This article was posted at 0000, Buenos Aires time, January 1st, 2021, Happy New Year to all of you PUBLISH0X guys, thanks for everything you gave me!
I would not want you to lose sight of the fact that the objective of this blog is to analyze the changes that the tokenization of the global economy sets in motion, and how we should think about the economic future of the next generations. That is why I sometimes show how the current sinister financial system works and what are the basic changes that the crypto-sphere sets in motion.
Yesterday, a very angry friend asked me what the mosquitoes are for. The question has to do with several reasons. First, because I am passionate about studying natural ecosystems, and my friends know it. I believe that nature is not wrong and that all species have a role to play in any ecosystem. Second, it is summer in Buenos Aires, it is very hot and mosquitoes proliferate. Third, there is a narrative in the media about the alleged transmission of disease by mosquitoes. The latter of course, followed by the advertising round that sells drugs and poisons to fight mosquitoes.
My answer was very simple. I live in a small wooded village on the Atlantic coast, and by this time, everything is flooded with mosquitoes. The issue to consider, in a very simplified way, is that mosquitoes "serve" in some way to be part of a chain. They are the food of other species, birds, bats, and other insects such as spiders. Together, they keep the soil PH in a stable state so that the trees can grow and, in this way, have the fabulous forest that we have.
We all tend to analyze the facts in isolation and not as part of a higher infinite system, which is called, ultimately, nature.
Therefore, when we analyze the tokenization of the economy, slowly but surely, we see a lot of projects that are shaping a new interweaving, aimed at disrupting a centralized, obsolete, dictatorial, and totally unnatural banking and financial system for the XXI century economy.
More than 95% of the money in circulation is made up of bank deposits. We are taught in colleges to think that the money that a bank lends comes from savings, in the form of deposits, from companies and families. This simplistic idea ignores that in the modern economy, retail banks are the ones that create the money, the ones that create the majority of that 95% of the money in circulation. The moment they grant a credit they are creating a deposit. Since it is not money transferred from a saver to a borrower, this money created is debt in private hands. It is just the opposite sequence to what academic textbooks describe. Oh! The university lies to us.
Most people are convinced that the amount of credit that flows in the market is determined by the Central Bank through the amounts of money that it issues to retail banks. Nothing could be further from the truth, since the money issued by the Central Banks is actually what the retail banks demand. The only thing that the Central Bank decides is the interest rate and depending on this, the commercial banks decide what amount to ask for, based on market interest rates, the final demand for loans, and the profit they can get. In textbooks, we are told that there is a “money multiplier”, and that, based on this, the monetary policies of the Central Bank are established, which is the one that controls the money in circulation. Again, a descriptive sequence opposite to the real one, since the amount placed in the market is that demanded by retails banks based on what we have described: interest rate, final demand, and benefit/risk. Ultimately, the reserves issued by the Central Bank are established based on the deposits that retail banks want to create, based on their profit expectations. Let us remember that the counterpart of the Central Bank reserves loaned to a retail bank is bank deposits.
Note the difference that exists between this scheme of manipulation by shareholders of banks and state bureaucrats, and the DeFi ecosystem, controlled by smart contracts that interact with liquidity pools, AMMs, lending and borrowing, bonding curves, and other algorithms. Of course, smart contracts can have bugs, and they can be influenced by whales, impermanent loss, slippage, arbitrators, and other evils, but, even so, the DeFi ecosystem is much more reliable than a system based on a concept of perversion and inflation management, in which only a few win.
Retail banks create money when they lend money. When your bank lends you money so that you can buy a house or a car, it is creating money, it does not act as an intermediary between you and a saver.
The sequence is as follows:
- 1? The commercial bank lends you money to buy the house
- 2? In its assets you appear as a debtor (you owe it that amount) and in its liabilities it appears, as a counterpart, a bank deposit. Money created.
- 3? The money it has lent to you is transferred to the seller's bank, like a bank deposit in its liability (it owes it to the one who sold you the house).
- 4th The seller's bank has to cover this liability with reserves from the central bank
In short: a deposit has not been transferred from one person to another, what has happened is that a deposit and a debt have been created in the market. A monetary aggregate has been created without the Central Bank has intervened or altered its monetary base reserves. How about?
Retail banks have no problem with reserves. If they are lacking, other banks lend them at the end of the day and, if in an exceptional situation they do not want to lend them, the Central Bank goes. In practice, there is no limit to the creation of money and debt by retail banks. There are no limits to the speed with which banks can create money because even if they do not have Central Bank reserves to make their payments, they know that they will receive money from other banks and even the Central Bank itself.
This is how the power of retail banks can be understood. This power not only affects us but also the States that live off the issuance of debt through these banks themselves. We are also one step away from understanding why retail banks are so violently opposed to “crowdfunding”, to any alternative financing mechanism, and, of course, to cryptocurrencies, vilifying them as scams and as “worthless” (as if fiat money had any value).
Retail banks base their narrative on their famous phrase "to protect savers." Honestly, I don't think they are too interested in savers. It is the loss of power and control that they will defend with drowning slaps until the end, in the face of the advent of decentralization and the massive acceptance of cryptocurrencies.
In any case, we are the ones who must defend ourselves against the banks and not wait for them to do so.
With that said, let's move on to today's two tokens.
ZIL
It is impossible to talk about blockchain and not talk about scalability at the same time. It seems to be the issue that most concerns developers, entrepreneurs, and users. And it is very logical. Therefore, any project that tries to solve this issue is always attractive.
One of the database management techniques that is coming to life in the crypto-sphere is “Sharding”. It is a process of fragmentation or horizontal division of databases into smaller parts or fragments, to make them less heavy and easier to operate.
Sharding was created in order to allow greater scalability in distributed and decentralized systems. But at present, its application in blockchain technology could greatly improve the scalability problems faced by other blockchains such as Bitcoin and Ethereum.
With the fragmentation in "shards", it is no longer necessary that all the nodes of the blockchain work in a linear way to validate all the data that is added to the chain, but they will operate in parallel and handle "shards" where the data will be distributed, and these "shards" will be responsible for validating and processing only the data that corresponds to them. And when all the groups of nodes finish executing the process assigned to them, all the information will be added to the blockchain, keeping it whole and complete, with the difference that the nodes will not handle the information in its entirety as it happens until now. The “sharding” method allows transactions to be processed much faster, improving the scalability and efficiency of the network.
Sharding is being experienced on some blockchains like Ethereum and Cardano. But other cryptocurrencies such as Zilliqa (ZIL) have already implemented sharding in their blockchains, reaching a total of 2,828 transactions per second in their test net. Incorporating sharding can revolutionize the work of smart contracts throughout the crypto-sphere.
Zilliqa is the first public blockchain built entirely on a sharded architecture. Zilliqa processes more transactions per second as more nodes join the network, and this is a huge differentiation from its competitors.
With the launch of the mainnet in January 2019, Zilliqa became the first public blockchain platform on the planet to successfully use sharding technology as a scalability solution.
The sharding method opens up unexpected avenues for parallel transaction processing. Each shard has the ability to independently process the transactions that are assigned to it, and, therefore, can achieve high throughput. In fact, when a transaction hits the network, it is assigned to a specific shard. The allocation is determined by the first few bits of the sender address of the transaction. (transaction sharding).
Zilliqa built a new language to write smart contracts called Scilla (Smart Contract Intermediate-Level Language), with the aim of increasing security and providing a robust environment for application development.
Zilliqa uses an improved version of PBFT (Practical Byzantine Fault Tolerance) as a consensus algorithm, which allows miners to receive better payouts and instant block completion so that no confirmation of a block is required as before. In its White Paper, published in August 2017 and based on the research of the founders at the National University of Singapore, Zilliqa states that the transaction speed is roughly a thousand times more than that of the Ethereum network. Thanks to the scalability of the Zilliqa blockchain, extremely low transaction fees are achieved.
One of the main problems with the Bitcoin and Ethereum blockchains is that each transaction needs several confirmations to be considered valid, and those confirmations are transformed into a block. On the other hand, in the Zilliqa blockchain, the consensus protocol allows that, once a transaction has been processed by the network, it becomes valid and then does not need another confirmation, while maintaining the degree of security necessary for the system remains reliable. In this way, Zilliqa has the potential to rival traditional payment methods such as VISA and MasterCard.
Zilliqa's native token is ZIL, and it has gained great popularity in recent months, especially for its ability to be staked with great advantages.
Zilliqa is now transitioning towards Zilliqa 2.0 which will include optimizations to improve throughput capacity, and latency improved smart contract language, and toolchain support.
Regarding the team, there is a group of expert scientists and academics from the University of Singapore, engineers, entrepreneurs, and businessmen and women from various industries. The founder, president, and CEO is Amrit Kumar, a renowned man in the blockchain and distributed systems industry.
Conclusion. The eternal blockchain trilemma can be solved in scalability, but seriously compromising security and decentralization. Zilliqa seems to have found a more than the acceptable balance between security, decentralization, and scalability. For this, according to the White Paper, the design of the Scilla language is of fundamental importance. For this reason, according to my criteria, it can be one of those long-term projects that make history.
The main advantage that sharding offers on a blockchain is to improve scalability. Transactions can be processed in parallel between several shards and validated faster, reducing the amount of time required, so that the network has the capacity to process a greater number of transactions per second.
Likewise, the implementation of sharding reduces the risk of centralization of the networks. Currently, the Bitcoin and Ethereum blockchains require the use of equipment with great computational power to be able to support all the information that is handled in these networks. Mining and validation equipment is very expensive so not many users may have the ability to buy it, so, an issue as important as decentralization is compromised and concentrated in a few processing centers.
With the implementation of sharding, it is not necessary to store the entire blockchain in the same node, so it is not necessary to buy expensive equipment. This allows many more people to have the possibility of participating in the network with their conventional hardware, guaranteeing its decentralization. It is possible that Zilliqa is changing the tide of blockchain ecology.
YFI
When in a few years someone is asked to define 2020 in one or two words, surely one of them is going to be Covid19. But, among the coiners, the thing is going to be fought between DeFi and YFI. DeFi because it was the ecosystem that humans found to begin to rid themselves of centuries of banking centralization and oppression through the indiscriminate printing of fiat money to favor the interests of politicians and corporations. And YFI, well, YFI because it was the currency that outperformed BTC in the price for a few days, and because it grew in a huge way in a few hours, something that had not yet been seen in the crypto-sphere until that moment. We all had the feeling of a baby growing too fast.
Image of Stefan Keller in Pixabay
YFI is the native token of Yearn Finance.
It was released on July 18, 2020, for about $ 32. Its price multiplied by 1,000, reaching more than $ 32,000. This means something like 99.900% in just a month. In just seven days, YFI grew 35,000%. Do you see why I say that YFI will be unforgettable, even if we don't know how the movie goes?
Yearn. Finance can be thought of as an intelligent robot that automatically allocates your assets to different low-risk investment strategies that run on the Ethereum blockchain, without you having to do anything other than deposit your coins.
It is the first Ethereum protocol that claims to give token holders all the power to govern the network.
Yearn.Finance comprises various functions within its ecosystem. Its best-known and most famous service is automatic yield farming that moves funds between other DeFi platforms. Yearn.Finance automatically seeks the best of all the fields in which something is harvested. It is as if a farmer could know in advance the future prices of vegetables and then stop planting corn for a while to harvest potatoes, or vice versa, and at the same time take a loan to harvest cucumbers because their price is going to rise a lot. If this could be done automatically, who wouldn't? Well, that's what Yearn.Finance does. Aggregate liquidity, leveraged trading, and automated market maker automatically and on the best platform available at that time. And now, in addition, it entered the world of insurance. Yinsure Finance offers insurance for assets placed in DeFi. It uses a vault and governance system to support the operation.
Yearn.Finance is basically a dApp built on the Ethereum network that tracks the markets and other platforms to search for the best profitability opportunities. We could define it as a "roboadvisor" for DeFi, an algorithm that gets everywhere, tracks, and automatically derives your investment so that you get the best return.
This automated profit maximization strategy is known in the crypto sphere as “Yield Farming” and is comprised of numerous services created by Yearn.Finance such as ytrade.finance, yliquidate.finance, yleverage.finance, ypool.finance, and yswap.exchange.
The YFI functions within the Yearn ecosystem as a governance token that is used as part of the vote in community decision-making. It was not created to have a value but as a utility token. However, Yearn's stability and success in the markets have undoubtedly made it one of the most valued cryptocurrencies of the moment.
The founder of Yearn.Finance is Andre Cronje, a South African developer with great experience in cryptocurrencies and the fintech sector. Cronje's goal was to automatically move funds between the dYdX, Aave, and Compound platforms, due to their known stability. The algorithm analyzed and decided the moments and the assets where the best returns were guaranteed.
Andre Cronje
Andre Cronje said from the beginning that YFI was about "a completely worthless token", "We reiterate, it has zero financial value. There is no pre-mined, no sale, it cannot be bought, it will not be on Uniswap, there will be no auction. We don't have any of that. "
The goal was to use the YFI token as part of the vote in decisions around the platform, but its popularity and confidence in its development, together with the lack of control, are causing it to be exchanged on BINANCE or Uniswap as another cryptocurrency. But what is most important to me is that there is only a maximum number of YFI tokens, 30,000 units, although, unlike Bitcoin, in this case, they are almost 100% in circulation (29,963).
In the Yearn.Finance ecosystem you can find the following financial products:
- Vaults: they are responsible for looking for the projects with the highest yield and lowest possible risk
- Earn: contribution of liquidity to investment pools in exchange for interest
- Zap: exchange to exchange cryptocurrencies within their pools and save on gas and commissions.
- Lending: loan service that also pays you with interest.
- Cover: risk insurance that protects you as a depositor.
YFI is a virtual currency that does not support mining. To earn YFI, users can buy directly on exchanges such as Binance, something that is not the preferred formula for its creator, or they can make deposits of funds to the liquidity pools of the platform.
Andrew Kang, an investor at Mechanism Capital, said: "It will be more difficult to get a YFI than to own a BTC. It's math."
It is really remarkable everything that happened to Yearn.Finance in only 5 months of life. Since mid-July, there have been at least six forks and knockoffs of the platform.
YFI's first fork, intentionally dubbed YFII, has become a flagship project in China. Within the YFI community, disagreements arose on a proposal to improve the protocol, and the proposal was widely accepted by users in China. Thus was born YFII. Other forks were not as successful, and some ended in scandal.
Which takes years of study for most companies, I mean, before doing a merger or an acquisition, it took Yearn.Finance a couple of months.
It first absorbed Pickle Finance, without the need for a governance vote, which produced some discomfort. Less than two days after Pickle Finance's takeover was known, Yearn.Finance announced another merger, this time with the Cream protocol. Cream is an acronym for "crypto rules everything around me". The reasons they explain from YFI are based on joining forces to launch Cream v2.
Conclusion. YFI is a token that generates appeal per se. In my particular case, the most important fact is that there are only 30,000, and the coin is still firm, 5 months after its launch. It is a really decentralized currency, totally governed by its community, and this gives a lot of credibility and solidity to the project. With that scarcity, market capitalization is still a long way from hitting the big leagues, but rightly so, isn't that a great opportunity?
The team remains committed to developing new projects for the platform. Cronje constantly receives requests from developers to participate in the project.
I keep in mind that the financial risk in Yearn.Finance is considerable. With so much collateral at stake, a sharp drop in prices could set off a chain reaction and could in turn intensify the price decline. Much of the gameplay on this platform is speculative and there could be a significant avalanche effect of amplified drops. But, in reality, that happens with all new projects that break the previous rules of the game. And for that alone, I bet on YFI.
As usual, none of the things written in this post are financial advice and are not intended to replace personal research.
I am interested in showing in this blog the fundamentals of crypto-sphere projects that may mean a paradigm shift in the near and not so near future. This approach may be different and complementary to the posts of other talented colleagues at Publish0x that show shorter-term variables and which I follow with great interest, since I, of course, am also interested in the short term and in putting together a solid portfolio.
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