After DeFi’s life Andre Cronje (AC) announced his quit of  DeFi and crypto, “APY addiction” has made DeFi’s “Money Lego” more like a “Ponzi scheme”. No one knows the future development of DeFi, but this quit lets us reflect on what can be called sustainable and valuable DeFi? Perhaps, AC’s quit will be another turning point in the DeFi development.

1. What is the problem with DeFi? What is the future development of DeFi?

[APY Addiction]

Under the leadership of AC, the key contributor to the start of the DeFi Summer, and Daniele Sesta, another DeFi evangelist, more and more people agree with their argument that the “Deposit And Forget” is the spirit and soul of DeFi products.

It seems that AC has implanted the idea of “pursuing APY” for DeFi from the very beginning. Nothing is wrong with the idea itself, but just like many things, a good idea can have unexpected consequences.

DeFi History

The most important feature of DeFi 1.0:

The protocol provides liquidity (Liquidity Mining), featuring liquidity

The early days of DeFi 1.0, represented by Uniswap, used a formula to ingeniously solve the problem of insufficient liquidity in decentralized finance, while liquidity mining has also become the mainstream mode of protocol launch. Since then, DeFi’s reliance on APY has been ever deeper.

DeFi 1.0 is to use the liquidity provided by such third parties as whales to promote decentralized market transactions through protocols. The fact that the whales’ making profits from the head mine without costs, withdrawal and selling behaviors lead to “liquidity disasters” caused by various liquidity running away. To solve such problems, developers have carried out more radical experiments and attempts, thus ushering in the DeFi 2.0 era.

The most important feature of DeFi 2.0:

Protocol-Owned Liquidity, featuring high inflation (high APY)

The DeFi 2.0 protocol represented by the algorithmic stablecoin Olympus (OHM) also uses two formulas through the staking and the bonding mechanism to become the controller of its own liquidity, no longer relying on the third party to provide OHM liquidity. Since the DeFi 2.0 era led by OHM (Olympus DAO) began, the DeFi 2.0 protocols with APY 70,000% or even APY 7,000,000,000% have sprung up in various public chains.

The Ve(3,3) project Solidly from the cooperation of AC and Daniele Sesta has made the core concept of DeFi 2.0 in pursuit of high APY sound daunting.

For the DeFi 1.0 protocol, obtaining liquidity is to facilitate decentralized market transactions, but there is no practical scenario for the DeFi 2.0 protocol. The so-called Protocol-Owned Liquidity has become a way for the team to quickly win over funds and even engage in Rug (BlockBeats: For more about the DeFi 2.0, see “APY 70,000%, DeFi 2.0 Dominated by OHM Forks”).

With liquidity mining emerging, DeFi has gradually gone astray. The protocol solves the problem no longer about how to provide users and the industry with more stable and convenient financial services, but about how to provide higher APY and obtain higher TVL. Users no longer regard DeFi as a source of stable income, but as a speculation channel. It doesn’t matter what the new protocol does. As long as the APY is high enough, they will rush into it desperately.

Because of the failure of Solidly project, AC finally decided to end cooperation with Daniele Sesta, and announced to quit forever the world of DeFi and Crypto he loved and fought for. Definitely, APY addiction is the biggest problem throughout the DeFi 2.0 era.

2. After AC leaves, who will carry the DeFi development Banner

The quit of AC lets developers begin to reflect on the problems caused by “APY addiction”, and to explore mechanisms and methods to solve high APY (high inflation). The era of DeFi 3.0 is approaching!

2.1 The most important feature of DeFi 3.0: Agreement supported liquidity, featuring high deflation (automatic burning)

As the exploration of the DeFi 3.0 era has just begun, developers take the simple and effective method of charging a 5~20% transaction slippage (handling fee). For the handling fee, most of it is used to repurchase the token for burning, and a small part is rewarded to community users as a bonus, to achieve a deflationary token model. It is a pity that such attempts, varied in results, are unable, like the UNI and the OHM that represent DeFi 1.0 and DeFi 2.0, to rely on the genius design of one or two formulas to become the protocol standard throughout the era, subject to fork, infinite replication, iterative evolution.

Among the many developers in the DeFi 3.0 era, who is most likely to become the next UNI/OHM to represent the DeFi 3.0 protocol? With the quit of AC, who has the ability to carry the DeFi development banner?

The economic model innovation of BlackHole Dao (BHO), the decentralized asset management protocol, makes an impression!

3. BlackHole Dao (BHO), the most representative decentralized asset management protocol of DeFi 3.0

BlackHole DAO is a DeFi 3.0 decentralized asset management protocol based on DAO governance. “BlackHole DAO Protocol (BHDP)” is a brand new standardized model constructed based on DeFi 2.0. The BHDP burn mechanism, by drawing on the stock split and stock merge in the traditional stock market, resolves the imbalance between high inflation and deflation in the market in the DeFi 2.0 era.

3.1 Why can BlackHole Dao become the representative of the DeFi 3.0 protocol?

Like UNI and OHM as the representatives of DeFi 1.0 and DeFi 2.0, BlackHole Dao also ingeniously designs two formulas, making innovations in extreme deflation and value support, the two biggest problems in the DeFi2.0 era. Hence, it can become the mainstream protocol standard throughout the DeFi 3.0 era.

3.2 BlackHole Dao, a decentralized “Grayscale”

BlackHole Dao was founded by a group of technology developers and financial cypherpunks who love the blockchain industry. Their ideal is to use a decentralized smart contract asset management protocol to build a decentralized “Grayscale”. BlackHole Dao and Grayscale are the same in that no assets entered into the asset management pool are allowed to be redeemed. Transactions can only be realized by the redeemed Grayscale Trust shares (BHO tokens).

Differences between BlackHole DAO and Grayscale:

1. Different management methods

Grayscale is a centralized management team for asset management, while BlackHole DAO uses a decentralized asset management protocol to manage assets in all asset pools.

2. Different decision makers

Grayscale is a digital asset category held according to the decisions of the centralized management team; and BlackHole DAO is a digital asset category preferred through voting of the decentralized autonomous community organization (DAOs).

3. Different asset pools

Grayscale includes the unique and limited digital asset category carefully selected by the centralized management team, while BlackHole DAO, recommended by communities, covers all (such as NFT and metaverse land and game props) released digital asset categories (As of now, there are about 18,000 digital asset categories issued globally).

4. Different investment logic

One is active investment, in which asset managers rely on expertise to select specific assets and obtain excess returns from active decision-making that outperform market trends. The other is passive investment, in which asset managers are only responsible for asset allocation and gain long-term benefits from the trend growth of the market itself. Grayscale is an active investment behavior that a professional management team selects specific tokens to be held, while BlackHole DAO recommends all issued digital assets through the communities. It can be seen as a passive ETF covering all digital assets already issued in the world.

5. Different vision

The vision of Grayscale is to serve more traditional investment institutions and become the largest trust management institution in the crypto world. The vision of BlackHole DAO is to establish more sub-communities (DAOs) through autonomous organizations to discover and recommend all digital asset categories already issued on the whole network. It aims to allow every ordinary investor to become the partner of the decentralized “Grayscale” BlackHole DAO, and share the beautiful life brought by asset appreciation.

3.3 The first formula: BHDP: BlackHole DAO Protocol, the automatic burn mechanism to achieve extreme deflation

BHDP extreme deflation formula: X-[X/(Y*H)]=Z

The BHDP extreme deflation mechanism will be triggered when the extreme deflation occurs:

The deflation mechanism will be triggered in the case that the support rate is equal to 0 when the stock (BHO) in the market reaches a certain amount. Meanwhile, the interest on Stake will gradually decrease in a certain proportion. The proportion of stock (BHO) purchased through Bond will gradually decrease, followed by a gradual decrease in the stock (BHO) minted through VC Pool. If the support rate is less than 0, the Stake will stop generating interest, while Bond and VC Pool will stop minting new coins. In the meantime, the deflation mechanism will be triggered, starting to burn the inventory flow according to time and proportion until the support rate is greater than 0.

X-[X/(Y*H)]=Z

x: Amount when the burn mechanism is triggered

y: Burning proportion

h: Time (Day)

z: Amount when the support rate is greater than 0 by burning the inventory flow

For example: The upper limit of total BHO minting is 100 trillion. If it reaches the total minting amount one day, the automatic burn protocol will be triggered after the community votes. According to the BHO holding proportion on the network, 1% will be automatically burnt 24 hours a day until the total BHO remains 10 billion.

X-[X/(Y*H)]=Z is 100 trillion BHO-[100 trillion/(1%*24H)]=10 billion.

In theory, it only takes 99 days to automatically burn 99.99% of the tokens according to the proportion on the network.

On the whole, the BHDP design is centered on the economic model, with a distinctive business model. This set of models is representative of generality in the DeFi industry, with a strong correlation between businesses. There are three adjustments made in the deflation mechanism to prevent the malignant impact on products caused by too much early circulating supply, a problem caused by high APY in DeFi 2.0. Hence, the mechanism itself is remarkable, but all this has yet to be verified by the market. It is worth looking forward to.

3.4 The second formula: Black Hole Reactor value exchange protocol, automatic exchange mechanism to ensure value support

OHM, as the DeFi 2.0 representative, is a genius in the mechanism design of maintaining high APY while achieving savings income. The team has skillfully integrated game theory, which is the (3,3) meme (the famous Prisoner’s Dilemma) popular on Twitter. The Black Hole Reactor value exchange protocol, based on the Ve(3,3) meme model, introduces the game mechanism of Wilderness Survival, which goes viral on the Internet. Only the Holder who persists to the end can redeem all the funds (great awards) in the Black Hole Reactor according to the token proportion held.

The established Black Hole Reactor is a bit like the prize pool set to redeem asset value prizes in different stages of project development. When a certain condition of the smart contract is met, the prize pool will be opened. The main prize pool is from 60% of the transaction tax (handling fee) burnt and transferred. By default, the reactor will be opened when the market circulation triggers the Blackhole Protocol mechanism to finally deflate to 10 billion BHO and the reactor amount reaches 100 million BUSD.  It is certain that the amount varies depending on the stage of the reactor, and the amount of the reactor in the second stage may be 1 billion BUSD.

Based on the settings of the smart contract, its reactor also sets several corresponding rules:

1. The upper limit of total BHO minting is no more than 100 trillion. When the market circulation triggers the Blackhole Protocol mechanism to finally deflate to 10 billion BHO and the reactor amount reaches 100 million BUSD, the reactor will be opened. 10 billion BHO holders can redeem the 100 million BUSD in the reactor in proportion. At this time, regardless of the BHO price, the BHO value is truly supported by 100 million BUSD assets.
2. Regardless of the result, the Black Hole Reactor will be opened after 3 years.
3. During the BHO minting process, upon up to 100 million BUSD, it will open the Black Hole Reactor and stop minting.
4. 60% of the tokens in the transaction fee pool (BHO has set a transaction fee of 15/25 for each transaction) will be burnt and transferred into the Black Hole Reactor (prize pool) in proportion, and such tokens (BHO and BUSD) of the Black Hole Reactor will be burnt according to a fixed proportion: for every 1 million BHO burnt, at least 1 BUSD will be transferred into the Black Hole Reactor (prize pool).

The formula of the Black Hole Reactor value exchange protocol is:

1. (The total amount of market issuance A – the remaining total amount of market deflation A1) ÷ the amount of each burning B × 1 BUSD (the amount corresponding to each burning) = the total amount of the reactor
2. The total amount of reactors ÷ the remaining total amount of market deflation A1 = the exchange value of each token E
3. BHO value support formula: Exchange value of each token E ÷ initial issue price D = token value support height N

For example:

According to the upper limit of the total issuance of BHO, 100 trillion, every 1 million BHO is burned, and more than 1 BUSD transferred to the Black Hole Reactor correspondingly. Finally, 99.99% of BHO will be burned through the transaction tax and automatic burning mechanism, and the remaining 10 billion BHO will be used to calculate the value support height of BHO:

(Total issuance in the market 100 trillion – total market deflation 10 billion) ÷ 1 million per burning × 1 BUSD (the amount of each burning corresponds to the transferred amount) = the total number of reactor amount of 99,990,000 BUSD ≈ 100 million BUSD

The total amount of the reactor of 99.99 million BUSD ÷ the total amount of market deflation of 10 billion BUSD = the exchange value of each token ≈ 0.01 BUSD

BHO value support

The exchange value of each token 0.01 BUSD ÷ the initial issue price 0.00000005 BUSD = the theoretical support height of the token value, which can reach 200,000 times.

Most of the economic models of all tokens rely solely on confidence to support the value of future development. However, the BlackHole DAO – Black Hole Reactor value exchange protocol turns this unreasonable price expectation into a phased commitment and payment of real assets.

In this way, speculators and profiteers after paying high transaction taxes will leave, while investors and loyal holders can finally enjoy the ultimate reward of the Black Hole Reactor. It seems to equip every staunch community supporter with an intelligent navigator along the journey, to arrive at one city after another with the user. Clear and reachable goals, loyalty and firmness will inevitably have real feedback from followers.

After AC quits, the DeFi field is still moving forward. It will never stop due to the quits of anyone. Will the innovator BlackHole DAO be able to raise the banner of a pioneer in the DeFi field, or even the entire encrypted digital industry, to let all the DeFi supporters regain their fighting spirit? Let’s wait and see!

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