The DeFi sector continues to provide new opportunities to investors ready to venture into this new market. DeFi (decentralized finance) replaces centralized financial systems with regular users. In this way, it creates a scenario in which your average user can earn interest and rewards for participation in the network.
Lately, the DeFi sector has seen a rapid increase in networks entering the space. These new platforms introduce new protocols to simplify the UX and streamline DeFi activities. While most of these platforms promise healthy ROIs it’s crucial to understand that not every platform is a wise option to pursue.
There are some problems that the DeFi sector desperately needs to correct before it can reach its true potential. One of these problems that poses a significant risk is Whale manipulation. Whales are the majority token holders of a project. Since these investors have the highest level of participation in a project, they have extraordinary sway within the network's future decisions.
Notably, whales can tank entire markets if they liquidate without warning. In the Bitcoin community, these risks are well-understood. As such, there are a bunch of Whale tracking platforms and social media accounts dedicated to this risk. These accounts simply monitor all significant BTC wallet transactions.
This strategy has proven to be valuable to Bitcoin investors, but what about DeFi investors? DeFi platforms are more susceptible to whale interference than Bitcoin for a variety of reasons. These networks are smaller, and in many cases, a single investor can control over 20% of the tokens in circulation.
Sadly, there are no platforms that exist today to monitor DeFi whales as of yet. Critically, it could still be a while before one emerges. Technically speaking, this task is challenging since, unlike Bitcoin, the DeFi sector includes tons of projects with more entering weekly. There's just no way to track these projects because of their diversity and newness accurately.
Additionally, not all DeFi projects utilize the same blockchain. Ethereum is the most popular blockchain in use within the DeFi ecosystem. However, other projects leverage blockchains such as TRON or Stellar to provide their users with unique services.
Developers Under Watch
What's even worse is that much of this manipulation was initiated by the project developers themselves.
In most instances, DeFi developers will keep a large percentage of their tokens locked into liquidity pools on Uniswap. Uniswap allows developers and users to stake their crypto in these liquidity pools and earn rewards. The more liquidity in the pool, the more value the pool's token possesses.
Whenever a project’s development team exits a liquidity pool after draining it, it’s known as a rug pull. Rug pulls are too common in the sector, with many highly publicized incidents occurring recently. For example, the developer behind a Uniswap competitor SushiSwap dipped without warning after cashing in on the project’s liquidity pool. These actions hurt investors who saw the project’s liquidity drop from millions down to around $15,000.'
Luckily, other developers stepped in and took over the project. This move helped the token value recover some of its losses but not all. Notably, this scenario isn't the norm. Usually, these projects become abandoned, with investors losing their holdings.
DYP Figures Out How to Reduce Whale Interference Risks
Until recently, DeFi investors had no options in regards to protecting their investments from these risks.
Unfortunately, this lack of protection has led to an increase in whale manipulation in the market.
DYP developers seek to reduce this problem by integrating various conversion strategies to ensure no one party can drain the project’s liquidity without warning.
To accomplish this task, DYP's network integrates a couple of key strategies into their daily routine. For one, the network automatically converts DYP over to ETH daily. This strategy brings many benefits along with it. Specifically, whales are less likely to be successful in their attempts since the liquidity pool tokens are now Ethereum. They hold no sway in the project except to bolster its liquidity.
Another feature that is unique to DYP is its rewards system. DYP is the only platform in the market that allows you to stake DeFi tokens and receive your rewards directly in ETH. This feature is a big plus for users who often lose valuable ROIs when they convert DeFi tokens to ETH via exchanges.
Notably, both of these strategies serve another purpose aside from reducing whale manipulation risks. These protocols also tackle inflationary risks. Inflationary risks are another primary concern that has DeFi developers scrambling for options.
These concerns are validated when you examine how most DeFi pools operate. In a typical scenario, you join the pool and receive liquidity pool tokens for your investment. These tokens issue every time someone adds liquidity to the pool. In a perfect scenario, the added liquidity will bolster the overall value of the LP token. However, this response isn’t always the case.
As of late, these token issuances have begun to outweigh the demand for the token in the market. This problem is exasperated because most DeFi networks also pay out staking rewards in their LP tokens. Together, these issuances create an unsustainable token value.
Deflationary Community Governance
DYP reduces all of these issues with its unique deflationary tactics. The network goes a step further and allows its community to participate in the deflationary process. DYP users vote to redistribute unconverted DYP tokens back to its users or burn these tokens every day. In this way, DYP users have a direct say in the network's LP token value.
DYP - Protocol Built to Stand the Test of Time
DYP is a step ahead of the competition with its deflationary approach to the DeFi sector. This network offers users higher ROIs and more flexibility in the market. Consequently, DYP continues to spark investor interests in the industry.