Soju Finance

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Soju Finance is a yield farm with the aim of maximizing value for long term #SOJU holders. Our mission is to win together as a community. Everything we do will be open-source, fully transparent, and community driven. We hope to create a token that is sustainable in the long term, and the community that achieves its goals together.

Our mission is to win together as a community. Everything we do will be open-source, fully transparent, and community driven. We hope to create a token that is sustainable in the long term, and the community that achieves its goals together.

About DeFi in human terms: do you need decentralised finance?

DeFi has been the talk of the crypto industry lately – steaming, crypto-loans, income farming and other tools that to the uninitiated might seem mysterious and dubious. Is DeFi really an alternative to traditional banks, or is it just another “hype”?

Definition of DeFi

Decentralised finance (DeFi) is a set of blockchain protocols that allow financial services to be provided without the involvement of traditional centralised intermediaries such as banks, brokers and crypto-exchanges. Smart contracts are used to enforce the terms of each transaction.

The range of DeFi services is constantly growing: trading (‘swaps’), loans, staking (analogous to income deposits), risk insurance, derivatives, etc.

The first deficit application to gain widespread popularity was the MakerDAO platform, launched in late 2017. Since then, the total volume of funds placed in DeFi (TVL, Total Value Locked) has been growing steadily, and at an increasing rate. For example, TVL was $150m in May 2018, $500m in May 2019, $950m in May 2020. – $950m, and on 12 May 2021 the figure reached a record $87bn (DeFi Pulse data).

How DeFi earns money

DeFi investors are a special class of crypto investors who speak a language little understood by mere mortals and come up with sophisticated schemes to maximize profits.

For example, they place crypto in liquidity pools of decentralized crypto exchanges to get liquidity tokens, which they then use in another pool to get free tokens under a revenue farming program, and these in turn are placed as collateral on a lending protocol to borrow a third type of token, and so on.

It takes a lot of time and active practice to grasp these intricacies, but the main ways of investing in DeFi can be summarised as follows:

  1. trading commissions
    An investor places liquidity (cryptocurrency) on a decentralised cryptocurrency exchange and receives a share of the commission from trading transactions. The commission is typically 0.25-0.30% and is divided between liquidity providers according to their share of the pool.

The more active the trade, the more commission income the protocol receives and the higher the yield, but in many pools it can also be negative. For example, here’s what the monthly yield looks like in the top 10 pools, according to pools.fyi:

The maximum is 0.27% for 30 days, which is about 3.2% per annum – not a lot. Smaller pools can earn more, but the risks are much higher.

  1. Cryptolending (loan origination)
    An investor deposits liquidity in a pool of lending protocol, and these funds are issued as loans. This service is popular primarily with leveraged traders who do not want to borrow funds from a centralised cryptocurrency exchange. The borrower must post collateral of over 100% of the loan amount (sometimes 150% and even 200%); if the debt is not paid, this collateral is automatically liquidated (sold), so the lender gets his money back anyway.

Yields depend on the currency of the loan and are constantly changing. The highest rates are usually on stabelcoins – USDT, USDC and DAI (up to 15%):

  1. Income farming or liquidity mining
    This is the most complex, but also the most popular tool used by projects to promote their tokens. The standard scheme is as follows:

An investor buys a token and places it in the liquidity pool of some trading or lending protocol – most often Uniswap;
the investor receives special LP-tokens as proof of participation in the pool;
LP-tokens are deposited (staked) on a special smart contract.
The investor receives regular payments in project tokens. One could say that he or she “plants” LPs, and from them new free tokens “grow” – hence the term “farming”.
Immediately after launch, projects often pay out large farming bonuses, so that the nominal yield can be as high as 1000%. Gradually, the number of tokens distributed each week decreases, but the yield still remains at 50-100%. It must be remembered that this profit is nominal and the real return will depend on the price of the token.

The most popular DeFi protocols

MakerDAO (TVL as of 18 May 2021 – $13bn) is a lending protocol where you can borrow in DAI Stablecoins by providing collateral in other cryptocurrencies. Such loans are mainly used by margin traders to avoid borrowing funds from a centralised cryptocurrency exchange.
Aave (TVL – $11bn) is another loan protocol that allows liquidity providers on Uniswap and Balancer to use LP tokens as collateral.
Compound (TVL – $9.9bn) is a loan protocol that is managed by COMP token holders through decentralised voting.
Curve Finance (TVL – $7.4 billion) is a decentralised exchange for trading Stablecoins.
Uniswap (TVL – $6.9 billion) – the most famous decentralized exchange with hundreds of pools, also known for a large number of scam projects.

Risks of DeFi

  1. Token price volatility. This is a key risk of income farming: when farmers start to sell off their rewards en masse, the price often collapses, meaning that earnings are devalued. In effect, hyperinflation occurs: tokens flood the market.
  2. High fees. When placing tokens on the protocol or withdrawing income, a blockchain fee (mining fee) has to be paid. On the Ethereum network, it exceeds $20 (as of May 2021), regardless of the size of the transaction. Thus, the fee can “eat up” all the profits. An alternative is to opt for a DeFi-protocol on a cheaper blockchain, such as Binance Smart Chain.
  3. Fraud. The DeFi industry attracts a lot of scammers who issue dummy tokens and lure investors with extremely high farmer returns. The standard scheme is to wait until trading in the pool “heats up” and the token price rises, then withdraw all the liquidity and disappear with the money.
  4. Low value of projects. Most DeFi projects are nothing more than hype: copies of popular protocols that make no contribution to the development of the industry. Such platforms do not live long and their investors usually lose money.

How to get into DeFi

If you do decide to try DeFi instruments, despite all the risks, you’ll need cryptocurrency that the DeFi protocols support. First and foremost is Tether (USDT), the world’s largest stabelcoin by capitalisation.

You can’t buy USDT from a card directly on DeFi-platforms. The most reliable and yet easiest way is to buy USDT from a bank card on a regulated crypto-exchange, such as the instant exchange service from crypto-exchange FREE2EX. It requires a short registration, but afterwards you can buy USDT, BTC, ETH and other cryptocurrencies in any amount in seconds.

In addition to the crypto itself, you will need a MetaMask wallet to participate in DeFi. There are many blockchain wallets on the market, but it is MetaMask that is supported by all the defy protocols.

The purchased USDTs need to be sent to MetaMask and then the wallet needs to be linked to the chosen DeFi protocol. Usually the defai application itself prompts you to do this. After linking to the wallet, you can place funds on the protocol.

Practical use of protocols such as Compound, Uniswap and Aave is easier than it looks. The difficulty with DeFi is not in the mechanism of placing funds and generating income, but in the selection of quality projects. The market situation is changing rapidly: a single tweet from Elon Musk could bring down the price of Bitcoin, and DeFi tokens will follow. So if you do decide to invest in decentralised finance, start with a small amount that you can afford to lose.