IOSG Ventures_ENOverview of Decentralized Autonomous Organization (DAO)
First Published on @IOSG Medium on Jun 2, 2020Source: Sohu1. What is a Decentralized Autonomous Organization1.1 Introduction: to catch bandits first catch the ringleaderWe often see such a plot in war movies, the defending army lead by our main character is under the attack from crushing enemy forces. Some of their own soldiers have surrendered or fled, the wall is about to fall. But in the Nick of time, the main character somehow managed to cross the enemy crowd, successfully kill the enemy ...
IOSG Ventures_ENInstitutional investors will lead the roadmap of taking Bitcoin to the mainstream
First Published on @IOSG Medium on Jul 31, 2020IntroductionData was updated at the start of April 2020. The weak correlation between bitcoin and traditional investments and high return it generated has made BTC a star in the crypto secondary market. The popularity that BTC gained from outside also amplified the impact of external factors on its price. We believe the interests accrued from institutions investors and sophistication of derivatives will stabilize the price of bitcoin and make the...
IOSG Ventures_ENDEX Aggregators: The Future of On-Chain Trading
Author: Amidzic Momir @ IOSG Ventures The data analyzed in the article refers only to the Ethereum on-chain activity.Drawing a parallel to Web 2.0. Why do we need aggregators?One thing that is consistent across both Web 2.0 and Web 3.0 is the demand for products and tools that improve convenience for the end-users and reduce the cost of finding the right product and service. For example, Amazon has built an empire by creating a convenient experience for customers to purchase goods and service...
A research-driven and developer-friendly Venture Capital
IOSG Ventures_ENOverview of Decentralized Autonomous Organization (DAO)
First Published on @IOSG Medium on Jun 2, 2020Source: Sohu1. What is a Decentralized Autonomous Organization1.1 Introduction: to catch bandits first catch the ringleaderWe often see such a plot in war movies, the defending army lead by our main character is under the attack from crushing enemy forces. Some of their own soldiers have surrendered or fled, the wall is about to fall. But in the Nick of time, the main character somehow managed to cross the enemy crowd, successfully kill the enemy ...
IOSG Ventures_ENInstitutional investors will lead the roadmap of taking Bitcoin to the mainstream
First Published on @IOSG Medium on Jul 31, 2020IntroductionData was updated at the start of April 2020. The weak correlation between bitcoin and traditional investments and high return it generated has made BTC a star in the crypto secondary market. The popularity that BTC gained from outside also amplified the impact of external factors on its price. We believe the interests accrued from institutions investors and sophistication of derivatives will stabilize the price of bitcoin and make the...
IOSG Ventures_ENDEX Aggregators: The Future of On-Chain Trading
Author: Amidzic Momir @ IOSG Ventures The data analyzed in the article refers only to the Ethereum on-chain activity.Drawing a parallel to Web 2.0. Why do we need aggregators?One thing that is consistent across both Web 2.0 and Web 3.0 is the demand for products and tools that improve convenience for the end-users and reduce the cost of finding the right product and service. For example, Amazon has built an empire by creating a convenient experience for customers to purchase goods and service...
A research-driven and developer-friendly Venture Capital
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First Published on @IOSG Medium on Sep 10, 2020
Welcome to our bi-weekly newsletter date from 26th August to 10th September.
🐱👤IOSG Insight
IOSG Ventures investment priorities in DeFi include:
1.Application products that enhanced user experience of UI/UX , middleware third-party tools across different protocols or highly decentralized protocols (MakerDAO, tBTC) that really reduce friction.
2.Derivative projects that create better asset value via creative economic design, and with deep liquidity and moderate risk reward ratio.
3.Lending protocol that optimise capital utilisation, composable new products across different protocols (Kava); project indirectly improve trading efficiency (1inch, Kyber and DDEX).
4.DeFi protocol security Guardian, third party auditor.
We believe the spread of DeFi applications will further develop the underlying infrastructure with increasingly complex and diverse requirements, including low cost and high performance transaction processing, scalability that supports the rapid growth of network effects, and a user-led data economy.
Automated Market Makers emerged as an alternative to order book-based exchanges, providing trading against the smart contracts / liquidity pools rather than searching for a counterparty as in traditional models.
To understand the factors that contributed to the emergence of AMMs on chain, we need to go back to the late 2016. Particularly, in October 2016 Vitalik Buterin proposed building on-chain Constant Product Market Maker to resolve the high spread inherent in trading the coins back in the days. What originally caused the high spread is the inconvenience of market making on-chain due to high gas cost of creating and removing orders.
Namely, running an order book on chain requires gas fee payment anytime any type of order is set, resulting in too costly trading experience. Consequently, on-chain order books struggle to provide enough depth, causing a high spread / illiquidity.
On the other hand, the simple formula proposed by Vitalik guarantees liquidity no matter the price range, enabling users to execute their trades instantaneously. However, the execution quality depends on the depth of liquidity pools, where the more deposited assets imply the better execution quality (i.e. lower slippage).
To ensure the deeper liquidity pools, AMMs have been offering incentives such as “yield farming” that attracted assets worth millions of dollars to AMMs’ pools. Nevertheless, the depositors quickly realized that, often, holding the tokens in their wallets might be more lucrative than providing liquidity to AMMs. This issue has later been coined as Impermanent Loss.
In more detail, AMMs rely on arbitrageurs to adjust the ratio of reserves in the pool so that AMM-given price is aligned with the external market price. However, arbitrage profit goes at the expense of liquidity providers, creating loss for LPs. The loss can disappear only if the prices return to the initial ratio, which is why it is defined as impermanent. However, the volatile nature of crypto assets, generally, makes the loss permanent.
The Bancor has simply explained the impermanent loss using the figure below. They compare LP portfolio and HODLer portfolio ( HODL — hold on for dear life). For simplicity the example assumes there are no transaction fees. Whenever the relative price of deposited tokens changes HODLer position is more favorable than LP position due to the arbitrage effect discussed above. This effect is a problem that CPMM and CMMM in the simplest form cannot resolve.
a. Focusing on less volatile assets -> marginal chance of impermanent loss
Since impermanent loss is closely connected with asset volatility, the simplest way to resolve it is by ignoring volatile assets. Curve.fi focuses on stablecoin swaps, which is why impermanent loss is much less of a concern for Curve’s LPs. The concern for LPs remains only if one of the coins loses its peg.
b. Leveraging an oracle to achieve “fairer” prices
Rather than relying on arbitrage to coordinate AMM prices with market prices, Bancor utilizes Chainlink oracles. The weights of each asset in the pool is adjusted based on the oracle price update, simultaneously exterminating arbitrage opportunity and protecting the value for liquidity providers.
Bancor v1
Bancor v2
DODO implements a similar solution, however, both DODO and Bancor v2 are still in an early-stage and are yet to prove that constant dependency on oracle could serve as a robust solution. The concern comes from the risk of oracle failure and the arbitrage being faster than the price feed simultaneously generating a substantial loss for LPs. Nevertheless, if these risks are successfully controlled, LPs would find liquidity provision to this type of protocols extremely attractive, potentially making them another DeFi hot topic.
yearn community proposed to bolt a CFAMM facility to the Y pool, in order to minimise governance risk. Read more
GoodGhosting announced its genesis saving pool which will be launched soon. Read more
Ethereum 2.0 updates: Medalla has chugged along quite smoothly, now with 39k active validators and another 12k in the activation queue. Read more
StarkWare Introduces Cairo for Turing Complete L2 Scaling. Read more
Oasis Protocol will release the native token ROSE when the mainnet is launched, with a total limit of 10 billion. Read more
DeFi explosion: Uniswap surpasses Coinbase Pro in daily volume. Read more
Lien Protocol’s first Solid Bond Token (SBT) auction is underway. Read more
SEC’s Hester Peirce on DeFi: ‘I think it’s going to challenge the way we regulate’. Read more
Redis Labs announced that it raised $100 million in Series F funding at a valuation of more than $1 billion. Read more
SPiCE Venture Capital has listed its tokenized blockchain fund (SPiCE VC) on Fusang Exchange. Read more
IoTeX unveiled groundbreaking infrastructure to fuel #DeFIoT — IoT data oracle, cross-chain bridge, DEX and more! Read more
1inch integrates DODO, a decentralized trading platform based on active market maker algorithm, bringing 1inch more liquidity sources, better prices and lower slippage. Read more
WOOTRADE released the Eco-Partnership Program, which aims to recruit outstanding partners from investment institutions, media, communities, KOLs and other backgrounds to jointly build the WOOTRADE ecosystem. Read more
NEAR Protocol will hold an open online hackathon “Hack The Rainbow” on September 15th. Read more
Filecoin officially released the details of the token economic model design. Read more
Nervos announced the integration of the decentralized oracle Band Protocol to aggregate and connect real-world data and APIs to smart contracts. Read more
Ocean Protocol (OCEAN) announced the launch of a new contract and completed the migration of OCEAN tokens. Read more
The decentralized IoT platform IoTeX announced the launch of the cross-chain bridge ioTube, which has realized the two-way bridging of Ethereum ERC 20 assets and IoTeX public chain. Read more
Decentralized transaction aggregation platform 1inch announced the update of gas fee optimization and upgrade plan, which can greatly reduce gas fee costs. Read more
Founded in 2017, IOSG Ventures is a research and community-driven concept.we are focusing on Open Finance, Web 3.0, and cross-chain industry. We have over 60 investments and been actively involved in various developer & DAO communities. We invest in top teams with innovative ideas, operational excellence, and a robust community, and always supportive to IOSG portfolios to grow local communities in China, the US, and Germany.
If you would like IOSG Ventures to consider your project, please send a summary of your project along with a pitch deck and/or white paper to hello@iosg.vc
Follow us on Twitter.
First Published on @IOSG Medium on Sep 10, 2020
Welcome to our bi-weekly newsletter date from 26th August to 10th September.
🐱👤IOSG Insight
IOSG Ventures investment priorities in DeFi include:
1.Application products that enhanced user experience of UI/UX , middleware third-party tools across different protocols or highly decentralized protocols (MakerDAO, tBTC) that really reduce friction.
2.Derivative projects that create better asset value via creative economic design, and with deep liquidity and moderate risk reward ratio.
3.Lending protocol that optimise capital utilisation, composable new products across different protocols (Kava); project indirectly improve trading efficiency (1inch, Kyber and DDEX).
4.DeFi protocol security Guardian, third party auditor.
We believe the spread of DeFi applications will further develop the underlying infrastructure with increasingly complex and diverse requirements, including low cost and high performance transaction processing, scalability that supports the rapid growth of network effects, and a user-led data economy.
Automated Market Makers emerged as an alternative to order book-based exchanges, providing trading against the smart contracts / liquidity pools rather than searching for a counterparty as in traditional models.
To understand the factors that contributed to the emergence of AMMs on chain, we need to go back to the late 2016. Particularly, in October 2016 Vitalik Buterin proposed building on-chain Constant Product Market Maker to resolve the high spread inherent in trading the coins back in the days. What originally caused the high spread is the inconvenience of market making on-chain due to high gas cost of creating and removing orders.
Namely, running an order book on chain requires gas fee payment anytime any type of order is set, resulting in too costly trading experience. Consequently, on-chain order books struggle to provide enough depth, causing a high spread / illiquidity.
On the other hand, the simple formula proposed by Vitalik guarantees liquidity no matter the price range, enabling users to execute their trades instantaneously. However, the execution quality depends on the depth of liquidity pools, where the more deposited assets imply the better execution quality (i.e. lower slippage).
To ensure the deeper liquidity pools, AMMs have been offering incentives such as “yield farming” that attracted assets worth millions of dollars to AMMs’ pools. Nevertheless, the depositors quickly realized that, often, holding the tokens in their wallets might be more lucrative than providing liquidity to AMMs. This issue has later been coined as Impermanent Loss.
In more detail, AMMs rely on arbitrageurs to adjust the ratio of reserves in the pool so that AMM-given price is aligned with the external market price. However, arbitrage profit goes at the expense of liquidity providers, creating loss for LPs. The loss can disappear only if the prices return to the initial ratio, which is why it is defined as impermanent. However, the volatile nature of crypto assets, generally, makes the loss permanent.
The Bancor has simply explained the impermanent loss using the figure below. They compare LP portfolio and HODLer portfolio ( HODL — hold on for dear life). For simplicity the example assumes there are no transaction fees. Whenever the relative price of deposited tokens changes HODLer position is more favorable than LP position due to the arbitrage effect discussed above. This effect is a problem that CPMM and CMMM in the simplest form cannot resolve.
a. Focusing on less volatile assets -> marginal chance of impermanent loss
Since impermanent loss is closely connected with asset volatility, the simplest way to resolve it is by ignoring volatile assets. Curve.fi focuses on stablecoin swaps, which is why impermanent loss is much less of a concern for Curve’s LPs. The concern for LPs remains only if one of the coins loses its peg.
b. Leveraging an oracle to achieve “fairer” prices
Rather than relying on arbitrage to coordinate AMM prices with market prices, Bancor utilizes Chainlink oracles. The weights of each asset in the pool is adjusted based on the oracle price update, simultaneously exterminating arbitrage opportunity and protecting the value for liquidity providers.
Bancor v1
Bancor v2
DODO implements a similar solution, however, both DODO and Bancor v2 are still in an early-stage and are yet to prove that constant dependency on oracle could serve as a robust solution. The concern comes from the risk of oracle failure and the arbitrage being faster than the price feed simultaneously generating a substantial loss for LPs. Nevertheless, if these risks are successfully controlled, LPs would find liquidity provision to this type of protocols extremely attractive, potentially making them another DeFi hot topic.
yearn community proposed to bolt a CFAMM facility to the Y pool, in order to minimise governance risk. Read more
GoodGhosting announced its genesis saving pool which will be launched soon. Read more
Ethereum 2.0 updates: Medalla has chugged along quite smoothly, now with 39k active validators and another 12k in the activation queue. Read more
StarkWare Introduces Cairo for Turing Complete L2 Scaling. Read more
Oasis Protocol will release the native token ROSE when the mainnet is launched, with a total limit of 10 billion. Read more
DeFi explosion: Uniswap surpasses Coinbase Pro in daily volume. Read more
Lien Protocol’s first Solid Bond Token (SBT) auction is underway. Read more
SEC’s Hester Peirce on DeFi: ‘I think it’s going to challenge the way we regulate’. Read more
Redis Labs announced that it raised $100 million in Series F funding at a valuation of more than $1 billion. Read more
SPiCE Venture Capital has listed its tokenized blockchain fund (SPiCE VC) on Fusang Exchange. Read more
IoTeX unveiled groundbreaking infrastructure to fuel #DeFIoT — IoT data oracle, cross-chain bridge, DEX and more! Read more
1inch integrates DODO, a decentralized trading platform based on active market maker algorithm, bringing 1inch more liquidity sources, better prices and lower slippage. Read more
WOOTRADE released the Eco-Partnership Program, which aims to recruit outstanding partners from investment institutions, media, communities, KOLs and other backgrounds to jointly build the WOOTRADE ecosystem. Read more
NEAR Protocol will hold an open online hackathon “Hack The Rainbow” on September 15th. Read more
Filecoin officially released the details of the token economic model design. Read more
Nervos announced the integration of the decentralized oracle Band Protocol to aggregate and connect real-world data and APIs to smart contracts. Read more
Ocean Protocol (OCEAN) announced the launch of a new contract and completed the migration of OCEAN tokens. Read more
The decentralized IoT platform IoTeX announced the launch of the cross-chain bridge ioTube, which has realized the two-way bridging of Ethereum ERC 20 assets and IoTeX public chain. Read more
Decentralized transaction aggregation platform 1inch announced the update of gas fee optimization and upgrade plan, which can greatly reduce gas fee costs. Read more
Founded in 2017, IOSG Ventures is a research and community-driven concept.we are focusing on Open Finance, Web 3.0, and cross-chain industry. We have over 60 investments and been actively involved in various developer & DAO communities. We invest in top teams with innovative ideas, operational excellence, and a robust community, and always supportive to IOSG portfolios to grow local communities in China, the US, and Germany.
If you would like IOSG Ventures to consider your project, please send a summary of your project along with a pitch deck and/or white paper to hello@iosg.vc
Follow us on Twitter.
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