Exploring Liquidity Mining of Decentralised Assets on DeFiChain

Last updated on 14 Jun, 2022 7 min read Blog
Table of Contents

This article is a compilation of research about DeFi on DeFiChain.

Visit https://choose.defichain.ac/ for an interactive introduction to “HODLING with DeFiChain”.

The site was created by the team behind DeFiChain Accelerator, a community funded project to market the DeFiChain ecosystem to potential investors and developers.

General Information

Liquidity mining for decentralised assets started on 6 Dec 2021 in the afternoon, Singapore time.

As of 6 Dec 2021, decentralised assets available for:

  • AAPL (Apple)
  • ARKK (ARK Innovation ETF)
  • BABA (Alibaba)
  • GLD
  • GME (GameStop)
  • GOOGL (Google)
  • PDBC
  • PLTR
  • QQQ
  • SLV
  • SPY
  • TLT
  • TSLA (Tesla)
  • URTH (iShares MSCI World ETF)
  • VNQ (Vanguard Real Estate Index Fund ETF)
Holding these decentralised assets does not give you any ownership or dividends in the actual underlying companies or underlying assets.

Burning of fees

DeFi fee is charged for all DeFi transactions on DeFiChain regardless of operators. All fees are burned in a trackable and transparent manner.

This would make DFI scarcer over time, and increase the value for HODLers.

Risks

  • The entire blockchain might go down or be exploited.
    • A bug caused no new blocks being creating after decentralised assets LM started. [Dec 2021]
    • A bug caused wallet to not reflect correct values; out of sync [Dec 2021]
    • A bug in the Atomic Swap feature has resulted in an exploit where dBTC tokens were created out of thin air (i.e. not backed by any collateral). This has been ongoing since June 2021 and has only been discovered in January 2022. [Jan 2022]
  • Hacks
  • Impermanent loss from liquidity mining

Similar projects?

  • Mirror Protocol
  • Synthetix

Ecosystem

Tokens

DeFiChain uses token standards to bring in external tokens in a trustless manner, allowing trustless financial contracts and trading of all major crypto-asset tokens. The token standards are similar to ERC20 on Ethereum and Omni on Bitcoin blockchain. Through this standard, DeFiChain allows tokenization of any assets.

On DeFiChain the standardized tokens are called DeFi Standard Token (DST). DST tokens are of two different types: DCT, created by users of the system, and DAT, which are asset-backed tokens created with the backing of crypto-assets.

Decentralized USD (DUSD)

The default search result for the ‘DUSD’ keyword on CoinMarketCap.com leads to DeFiDollar. It is not related to the DeFiChain ecosystem.

The DUSD relevant to DeFiChain is here. My understanding is that DUSD is minted from the vaults, which are over-collateralized.

It has also been listed on CoinGecko in March 2022.

Wallets

Official page with links to download here.

“DeFi Wallet desktop app” and “DeFiChain wallet mobile app” are not compatible, you have to create a separate wallet on each. They cannot be accessed from each other.

DeFi Wallet desktop app

  • This wallet can be used for buying vault on auctions.
  • Wallet is protected by a single passphrase, there is no usual 12/24 secret keys.
  • does not support vault creation yet (as of 6 Dec 2021)
  • “Wallet.dat” is the backup for the DeFi Desktop Wallet

DeFiChain wallet mobile app (a.k.a Light Wallet)

This wallet operates on the DeFiChain blockchain, meaning assets that go in and out of the wallet is through DeFiChain network only.

When users receive USDC in the wallet, it will appear as dUSDC. The ’d' prefix indicates this is a wrapped USDC. Users cannot, for example, send dUSDC from within the wallet to an exchange like Coinbase which does not support the DeFiChain network yet.

Currently, it seems like the only way to get USDC in/out of the wallet is through Cake DeFi.

Some platforms that supports the DeFiChain network:

  1. Cake DeFi: supports various crypto assets over DeFiChain.
  2. KuCoin: supports DeFiChain but for DFI deposits/withdrawals only. (news release article).

DeFiChain Electrum: Multisig Wallet

DeFiChain Electrum wallet was launched in March 2022. Individual users can ignore this as they probably wouldn’t require a multi-signatory DeFiChain wallet.

Get Started

Funding

One way to fund dUSDC into a DeFiChain wallet is by:

  1. first sending USDC into Cake DeFi, then;
  2. withdrawing from Cake DeFi into a DeFiChain wallet.

Withdrawal of USDC from Cake DeFi has a flat fee of 1 USDC.

When withdrawing from Cake Defi, users have to select the option to transfer over “DeFiChain”, and enter the receiving address indicated on the DeFiChain wallet.

Cake DeFi adds a couple of safety checks before allowing you to withdraw via DeFiChain. Users have to acknowledge the following:

  1. “I have confirmed that the application or platform I’m withdrawing to supports this DeFiChain token (DeFiChain USDC).”
  2. “If I withdraw my USDC to a DeFiChain address that does not support DeFiChain tokens, my funds will be lost.”

If unsure of the process, users should consider making a test withdrawal of a small amount.

Creating vault, adding collateral, liquidity mining, closing vaults etc…

A Step-by-Step Guide to Decentralized Assets

Video guide:

Creating a vault

  • creating a vault is not free. Costs 2 DFI
  • a vault is created empty. Collaterals are added in later
  • the collateralization ratio of the vault can be changed after creation, so there isn’t a need to ponder too much during the creation phase.

Adding collaterals

Supported assets (as of 6 Dec 2021):

  • DFI
  • dUSDC
  • dUSDT
  • dBTC

Other Notes

Always reserve some DFI for transaction fees

Users should always reserve some DFI in the wallet for transaction fees or transactions will fail.

DUSD is not at 1 USD

Due to high demand via the DEX rather than minting from collaterals. Discussion on Github on how to resolve the issue:

Getting updates when blockchain is not functioning well

DeFiChain’s discord channel is the most active and best social media option to get updates.

Network fees are cheap

Network fees are relatively cheap in DeFiChain, so users can afford to experiment and test out strategies.

Slow transactions

Transactions can take minutes to complete, probably due to network congestion.

Vault requires 50% of DFI to mint any tokens

The vault requires at least 50% of DFI to mint any tokens.

Hypothetical scenario:

  • assume a wallet has $100 worth of DFI and $50 worth of dUSDC. Thus, the ratio of DFI is 66.6% which is above 50%. This is fine.
  • if a user deposits a further $350 worth of dUSDC into the wallet. The new DFI ratio is $100/($100 + $50 + $350) x 100% = 20%. Since the DFI percentage is below 50%, the vault owner will not be able to take any loans out of the vault even if the collateralization ratio of the vault is not breached.
Having less than 50% DFI in the collaterals WILL NOT liquidate the vault. It only prevents owners from taking on more loans from the vault.

Ways to get a dToken

  • Minting one via vault (based on Oracle price)
  • Liquidity mining rewards
  • Buying via the DEX (based on market demand/supply price)

Why invest in dTokens before they even start earning block rewards?

Discussion on Reddit:

  • If you get into the new LM pools very early, you get a lot of swap fees due to the high inflow at the beginning
    • Fees are generally small, but can be relevant if you get a huge share until more people join the pool.
  • When rewards go live, it’s possible to get thousands of percent APY initially as you are netting a huge part of the block rewards early on, until everyone notices and joins as well.

Resources

DeFi DeFiChain DFI DUSD dTSLA Tesla
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Started investing in crypto towards the end of 2020.

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