its governance token SPC will start redenomination and a 10-for-1 token split. So why does SheepDex initiate this token split?
In fact, token split is not a new term in the crypto world. According to the roadmap, SheepDex is a decentralized liquidity aggregator that integrates spot and derivatives trading. In response to the rewards for derivatives, SPC tokens will be converted into new SPC tokens at a 10-for-1 ratio, which will make the value of SPC more ergonomic. This will not only facilitate the circulation and trading of SPC tokens, but also allow the community to become more decentralized (as token liquidity and the number of token holders will increase).
The reason for this is that a token split can make shares seem more affordable to small investors (even though the underlying value of the company has not changed). This has the practical effect of increasing liquidity in the stock.
The completion of SPC split will mean a 10-fold increase in total SPC from the original 90 million to 900 million, and the token price will also be reduced to 1/10 of the original token price. At the same time, the number of SPC held by the holders changes to 10 times, but the allocation shares of SPC holders in the total supply will not change, nor does it affect the total value of SPC holders’ tokens. From a market point of view, SheepDex will see the creation of more cryptographic application derivatives for specific needs. With these derivatives SheepDex will definitely be a key player in DeFi 2.0.
