Why did Flamingo, which Neo invested heavily in, fall? (DeFi drama)

At the end of August, when DeFi was at its peak, the NEO Foundation announced that it would invest in the NEO-based DeFi platform Flamingo.finance. One month later, DeFi coins plummeted, and Flamingo started to fall as soon as it was listed on OK Binance, falling from a high of $4.49 to the current $0.18, a drop of 96%.

Why is it that such a high-quality project, which has the support of well-known investors and large firms, has consumed a considerable market budget, and has become the first domestic DeFi project with great momentum, and many wallets and DeFi financial management projects have participated in it, has not received the expected popularity and has even been "ridiculed" by overseas communities? What is the reason?

Poor launch timing

The successful DeFi projects in this round have actually gone through 1-2 years of trials and tribulations. DeFi projects launched after July this year are actually suspected of being listed to take advantage of the popularity. Flamingo was established in August when DeFi was accelerating to the top. According to the content of the white paper, its main components include cross-chain gateways, one-stop asset management centers, and DEX based on automatic market makers, which are a mixture of popular elements of current DeFi projects. The one-month project development time is indeed the common packaging time for Chinese cryptocurrency projects.

However, "unfortunately", the launch of Flamingo was still a step late. When it was officially launched in September, DeFi coins were facing a sharp correction, and its token FLM was ultimately unable to develop independently.

Economic models face the risk of losing control

Although the white paper mentions that there is no pre-sale, pre-mining, or team allocation of FLM, Flamingo will be promoted by the Neo Foundation in the early stage, so it adopts the POA (Proof-of-Authority) mechanism and will gradually transition to DAO. In addition, the total amount of FLM is not fixed. The white paper only gives the token release plan for the first thirteen weeks, and its long-term release mechanism will be decided by the DAO's proposal vote.

The key issue is that the voting rate for governance proposals in most blockchain projects is extremely low. We have mentioned before that even the well-known DeFi project Compound only had a 13% voting rate for new coin proposals, and the top 10 addresses accounted for 96.7% of the total votes. For new generation projects like Flamingo, the situation of distributed governance may be even more pessimistic.

The unlimited issuance of FLM coins poses a risk of arbitrary issuance. The project owner can change the platform parameters at any time and decide whether to issue more FLM coins. Ultimately, the so-called "DAO" will become an unattainable false proposition and may cause the project's economic model to be out of control and become a vassal controlled by the Neo Foundation.

Doing DeFi on NEO is a false demand

Neo is similar to Ethereum in that both can run Turing-complete smart contracts. However, in terms of daily average trading volume, ETH's 24-hour trading volume is $10.5 billion, while NEO's 24-hour trading volume is only $400 million. The two are not on the same order of magnitude.

Currently, the top five assets on the Neo blockchain, GAS, NEO and HNEO, are all directly related to NEO, while Effect.AI has announced that it will abandon NEO and switch to EOS, and DeepBrain has disappeared with a market value of less than 2 million US dollars. In such an almost "self-operated" public chain ecosystem, do Neo users really have a demand for DeFi?

Users are not buying into Flamingo, which is directly reflected in the platform data. Currently, only 7 tokens can provide liquidity on the Flamingo platform, with a liquidity market value of only about $177 million and a daily trading volume of less than $2 million, which is a huge gap compared to DeFi projects on Ethereum such as Uniswap. On Ethereum, taking Uniswap as an example, its liquidity market value is about $3.19 billion and its 24-hour trading volume is about $230 million, which has an overwhelming advantage over Flamingo.

Digging for financial management "hollowing out" projects

Most of the users who remain in the cryptocurrency circle today are experienced old hands. If it is during the bull market bubble, some investors may bet on some new DeFi projects because of their excitement. But when the market is depressed, users tend to wait and see. At this time, the stability of the new project's coin price depends more on whether the project has a good market-making team and the willingness to support the bottom.

Obviously, we do not see the willingness to stabilize the coin price on FLM. According to the information fed back by the K-line, miners prefer the "mining, selling and withdrawing" mode of operation, lacking any "belief" in the project itself, which adds haze to the so-called DAO model. In particular, FLM has logged in a large number of DeFi mining products, and will immediately exchange them for stable coins after mining, which has exacerbated the mining, selling and withdrawing.

Based on the total amount of 150 million FLM in the early stage of the project, the current market value of the Flamingo project is less than 30 million US dollars. What is worrying is that the continued decline is likely to cause FLM to eventually fall into a "death spiral" and become a short-lived product in the cryptocurrency circle.

From the Internet to the cryptocurrency industry, pixel-level imitation + user experience improvement + low-price competition is the strategy of most Chinese projects. However, in this round of DeFi wave, this model has been largely denied. Projects that cannot innovate and cannot directly compete with overseas DeFi will be eliminated very quickly.

(The data analyzed in this article are all from November 16)