Open Finance inevitably promises to port traditional finance to the blockchain. As it does that, the middle man, that is the expensive custodian, is eliminated. It will be interesting no doubt. And it has been interesting.
According to Defi Pulse, different open finance dApps hold as collateral over $9.6 billion in ETH. And this is in Ethereum alone.
There are other emerging DeFi dApps in Tron—with the highlight being the recent listing of JUST stablecoin, and there are other interesting developments in periphery networks like the IOST.
Decentralization and Liquidity in DeFi
Underpinning their objectives is the community’s strong desire to create opportunities for coin and token holders to either diversify their income streams through lending and borrowing to build on more opportunities, or to build liquidity for emerging but high potential tokens.
For this to be smoothly executed, there must be a reliable platform for exchange. That is, coin holders, say ETH, can swap their tokens for others. In this case, it can be for a DEX token say Bancor or others. Over and above everything, this execution must be smooth and there must be modes through which there is liquidity for the second pair.
In DeFi, such exchanges are done via a decentralized exchange (DEX). Since the latter function without middlemen and the owner retains full control of their funds, there is security. However, the only weakness DEXes have is their liquidity which lags CEXes which are honey pots but scalable than the former which relies on the scalability of the underlying blockchain.
Most DEXes are active in Ethereum. Second, they employ different auction styles to strike a balance between incentivizing liquidity providers and to ensure transactions are executed fast without wide slippages.
Uniswap is a prime example. While it has an attractive automatic market-making (AMM) that has been a source of inspiration, there are upcoming swapping platforms that seek to change all this by changing auction styles.
Auction Types and why they are important in DeFi
Auction styles come in different flavors. A DEX can opt for the ascending bid auction—or the English auction, where the auctioneers state their bid from a reserve price (the lowest price). The highest bidder wins.
The Dutch auction is the opposite of the English auction. The Auctioneer starts at a high price and decreases their bid until a bidder calls out. This auction’s advantage is speed.
The first-price, sealed-bid auction is closed with no free flow of information. Bids are placed in an envelope, sealed, and later reopened in the presence of all bidders. The highest bid wins. The Vickrey auction is similar to the first-price-sealed-bid but instead, the item is offered at the price of the second-highest bidder.
Regardless of the auction type employed by a DEX, their overarching objective is speed and efficiency. These two determine the prevalence of arbitrage. Arbitrage, when exploited effectively is a money-making opportunity.
In DeFi, this has been the perfect fertilizer for Yield Farmers who trade between different protocols to exploit gaps, earning generous profits through protocol inefficiencies.
These differences are what make DeFi interesting, gifting the space current market capitalization.
Introducing Bounce Finance
Swapping should be done in a competitive environment preferably with a limited supply of tokens and set time. In this case, a modern-day, adaptive auction should exist to make swapping competitive. The Bounce Finance creators want to build a new auction framework specifically tuned for DeFi.
Consequently, they have borrowed some features from Uniswap and Yearn Finance but with some twists especially in governance and in liquidity mining.
How it Works
To get going, there must be a pool but the pool creator is in charge of proceedings. He/she, for instance,–and being the creator, sets operating parameters like the number of tokens to be swapped, the maximum amount of ETH—being an Ethereum-based project, accepted for the swap, the duration of the pool, and the pool type of his/her preference.
Swapping tokens in the Bounce Finance can be in two ways:
The Fixed-ratio swap: Here, the swap ratio between a pool’s creator tokens and ETH is fixed at all times—that is there “same swap rate across pool live time.” In this arrangement, the user will receive their bid tokens only after his/her ETH transaction is confirmed. There is no need for both parties to wait until the pool closes. Transaction fees was re-adjusted to one percent.
Dynamic ratio swap: Here, the swapping ratio depends on the amount of ETH and the number of tokens in the pool. Users and tokens receive their assets only once the pool closes. The final swap rate is determined depending on whether the bounce level is reached. Swapping in these pools draws fees between 1.5 to 2 percent.
Once any of the four-pool type is created, participants can begin auctioning for the deposited tokens in exchange for ETH. Swapping is executed before its expiration time ends.
The swap will be successful if the accumulated ETH less or equal to the bounce level. Should the amount accumulated exceed the maximum amount of ETH collected, the extra is sent back to the sender’s address.
Competitiveness is automatically ingrained in Bounce Finance. With a predetermined pool allocation and rates depending on demand, its auction type draws speed and efficiency on a first-come, first-serve basis.
Bounce Finance (BOT) Tokenometrics and Distribution
BOT is the Bounce Finance utility and governance token. Its creator said its primary function was to attract new users to the platform.
The total supply was reduced from 550,000 to 220,000 BOT then to 150,000 BOT in September 2020 after a governance proposal.
This will be distributed in four portions:
- Daily Reward Distribution: 100,000 BOT
- Governance vault, Sale, and rewards: 91,500 BOT; 75,000 BOT will be in the governance vault controlled by a multi-sig wallet with 9 signers. Six are needed to open the vault. Original members of the Bounce Finance team won’t be part of any signers.
- Team: 16,500 BOT
- Early experienced governor invitation: 12,000 BOT
NB: a big portion of their daily reward will go for liquidity miners at 60 percent, the rest will be distributed for governance voting at 20 percent, while the Uniswap liquidity provider tokens will be set at 20 percent of the daily emitted rewards.
To make this possible and easy for miners, a Uniswap section under bounce token for staking Uniswap LP tokens has been created.
Besides, two percent of the total supply is reserved for people who make proposals. Other participants will share 98 percent of the governance daily rewards.
Uses of the BOT token
- Payment of the 0.2 percent transaction fees
- A governance tokens used for voting changes on how the protocol works, total supply, and more
- Staking for transaction fee rewards where participants will earn the yield pools.
Every day, 32 BOT tokens (slashed from 300 BOT) is set aside for liquidity miners until the amount set aside for liquidity mining runs out.
Miners have to actually work (pay for Ethereum gas and platform fees) to create new BOT tokens every 24 hours cycle and this brings a base value for every BOT to be created. You can compare this to mining new Bitcoins and it bring new liquidity to the market and makes this a very fair token distribution compared to most not so decentralized token launches.
Technically, for one to create a bounce token pool, a fee denominated in BOT has to be paid (helping draw demand) but will be burnt—destroyed—once the pool closes.
DYNAMIC BOT staking
Like in all other swapping pools, a transaction fee is levied. In Bounce Finance’s case, the 0.02 percent fee is only charged on the pool creator and re-directed to a staking pool. However, the intention of this staking model is for flexibility of staking assets and for more on-chain computation of staking rewards.
Staking rewards are then calculated in a cycle basis where earnings can only be claimed after participating in a complete cycle. All rewards will be distributed based on the amount of BOT staked in that cycle and the total amount of staking rewards (in ETH) in the staking pool at the time. When claiming rewards, ETH will be instantaneously used to buy BOT via Uniswap.
All requests for un-staking BOT token is processed within a week to prevent elements from gaming the system.
Read more about staking on their Medium page
Nonetheless, it has been one of the top performers. Trading at $367, the token continues to flactuate, down 63 percent from its all-time high of $956 it reached on Sep 10.
BOT is listed at Uniswap V2, Huobi Global, OKEx, BKEX, and others. The BOT/ETH market is liquid.
Short Term Price Catalysts
- BOT is already up from it’s all time low of $94 and is just on the market for a few weeks now. This highlights the level of demand from the users who want to boost the liquidity of tokens—just like they would in Uniswap, but at the same time ready to pay low fees and earn extra BOT tokens. BOT is now trading at $367 with an average daily trading volume of $2,276,363 Coingecko.
- Upon launch, the Fixed Type pool attracted over 800 ETHs in trading volumes pointing to underlying demand. So far, there are over 2,300 unique addresses holding the BOT token according to Etherscan.
- BOT liquidity has tremendously increased in the last two months and staking rewards are now in BOT (not ETH) as it was originally.
- For user experience, the development team is constantly improving its interface. Bounce Finance ‘s main-page is now multi-lingual, supporting Cantonese.
- Like Uniswap, projects are now beginning to list and distribute their tokens from Bounce Finance. Then there is the Keysians Network (KEN) which wants to financialize the blockchain network. Before this, there was StrongBlock (STRONG). The latest was Prometeus (PROM). At this pace and because of auction models (for individuals and projects) enabling competitive bidding, it may soon be a preferred platform for Initial DEX offerings (IDOs).
- BOT token has been listed in OKEx, Huobi Global, and Uniswap V2
- Bounce Finance has been integrated in the Binance Smart Chain saving users of high Gas fees in Ethereum. 30 percent of the mining allocation (which is 15.36 BOT per day) will be allocated to Bounce’s Binance smart chain daily rewards, and this percentage can be changed by governance. Swapping fees will be 0.25 percent.
- Bounce Finance is deflationary and has introduced a new emission model where daily rewards were slashed from 300 BOT to 150 BOT to later 32 BOT. With deflation there is demand which is bullish considering how the total supply was also dropped from 550,000 BOT to 150,000 BOT after a token distribution revamp in late Aug.
Long Term Price Catalysts
- To drive demand for BOT, users can now create pools that are only available for BOT holders.
- The co-founder–Chandler Song who is also the CEO of ANKR, is not motivated by money, but mostly wanted to see if they could build a new type of decentralized financial products. He is guided by a clear philosophy, building as DeFi scene evolves. There are no unrealistic roadmaps and he says depending on where the industry goes, Bounce Token will evolve and become more adaptable.
- There is distribution and daily emission rates can be changed following a vote when the governance board is live. Eventually, the governance of the Bounce Finance will transit into a DAO as the creator also plans to reduce sale of tokens through the governance invitation sale. The first auction will see the auction of 15000 BOT tokens through multiple sealed-bid auctions with the floor swap ratio of 1 ETH=6 BOT. Subsequent sales will see funds channeled to the vault.
- Bounce Finance is on a path to change how auctions work. They are simultaneously blending features in Uniswap and other leading swapping platforms but remains decentralized and attractive to all set of participants.
- The Bounce Finance is not a money printer and doesn’t intend to print “free money” while also won’t lock user rewards for a protracted period of time. Instead, their dynamic BOT staking where transaction fees charged on pool creators are re-directed to a staking pool without affecting participants.
- For effective governance, the Bounce Finance has incorporated two types of governance. Submission of proposals and voting can be done on-chain for transparency. Professionals who are part of the Bounce governance board include Kain Warwick, the founder of Synthetix, the head of strategy at compound, and other heavy weights in the DeFi scene.
- To weed out scams and to highlight conflicting issues, the protocol is reliant on its community voices via a Social Trust. Only those with at least one percent of the total supply can suggest proposals which can be voted on by the community with a seven-day voting period while those with at least 0.5 percent of the total supply can recommend projects. The 0.5 percent by the proposer will be staked for seven days.
- The team is building a new auctioning framework where all manner of projects can sell their tokens as they wish. As such, the team plans to integrate a reporting system in which the governance board can give credibility to some projects and deter malicious elements from leveraging their auctioning system.
- They are taming whale activity. To ensure fairness and decentralization in the spirit of DeFi, the founder initially passed a change that caps max swaps at 80 ETH. Any amount larger than this will be considered a single transaction. This way, the cost of transaction will be much higher for wash traders eager to only earn BOT rewards but not contribute to pool liquidity. Later, rewards will be based on the number of transactions, that is, transaction count, instead of total ETH.
- The developer has also an anti-scam policy which is inevitable in decentralized, open source systems like the Bounce Finance. This goes a long way in improving user experience which is a net positive for DeFi as a whole.
- Bounce Finance is guarded by always creating scarcity of resources, a factor that also influences price and a diversion from Uniswap’s model. By introducing time element and fixed volumes in every swapping cycle, there is competitiveness which in turn rewards hard work. That is, traders who use the platform to swap their tokens for others.
- The creator continues to build and improve the protocol. From a basic interface, the platform’s interface is now more attractive, complex with advanced features such as portals where a pool creator can choose to open a pool for BOT holders.
- Different auction pools have been released and Bounce Finance is gravitating towards Non-Fungible Tokens (NFTs) which are immensely potential and under-explored.