In less than two years, the Decentralized Finance movement has reshaped the landscape of finance. Innovative concepts such as staking and liquidity mining, previously only known among geeks, have turned into mainstream financial products used by hundreds of thousands worldwide. Cake DeFi has been involved in this revolution and is striving to be at the forefront of shaping the next generation of DeFi products. These products will close the gap between traditional finance and decentralized finance even further, hence opening up to new market segments and increasing the value of the whole ecosystem.
Everyone is familiar with stocks, and how they generally function; many of us have even invested in them. They are without a doubt one of the easiest financial products to understand and that’s what makes them appealing. Popular amongst new and mature investors, stocks have proven to be a good inflation hedge and have also outperformed most asset classes in the last few decades.
Liquidity Mining, on the other hand, is a novel approach to generate passive income by harnessing the power of DeFi protocols. As one of the most lucrative yield farming strategies, liquidity mining represents a new way of utilizing cryptocurrencies by providing liquidity to decentralized exchanges (DEXes). The primary goal of these exchanges is to attract liquidity and – speaking in traditional financial terms – to offer the narrowest bid-ask-spread by rewarding users willing to bring capital to their blockchain.
Most DEXes replace the traditional order book architecture with Automated Market Makers (AMM): Smart contracts — small programs, running on the blockchain — regulate the trading by matching orders in a truly decentralized, peer-to-peer way. Coin swaps are facilitated by liquidity pools, where the AMM automatically collects a certain amount of fees, which are then distributed back to the liquidity providers along with rewards, stemming directly from the blockchain.
Both financial products are typically routed in different financial ecosystems, making it tough to access and benefit from them by using just a single platform. But new innovations are slowly changing that by bridging both worlds together.
Through the use of this new innovation and possible integration, in Q4 2021, users will be able to deposit their decentralized synthetic assets onto Cake DeFi, and utilize some of the products available to earn returns from them. This potentially means, being able to put them into Liquidity Mining and generate yields north of 1,000% APY.
The foundational pillar for liquidity mining decentralized stocks is currently being developed by our technical partner DeFiChain, and will supercharge the yield potential of stocks multiple times over. Following the integration: Similar to traditional liquidity mining, liquidity mining rewards for decentralized stocks will be distributed directly by the DeFiChain consensus mechanism, which could potentially result in initial liquidity mining yields well beyond 1,000% APY.
Do note: These yield predictions are an estimate, and will depend on the block emission rate and the size of the liquidity mining pool.
Flashback to October 2020 when the overall situation looked about the same as right now: The integration of Liquidity Mining for Bitcoin was in the final stages of completion and the overall market conditions were pretty much comparable to present. At the same time, DFI, on which the products and services of DeFiChain build upon, was approaching a new low of US$ 0.20.
Just a few weeks prior, in early September 2020, the DFI price was hovering around US$ 0.35 and within a couple of weeks it declined by around 40%. Irrespective of this decline, the development of the Bitcoin liquidity mining product went ahead as planned and was finally launched early December 2020.
What then followed was nothing less short of an epic final month of 2020. Liquidity mining for Bitcoin drove the price of DFI up to new highs previously unseen. This increase can be mostly attributed to the sizable yields distributed to liquidity providers. The introduction of Liquidity Mining, and the returns being generated amassed a lot of attention, even amongst new entrants, all wanting to participate in the project.
If the past gives us any indication of what the future holds, then we may very well see a similar scenario this year again. As a result, a supply shock scenario could be on the horizon, especially when more people want to get into DFI, making it significantly more expensive to participate in double-dipping on stocks than at current price levels.
Savvy investors are encouraged to make their own picture of the current situation and decide when it’s the right time to get prepared for the next big product launch on the Cake DeFi platform. Nevertheless, if you are feeling the perfect time is right now, then we would like to remind you that there is currently an ongoing promotion, where you can buy BTC and ETH without any fees and then be swapped into DFI – the coin you will need in order to use the upcoming liquidity mining for stocks.
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The content of this article is not and does not constitute investment advice.