The blockchain space has exploded massively over the last few years. For the most part, this is due to the growing popularity of decentralized finance (DeFi) among cryptocurrency enthusiasts in 2019. DeFi has become so popular because it has presented real-world business scenarios, pushing to solve key problems plaguing the financial industry.
DeFi is a catchy moniker which represents a paradigm shift in our perception of what money entails. Similar to banks and other centralized financial institutions, DeFi offers the same financial products and services but in a decentralized, trustless and borderless environment.
Bitcoin was the first peer-to-peer digital currency and the first successful implementation of blockchain technology. However, blockchain has grown past Bitcoin to give rise to decentralized finance. This recent development represents a turning point for financial applications which gives users freedom to do more with their crypto assets.
The decentralized finance space is a fast-growing ecosystem of open protocols and applications serving thousands of everyday users who use financial products and services. DeFi has expanded its reach to cover various services like lending and borrowing, spot trading and margin trading — and it’s still growing fast.
According to DeFi Pulse data, the DeFi space is now worth around $12.4 billion, at the time of writing. This is up from a valuation of barely $80 million in early 2020.
What Is Apex DAO?
Apex DAO is an institutional DeFi protocol based on open distributed protocols leveraging blockchain technology and smart contracts. The protocol maintains true decentralization through a transparent and unbiased governance model.
Apex DAO features an ecosystem of financial solutions in the form of yield farming, corporate loans, synthetic assets, and Special Purpose Acquisition Company (SPAC). These solutions are presented as simple DeFi products which everyday users can easily access on the Apex DAO protocol.
The existing financial market is based on board structure and centralized management. This presents some issues, notably personal errors, investor manipulation and lack of transparency. To that end, a viable solution which tackles and eliminates these downfalls is needed now more than ever.
Apex DAO has set out to solve these key issues plaguing traditional financial solutions by entrusting Governance to an Autonomous System Crowdsourcing Process.
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How Apex DAO’s Token Ecosystem Works
Apex DAO users can increase their earning potential by tapping into several profit opportunities such as the increase in the token price, distribution of liquidity rewards and dividends obtained from the top layer.
The Apex DAO ecosystem operates in a three-layer structure with an additional side layer for digital asset management. Here’s a brief overview of these layers.
DeFi Layer
This is the first and lowest layer in the Apex DAO ecosystem. The DeFi layer works in conjunction with the side layer to provide everyday users with opportunities to earn profits through yield farming and asset management. Through the advanced asset management services, Apex DAO will maintain investment portfolios (which mainly consist of derivatives and synthetic assets) on behalf of institutional investors. The DeFi layer is operated in a decentralized environment through the Governance Voting System.
Using layer one, individual investors can deposit their tokens into the Apex yield farming pool and earn passive income continuously. In addition, they will also receive periodic dividends on the revenue generated from asset management and SPAC.
Crypto Fund and Corporate Loan
The second layer of the Apex DAO ecosystem features a DeFi lending protocol for individuals and businesses. In the second layer, users will deposit their crypto assets through the asset manager. They can then use the deposited tokens as collateral to invest in the crypto fund. The revenue at the end of the investment period is settled in two ways, depending on the value of the crypto collateral.
One, if the yield on the collateral is less than 6%, then the crypto fund will be terminated and the collateral returned to the user.
On the other hand, if the yield on the collateral is at 6% or more, the tokens used as collateral will be burnt permanently to reduce the supply (thereby increasing the price) and the profits will be disbursed to the user. By adopting deflationary tokenomics, fund investors and token holders can enjoy continued returns on their investment. It’s important to know that users have the power to change the percentage yield by voting through protocol governance.
Special Purpose Acquisition Company, SPAC
As the Crypto Fund and Corporate Loan instruments in layer two increase in valuation, more SPACs will be created through insurance companies and private equity funds.
The SPAC is a unique financing vehicle for acquiring early-stage companies (i.e., prior to IPO and M&A) by raising funds through a public offering and earning revenue in a short time from the sale process.
In the third layer, institutional and private investors will invest in private equity funds. The funds raised will be deposited into an interest-bearing account and will only be disbursed when the company acquisition is completed. In the event that the acquisition is unsuccessful and the fund is liquidated, investors will receive their initial SPAC contribution back.
The SPAC layer in turn provides liquidity for the lower layer (particularly corporate loan) through corporate investment deposits. It’s noteworthy that layers two and three are designed to operate under the institutional custody and asset management service. This ensures security of funds and allows them to maintain control over their crypto holdings at all times.
CPMM Market Making
Uniswap was the first decentralized exchange protocol to implement automated market makers (AMMs), providing a better way to trade cryptocurrencies in a decentralized way through liquidity pools.
Uniswap is a popular liquidity protocol which operates under the CPMM automated market-making model. It will be the first DEX platform where Apex DAO will be listed.
The price formula for the CPMM model is based on the function x*y=k, where x and y represent the supply of two tokens X and Y respectively, and k is the product which must be kept constant.
Instead of centralized buy/sell order books used on crypto exchanges, the token swaps are made through the liquidity pool. In this process, a token is deposited into the liquidity pool, and the targeted token is taken out of the pool based on its quantity and value.
The CPMM model establishes a range of prices for X and Y according to the available liquidity of each token. When the token X supply increases, then the supply of token Y will automatically adjust (in this case, decrease) — and vice versa — to maintain the constant product k.
All pools deliver a fixed amount of rewards, irrespective of the current demand. As such, the liquidity rewards distributed to farmers in a particular pool is inversely proportional to the supply of the farmed token in that pool. However, the received token as a reward is directly proportional to the supply of the token. Hence, as the total value locked increases, the number of rewards that can be received from the pool can be decreased.
The bottom line is this: as the total value locked (i.e., total supply) of the reward token increases, the price of the token increases while the amount of rewards which farmers can obtain from the pool decreases.
On-chain Governance
Tokens distributed in Apex DAO have the same authority as the most DeFi governance proportional to their quantity. Apex DAO doesn’t directly benefit from selling tokens because the value will increase through burning and innovative tokenomics are determined by the voting rights of the token holders. The entire governance process is also transparent.
All in all, the goal of Apex DAO users and the institution remains the same for asset growth because the amount of funds deposited as collateral interferes with the size of higher layer deposits. This results in better revenue circulation leading to the rapid growth of the ecosystem.
By leveraging blockchain and smart contracts, Apex DAO will provide proper programmability, interoperability and transparency in its suite of DeFi solutions, eliminating the need for a trusted third party through decentralized governance by the community. This will help everyday users unlock the full value (and earning potential) of their crypto assets and access financial products and services in a secure, decentralized and trustless environment.
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