How do new emerging cryptocurrencies make crypto-related wealth growth more dependable?
There are a number of mechanisms that have been introduced to allow investors to accumulate coins so that their wealth grows over time without relying on price appreciation. The Seasonal Tokens introduce a new mechanism to achieve that result — trading the tokens in a cycle. Some of the mechanisms used by other coins include:
Staking allows investors to lock up their coins for a certain amount of time in exchange for earning “interest”. This prevents the coins from being sold and supports their market price. Typically, newly-issued coins are paid to stakers in proportion to the amount they’ve staked, with longer-term stakes paying a higher interest rate than shorter-term stakes. One example of a recent system that relies primarily on staking is the Hex token created by Richard Heart:
Blockchains that use proof-of-stake as their consensus mechanism allow stakers to validate transactions and generate new blocks, instead of relying on miners for those tasks. Newly-created coins are paid to stakers when they generate new blocks, and they also collect transaction fees. The first blockchain to use proof-of-stake was PeerCoin in 2012, and the most recent one is Ethereum, which moved from proof-of-work to proof-of-stake this year.
* Providing liquidity
Decentralized exchanges or DEXes allow users to trade cryptocurrencies without the use of an intermediary. These DEXes exist as smart contracts on the Ethereum blockchain or a similar blockchain. A user can give some quantity of Cryptocurrency A to the smart contract and take a corresponding quantity of Cryptocurrency B, in a single transaction. For this to be possible, there needs to be large quantities of both cryptocurrencies held by the smart contract.
The people who provide the stockpiles of Cryptocurrency A and Cryptocurrency B to the DEX are called liquidity providers. In exchange for providing the stockpiles of cryptocurrency, the liquidity providers receive a transaction fee every time a trade occurs. Earning these transaction fees provides a way for investors to use their cryptocurrency holdings to earn income over time, without relying on price appreciation.
The major DEXes where liquidity providers can earn fees include Uniswap, PancakeSwap, and SushiSwap.
* Yield farming
Yield farming combines staking with providing liquidity. After a user has provided liquidity, they receive liquidity tokens from Uniswap, which they can send to another user, or give back to Uniswap and withdraw their liquidity. Yield farms are smart contracts which allow users to stake their liquidity tokens for a specified amount of time, in exchange for which they receive regular payments. This provides an additional incentive to provide liquidity, and it prevents the liquidity from disappearing from the exchange in the event of a market panic.
The biggest cryptocurrencies offering yield farming include AAVE, yearn.finance, and Compound.
* DeFi 2.0
Earlier versions of yield farms suffered from the problem of limited liquidity, with most of the cryptocurrency held outside the farm and not contributing to liquid markets. The next generation of DeFi protocols seek to address this problem by providing a simplified interface which allows investors to easily hold an investment in the cryptocurrency which concentrates liquidity in a single fund which acts as both an investment and a liquidity pool. Major examples of DeFi 2.0 cryptocurrencies include OlympusDAO, Avalanche, and Curve Finance.
To learn more about Seasonal Tokens, visit our website at seasonaltokens.org