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It’s not often that you see a technological boom inside of another breakout, but that’s precisely what is happening in the crypto markets currently. The DeFi (decentralized finance) sector, which seeks to revolutionize the current centralized financial system by introducing various decentralized replacements, is also experiencing a deflationary yield farming boom.
Of these new protocols, yield farming is arguably the most hyped, and for a good reason. Yield farmers function as mini-banks within a decentralized network. Specifically, they take the place of centralized lenders. For the process to work and remain decentralized, giant liquidity pools are used.
A liquidity pool is simply a smart contract designed to hold many people’s funding at once. Lenders lock their cryptocurrency up in these contracts in exchange for rewards. The process of locking your crypto into smart contracts for rewards is called staking. It was first pioneered as a way to secure Proof-of-Stake blockchains. However, there are many reasons to stake your crypto nowadays.
Yield farming lenders stake their crypto into large lending pools with other users. Network participants can then borrow from these pools with interest. Notably, in most networks, the interest and repayment go back into the pool to boost liquidity. Best of all, the lender receives their timely compensation regardless of the loan recipient’s repayment time as the entire system is designed to share funds between participants.
Every time a new investor joins a liquidity pool via staking, they receive tokens representing their investment. These pool tokens also represent the market value of the liquidity pool. As more people join the pool, the token's value rises. This strategy creates another revenue-generating mechanism for investors.
Following a string of publicized market retractions, DeFi developers began to notice problems with the traditional yield farming model. Mainly, there was no way to remove tokens from the liquidity pool without removing liquidity. This lack of control measures leaves yield farming platforms at serious risk of inflation. It wasn’t long before developers decided to nip these issues in the bud. Their answer to this problem was the introduction of deflationary yield farming networks.
Deflationary yield farming platforms operate in the same manner as non-deflationary networks. However, they introduce various protocols that remove or lockup tokens from circulation. There are a lot of different ways to deflate a yield farming pool’s token value. Each platform has a different approach to this dilemma. The obvious way to do this is through a token burn. Token burns permanently remove tokens from the market and are very effective at combating inflation.
Yield farming networks can control their token’s value more precisely using these next-gen protocols. Consequently, there is a rush of new deflationary yield farming platforms now available to the public. Not every deflationary platform is worth your time. The market is filled with new projects that range in quality from outstanding to outright scams. As a new investor, it’s recommended that you only stick with reputable networks. Here are three deflationary yield farming platforms worth checking out.
Flaming Farm is a proprietary deflationary yield farming protocol. When investors join liquidity pools on Flaming Farm, they automatically enjoy the network’s burning system.
With its FFARM token deflationary systems, Flaming Farm wants to demonstrate the true spirit of DeFi. The burning rate starts at 2.5% in every transfer, and every time supply increase by 2k, the burning rate increase by 0.5%.
FlamingSwap is in final testings too. Not forgetting they pretend to enter the gaming industry.
Flaming Farm leverages a transparent community governance model to approve significant network changes. Users can vote on important matters, such as adding new liquidity pools to the platform. The users' voting power is determined by the amount of FFARM tokens they hold. This strategy eliminates malicious parties from the community because they would need to commit to the project to have a say. As such, they would only hurt their own ROI.
The DeFi Yield Protocol (DYP) utilizes a different type of deflationary protocol to keep inflation at bay. While other platforms conduct burns based on liquidity pool stats, DYP leverages a buy-back mechanism to remove tokens from the market. Specifically, 75% of the platform's automated Earn Vault profits go back to liquidity providers. The remaining 25% of profits get sold and used for the token buyback program. This system removes centralization from the network and helps to maintain token price stability.
DYP also takes focus on removing whale manipulation from the DeFi space forever. The platform leverages an innovative Anti Manipulation protocol that ensures that the rewards from supported tokens (DYP/ETH, DYP/USDC, DYP/USDT, and DYP/WBTC POOL) are automatically converted from DYP to ETH at 00.00 UTC. Besides, rewards are automatically distributed to liquidity providers on the platform in a fair and transparent manner. Thus ensuring that no whale would be able to manipulate the price of DYP to their advantage. This after all is the major purpose of decentralized finance.
Also if the price of DYP is affected by more than -2.5, then the maximum DYP amount that does not affect the price will be swapped to ETH, with the remaining amount distributed in the next day’s rewards.
After seven days, if they are still undistributed DYP rewards, a governance vote will be held on whether the remaining DYP are distributed (again with the slippage tolerance of -2.5%) to token holders or burned.
Yoink introduces a proprietary distribution model to combat inflation in its ecosystem and keep investors happy. The network functions through the use of a "Piggy Bank." This bank is a smart contract that also provides lottery-style winnings to users. This smart contract was built to hold 30% of the total YOINK supply.
The Piggy Bank automatically rewards users via a 1% random payouts protocol. Impressively, anyone has a chance to win these rewards that equal out to an average of around $2000 a day. To be eligible to receive these winnings, you need to be in the top 500 YNK token holders. When the Yoink protocol selects a wallet that isn't in the top 500, it burns those tokens. Consequently reducing the total supply of YNK tokens and eliminating the risk of inflation.
Deflationary yield farming seems to shake up the market moving forward. Investors already are migrating over to deflationary alternatives in masses. Soon, deflationary yield farming protocols could become the new standard because it provides investors with more security and projects with more stability.
It appears as if the DeFi Yield Farming craze has just begun. The introduction of deflationary protocols is sure to draw even more investor interest in the sector. For now, these platforms represent pioneering efforts to combat inflationary concerns on decentralized networks. You can expect to see even more concepts come to light as more platforms seek to catch the yield farming wave.
Disclaimer: Most of the DeFi assets are experimental and you should exercise extra caution while interacting with them. The analysis performed in this article is only for educational and informational purposes. The author of this post may or may not own the DeFi Tokens mentioned.
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