Decentralized Finance is an innovation in the most important revolution since the internet: Cryptocurrencies.
As of November 2023, Decentralized Exchanges (DEXs) account for less than 10% of the trading volume compared to Centralized Exchanges (CEXs), and this trend started to change in June 2023 when the SEC went after BINANCE and Coinbase. Centralized exchanges are characterized by their opacity, indeed wash trading, fake volumes, and high-security risks. On the other hand, decentralized finance (DeFi) brings transparency to the crypto ecosystem. It empowers users with total control of their cryptocurrencies.
Decentralized Finance platforms usually reward participants with transaction fees and newly minted platform tokens as they rely on their users’ liquidity. This practice often results in high inflation of the native token, reducing its value and creating a downward spiral with the liquidity further decreasing.
SLOFI is introducing the DeFI MINING Mechanism to solve this problem inherited since Decentralized Finance’s inception, laying the groundwork for the evolution into DeFi 2.0.
DeFI MINING Mechanism
For the first time, SLOFI is introducing a difficulty adjustment mechanism designed to respond dynamically to the changes occurring on the platform.
We are drawing inspiration from the Bitcoin mining mechanism to create a system that adjusts the minting rate of SLOFI tokens based on the Total Value Locked (TVL) — essentially, the total amount of assets deposited in the platform. This innovative approach ensures that the minting rate adjusts in response to the actual economic activity and value within the platform, maintaining a balanced and sustainable ecosystem.
Bitcoin mining adjusts the network hashrate difficulty to maintain a consistent block time. Similarly, the SLOFI Techno-Economic model adjusts the minting rate to the total value locked (TVL) to maintain economic stability within the platform. Dr. ZS Blockchain Researcher
We also introduce a ‘halving’ mechanism, a term borrowed from Bitcoin, which refers to the reduction of reward rates over time — in our case, reducing the rate at which new SLOFI tokens are minted by 30% every six months to prevent inflation and maintain the token’s value.
An Economic Directly Inspired By Bitcoin Mining
- The Total Value Locked (TVL) corresponds to the mining power.
- The Total Value Locked (TVL) defines the minting rate of the SLOFI token.
- The difficulty is the Annual Percentage Rate (APR) and defining the minting SLOFI tokens.
- “Halving” every six months with a 30% decrease.
This dynamic mechanism aims to create a more predictable and secure environment for investors and participants by adjusting the token supply based on the Total Value Locked on the platform, allowing for greater price and liquidity stability.
How Does It Work?
After an initial period of 3 months, the initial platform’s liquidity (Base Liquidity) is established, as well as the Base Minting rate. These base rates will be readjusted every six months.
Every month, the platform will dynamically check the Total Value Locked. Suppose the platform liquidity decreases by 10% or more during the period. In that case, a “sensitivity window” will reduce the SLOFI issuance by 2% for every 1% decrease in Total Value Locked.
SLOFI DeFi Mining Mechanism Flowchart
3 Scenarios to Understand the SLOFI Techo Economics
Scenario 1 - Adjusting Minting Rate After Liquidity Decrease: Let’s assume the platform’s Base Liquidity is 10 million USD; if Total Value Locked decreases by 12%, then the mechanism decreases the minting of SLOFI tokens by 24%.
Scenario 2 - Adjusting Minting Rate After Liquidity Increase: If the liquidity increases during the period, the issuance will remain unchanged, and halvings will reduce the emission by 30% every six months.
Scenario 3 — Adjusting Minting Rate After Liquidity Decrease: In the case the platform’s liquidity would decrease by 20% from the Base Liquidity and then increase by 10% during the following period, the minting rate will be increased by 25% compared to the previous month. — However, the minting rate cannot exceed the one established for the Base Liquidity.
The aim here is to achieve market stabilization through careful and transparent adjustment of token issuance.
The protocol boosts the value of SLOFI by carefully controlling how new tokens are minted. This approach can stabilize the amount of money invested in the platform (Total Value Locked or TVL), increase the market price of SLOFI tokens, and enhance the users' profitability (APR).
By directly linking the platform’s performance with the liquidity providers’ rewards, the Techno-Economics has the capacity to generate positive returns for its participants and a sustainable platform’s health.
This is your invitation to be part of something transformative. Join the Sloth Finance community today or take your chance to be among the early adopters by joining their 1st Adopters Giveaway
