Like any new technology, the crypto ecosystem will need to be built in waves. In August 2018, the seeds of a new wave were planted in a Telegram chat with the concept of Decentralized Finance or simply “DeFi”.
With the advent of DeFi, came opportunities to take traditional financial applications (lending/borrowing, margin trading, exchanges) and implement them in new & efficient ways, creating a rallying cry for web3 communities and proving the value of blockchain.
One of the more intriguing applications of DeFi has been the concept of yield farming, and supercharging one’s returns through Liquidity Mining in projects like Ampleforth or Compound. Liquidity Mining is revolutionary in that it rewards network participation by giving a protocol’s native token to a user who provides the protocol with capital. However the implementation hasn’t been without issues.
When you boil yield farming down to its core it really comes down to a very simple need: How can I ensure that I am getting the best return on my assets?
More often than not this usually relies on discovering protocols that are paying out high APY for providing liquidity, and if possible, further increasing these returns through additional incentive payouts via Liquidity Provider (LP) tokens (hence the term liquidity mining).
Problem 1: Liquidity Providers (LP) interacting with protocols
While the concept seems simple on the surface, the liquidity mining process is actually more difficult than it sounds. For starters, those seeking liquidity mining rewards aren’t able to find the best protocols that that offer these rewards. It’s a difficult process to figure out and often takes time to learn how to interact in the DeFi ecosystem.
Problem 2: Liquidity Providers (LP) having confidence in the protocols once found
Once a project delivering high APY is found, there is the issue of security. It’s an open secret that there is a price to pay when dabbling in liquidity mining, and that price is normally a risk. We often hear the phrase, “don’t risk more than you are willing to lose” for this reason. Any experienced yield farmer has at least one scar from losing deposited funds in vulnerabilities that lie in the protocol’s smart contact, often called “technology risk” or “smart contract risk.” However, we believe that it doesn’t have to be this way.
Problem 3: Liquidity Seekers (LS) ensuring that rewards are going to trustworthy actors
Lastly, there comes the issue of LS trust in the LP, as in how can the protocol offering rewards actually trust that the actor providing liquidity has been properly vetted and has the right motivations. Existing solutions like whitelisting, have been leveraged by protocols to ensure that older DeFi ecosystem participants that have been active are the ones who are rewarded.
Our Solution: Introducing Method NFT vault
So the solution to liquidity mining is…CryptoKitties?
Not CryptoKitties per se, but the technology behind them. If you’ve been paying attention, you’ve probably picked up on the fact that Non-Fungible Tokens (NFTs) have been gaining massive adoption in recent weeks.
They are applicable to far more use cases than just art and music, especially within the DeFi ecosystem. In the case of Method Finance, we saw an opportunity to leverage NFTs to solve the current problems that will enable even more adoption within the space and fundamentally shift the way we prove our loyalty to protocols through liquidity mining.
We are announcing the launch of our Method NFT by leveraging ERC-721 contracts (the same standard used by the popular CryptoKitties).
Through our Method NFT, Liquidity Providers can stake liquidity to their NFT, which then proves they are providing liquidity and should earn rewards, without needing to stake directly into a protocol’s smart contract. This makes it a win-win for legitimate providers and protocols, while increasing confidence in the DeFi ecosystem.
Furthermore, our tools provide other benefits such as the ability to:
- Liquidity mine across multiple protocols simultaneously
- Signal liquidity availability to interested parties in a rapid manner
- Create a trusted identity around the NFT owner or the NFT itself
And all of this while retaining custody and self-sovereignty over assets.
Join the Revolution
Keep an eye out for our next post in which we will explain the process for Method NFT minting and the details behind our upcoming token sale!