Current self-cultivation of DeFi

Time:2021-12-24 Source: 1048 views DeFi Copy share

In the past few years, the crypto world has gained widespread popularity. In the current economic environment, more and more institutions and individuals are turning to popular digital assets such as Bitcoin and Ethereum as alternative investments.

As the cryptocurrency industry is booming, it opens the door to a new movement that promotes decentralized lending. DeFi provides investors with numerous opportunities to obtain passive income by putting their cryptocurrency funds into the liquidity pool of any protocol. Since the summer of 2020, a large amount of money has poured into DeFi, proving the potential of this emerging industry to change the traditional financial system.

Although the concept of DeFi has disrupted the structure of the traditional financial system in many ways, it still has huge growth potential. By integrating multiple protocols into its smart contracts, emerging platforms can provide a wide range of solutions to meet changing user needs.

The new agreement can authorize projects to create powerful and resilient tokens and help transform the budding DeFi sector into a multifaceted global ecosystem.

This article introduces the functions and features that allow DeFi applications to provide more useful functions, generate more community rewards, and meet their social responsibilities.
Reflection token

Reflection tokens are a new wave of DeFi tokens that help projects gain the loyalty of the crypto community. Reflection refers to a mechanism that provides independent rewards for holders of specific tokens. These rewards are regularly reflected in the holder’s wallet, enabling them to earn passive income.

The reflection mechanism deducts fixed transaction fees and pays them to existing token holders. Some projects charge additional taxes on sales transactions to reward holders to incentivize purchases and prevent investors from dumping coins during the price discovery phase.

This new method is widely welcomed in the DeFi space because they allow users to receive additional native tokens on a regular basis. Projects like Rainbow Token ($Rainbow) integrate a reflection mechanism as part of the seven protocols that make up their token economics. This function automatically reflects the tokens to the user's wallet according to the user's holdings, incentivizing new investors to buy more $RAINBOW and generate an independent rate of return.

Several other DeFi projects have adopted the concept of reflective tokens to attract investors and build a strong community of holders. Many dynamic factors determine the attractiveness of reflective tokens, including daily transaction volume, distribution percentage and coin price growth.

Newly-marketed projects usually start with low volume, which translates to lower reflections. As the trading volume increases, the number of tokens distributed back to holders will also increase, which is a benefit to early investors.
Charity agreement

As environmental and social issues continue to fight the world at an alarming rate, some tokens have ushered in a charity trend that helps save the world. Projects that hope to fulfill social responsibilities and invest in the future of mankind have begun to integrate charity agreements, and part of the transaction costs are used for charitable causes.

For example, Rainbow Project will deduct 1% from all transactions that enter the charitable donation pool and then pay it to charitable organizations around the world. These ethical projects dedicated to philanthropy, these ethical projects dedicated to contributing to philanthropy have helped a lot in reducing the burden of overwhelmed NGOs who are working hard to make the world a better place.

Community members participating in similar projects can vote in which areas of charity work they can invest in, including healthcare, poverty alleviation, animal welfare, and environmental protection. The beauty of charity agreements is that due to the immutability of the blockchain, they can give back to society and the environment in a transparent way.
Automatically generated liquidity

More and more DeFi projects have adopted automatic liquidity functions to increase the potential liquidity of each transaction.

The liquidity feature of automatic growth expands the fund pool of decentralized exchanges, such as Pancakeswap, which provides long-term price stability for native tokens. It also increases liquidity for users to exchange tokens to create a larger amount of tokens and maintain a higher transaction volume.
Token repurchase and destruction function

Token repurchase is an increasingly popular tool in DeFi applications, which attempts to put tokens in a hyperdeflationary state. The project usually buys back a portion of the coins from each transaction, and then these coins will be out of circulation forever. This strategy enables the token to fly and realize its moon landing potential by immediately reducing supply.

New tokens like $Rainbow implement a repurchase function, triggering every sale transaction to repurchase coins from the liquidity pool. Then, all the coins in the repurchase wallet will be destroyed, thereby tightening the supply and ultimately pushing up the price of the tokens.

DeFi projects with multi-level agreements usually include a hyperdeflation mechanism that further tightens supply by sending a small portion of each transaction to the destruction address. The burn function and the repurchase function work together to make the base token appreciate over time.

The DeFi ecosystem has grown at an alarming rate since 2020, attracting billions of dollars into the ecosystem. This growth is mainly driven by applications based on Ethereum and Binance Smart Chain.

Multiple projects are expected to challenge traditional finance and open up the vision of a new decentralized currency system based on blockchain.

By integrating multiple protocols into their smart contracts, DeFi applications can provide users with more practical functions, including reflection, charity, and automatic growth of liquidity.

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