Blockchain enthusiast developer and writer. My telegram: ksshilov
Yield farming can be highly lucrative, but also very risky. The level of impermanent loss can discourage some users. Even with the heightened enthusiasm, the potential for waiting out impermanent loss or aggressive arbitrage is a risk that not all crypto owners are ready to take.
The right tokenomics model, however, can work to create a more stable distribution of wealth. Yield farming is the faster, riskier version of staking. But the concept of passive income may add to the appeal of tokens intended to be included in liquidity pools. We looked at several projects with outstanding tokenomics, which try to achieve better stability while also giving opportunities for yield farming.
Currently, multiple projects are attaching themselves to major algorithmic market-making platforms like Uniswap. But some token-based projects will attempt to differentiate from the multitude of assets created with the sole purpose of simple yield farming.
Wanchain was one of the older tokens, powered by an ICO fundraiser in late 2017. The WAN market price was severely affected by the hype and crash of late 2017, and went on to lose more than 90% of its value.
However, the token had gained footing and was traded on traditional exchanges, as well as having a community of holders. WAN then pivoted to become one of the up-and-coming yield farming tokens.
Wanchain was already a project committed to open finance. Its initial goal was to connect public and private various blockchains. Its foray into yield farming, however, uses the Ethereum ecosystem, where already enough liquidity allows for fast price discovery.
The WAN token was also initially built with staking rewards, node, and transaction fees, making it a potential source of passive income. Wanchain, through its WanSwap app, plans to combine the project’s cross-chain capabilities with liquidity pools. Thus, WAN liquidity could be derived from multiple chains wrapping funds on Wanchain, including BTC. Additionally, a new WASP token will be created to add rewards for liquidity providers.
RFIII Compound Liquidity
RFIII Compound Liquidity is another new arrival on the DeFi scene. Like other similar projects, its chief attraction is both the potential for high returns through yield farming, but also a regular redistribution of profits. Holding and staking the RFIII token itself carries passive rewards, including a portion of trading fees.
The approach of RFIII is to create several avenues for passive income. The token itself will not need separate technology for staking. Simply depositing the tokens will trigger the smart contract, which will ensure both liquidity and trading fee redistribution. Each trade on the RFIII network will bring a 1% fee which will be distributed to all token holders.
The chief utility of RFIII tokens would be a tool for storing value, as a form of treasury. Converting ETH to RFIII will give owners right to hold the token and potentially reap rewards for years to come.
World Token is yet another attempt to build a global, borderless economic system with no barriers to entry except token ownership.
World Token relies on Uniswap pairings, but it also aims to build frictionless tokenomics, where liquidity providers also receive staking rewards with no extra steps needed. The reward system hinges on a 3% transaction tax, which is redistributed to all network participants. The 3% tax aims to finance several sides of the World Token system. 1% goes toward marketing expenses, another 1% is sent to the Uniswap liquidity pool, and another 1% is shared among regular holders of the WORLD tokens.
World Token aims to differentiate itself from new assets launched just for the sake of creating liquidity pools. The project will aim to partner with some of the biggest DeFi projects for achieving wider distribution and multiple pools. Additionally, WORLD will be used within a crypto-powered marketplace. The launch of the World Token decentralized store program is scheduled for the second quarter of 2021.
World Token will also continue growing as a marketplace, ensuring utility for its native token. The marketplace will expand to physical items, add an escrow service and a dispute system. The final stage of the project is to build a P2P swap and exchange platform.
Reflector Finance is another project highly active at the start of 2021. Once again inspired by the problems of rug pulls, high fees and impermanent loss, the project has taken the path of frictionless yield farming.
The distinguishing point of RFCTR is the extremely high transaction tax, as high as 12% redistributed to token holders. As with other tokens, RFCTR uses the Uniswap algorithmic market making. The high transaction tax has a twofold purpose – one, it serves as a mining fee, because the token does not rely on mining. And second, it is an incentive to offset the potential impermanent loss from providing Uniswap liquidity.
The third element that ensures gains with the Reflector Finance protocol is a regular token burn, which constrains the supply and creates a deflationary ecosystem. With those elements, Reflector also joins the trend of creating a tokenomics equation engineered to generate income over time and serve as an incentive to hold onto the tokens. The token burn for Reflector Finance is technologically achieved through a vault known as the Black Hole. This contract holds about 5% of all tokens and continues to receive some of the rewards, essentially locking them in and decreasing the total supply.
Frictionless yield farming solves several issues that plagued small-scale crypto owners. One of the issues is the difficulty and expense of moving Ethereum-based tokens. Using one smart contract to ensure both yield farming and passive returns saves the hassle of having to move tokens for staking. It is also a solution to the problem of having tokens locked on exchanges, where sometimes receiving staking rewards is made more difficult.
The early days of yield farming saw multiple projects fizzle out within days. Tokens generated high-level liquidity in their automated market-making pairs, but then the holders had the incentive to move on and search for better yields.
It was this extreme volatility and crashed projects like Hotdog that made some projects reconsider their tokenomics. For a sustainable project that aims to unite a worldwide community, it is not enough to achieve a very short, rapid price appreciation, followed by a crash.
The new trend of combining passive income with yield farming is already helping older token-based projects to revive their stagnant prices. Multiple altcoins are going through another appreciation cycle based on both widespread ownership from the past, and new offers for income from algorithmic market making.
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