Will the return from multiple nesting dolls be high? On the self-adjustment of Defi return rates

When DEFI was hot, many people started to engage in various mining activities, such as big names like Shenyu. Later, when the DEFI on TRON and EOS chains became active, ordinary retail investors also felt the revolutionary nature of DEFI, so they all shouted the slogan "It's really good" and participated in it. However, there is one thing that many people don't pay much attention to, that is, people who participate in liquidity mining generally have to spend a lot of time to operate, but we all know that the operation should not take too much time.

Anyone who has experienced DEFI liquidity mining knows that the operation of liquidity mining is often relatively simple, and it is nothing more than the following steps:

1. Withdraw the coins to your wallet

2. Execute the contract on the DEFI project page to lock the position

3. Wait until the right time to harvest or claim the profits

Of course, if there is a fourth step, it is to transfer the earned tokens to an exchange or swap for cash sale.

In fact, the operation in the middle does not take much time. Even if Ethereum is congested, it can usually be completed in an hour or two. But these big guys are working on it all night long. Does it take so much time?

In fact, this is really necessary here, which involves the issue of how to maximize the utilization of funds. Because the weights of liquidity mining are different for different projects, even if the amount is the same, the benefits obtained are very different. Therefore, people who participate in mining need to calculate how to maximize their benefits at the beginning of the project, and this process takes up more time.

Another point is that in the calculation process, the risk preferences of various participants are actually different. For example, the author previously used liquidity market-making methods such as USDT and USDN in DEFIbox, which basically reduced the impermanent loss to a minimum. As long as there are no code loopholes, it is basically a guaranteed profit.

Similarly, some people may want to take a gamble and buy coins in the market to mine. In this way, if the price of the token falls, they will bear more losses. Of course, such high-weight mining trading pairs are basically new coins and there is no corresponding hedging system. Therefore, the risk is relatively large, but if the price stabilizes, then naturally they will make more money.

However, generally speaking, not everyone can bear such risks. Some people used the newly mined coins for market making when mining in the YFC mining pool on the EOS chain, and lost thousands of EOS in one night. This situation also exists.

This fact actually tells us one thing, that risk and return are directly proportional.

Similarly, when the market tends to be stable, for example, liquidity mining has been carried out for several days and the prices of related currencies are relatively stable and will not rise or fall sharply, then another wonderful thing will occur. That is, when no new projects appear, the income from liquidity mining among various projects is actually quite close.

Here is the simplest example, which is the various trading pairs in the liquidity mining of DEFIBOX and DEFIs on the EOS chain. Among them, there are many LP tokens mining projects on DEFIs recently, and it has even reached the level of three or four mining at one point. In other words, by doing a liquidity mining, you can get three or four shares of other project token income, and the income here will be included in the total income.

The corresponding comparison is as follows:

Considering that the box coin price fluctuations of the projects in DEFIbox are relatively small, and the nesting doll projects on DEFIs are all new projects that have just come out, the tokens will naturally fluctuate more. Therefore, it can be assumed here that if mining is long-term, the annualized rate of return difference of about 50% is acceptable.

This comparison actually tells us that among the mainstream mining projects, even for projects that use multiple nesting dolls, the profit level is basically comparable to similar projects, and the difference is not too big.

In fact, this also shows that in a single public chain system, if similar mining projects appear, then if the projects run for a long time, the rates of return will definitely be close, because "smart" funds will definitely find a way to flow to projects with high returns, thereby reducing the number of participants in projects with low returns. In this way, the original funds will be allocated more, thus completing a rebalancing process of interest rates.

In addition, if not, then there are two situations. The first is that the funds are still flowing and have not yet reached balance. The second is that projects with small returns have potential bullish advantages.

The yield rebalancing process of DEFI is also closely related to the throughput of the public chain. That is to say, the larger the TPS, the lower the cost of capital circulation, and the easier it is to achieve a yield balance. Similarly, the smaller the TPS, the higher the cost of capital circulation, and the more difficult it is to achieve a yield balance.

For example, the yields of various EOS projects are basically the same, but on Ethereum, there is still a big gap in the yields of different market-making projects. This is mainly because the current Ethereum transaction fee is relatively high, which makes the capital flow cost higher.

In fact, this view can be further extended. We can believe that the public chain with greater liquidity resistance will have a longer duration of popularity for its DEFI project. Similarly, the public chain with smaller liquidity resistance will have a shorter duration of popularity for its DEFI project.

The simplest comparison is that the previously popular liquidity mining projects on Ethereum actually have relatively good yields now. However, in comparison, we have seen that the liquidity mining projects on Tron and EOS chains have passed a hype period, and the prices of mined tokens have now fallen by a large part. Old projects can basically only rely on nesting dolls to maintain their popularity. If there are no nesting doll projects, like DEFIBOX, they can only maintain a relatively balanced mining yield through continuous governance. Therefore, the mining yield on the EOS chain is now constantly declining.

Similarly, this situation can also be generally extended to various basic DEFI lending and financial management of large blockchains. A few months ago, we all knew that mining on Compound caused the interest rate of USDT to reach more than 10% at one time. This also caused many other projects with similar functions, such as AAVE's lending and other interest rates to generally increase. This actually happened on Tron and EOS, which also shows that the interest rates of various markets are the same.

Similarly, when the interest rate of basic DEFI becomes higher, it will also prompt real-world funds to continue to flow into DEFI, which to a certain extent also pushes up the funds in the currency circle. This also shows that in this round of bull market, DEFI naturally played a very important role in boosting it.

This article is for discussion only. Various types of liquidity mining have various risks, please participate with caution.