What Are the Main Flaws in DeFi and Our Solutions to Them | Tortle Ninja
DeFi products, especially farms and vaults, have inherent flaws, too.
DeFi has emerged as a transformative force in the financial ecosystem. Among its varied offerings, farms and vaults have particularly gained prominence. However, these products are not without their flaws. In this article, we shed light on the inherent challenges of DeFi farms and vaults and how Tortle Ninja has addressed these issues.
The Issue of Misleading APRs:
APR, or Annual Percentage Rate, is a metric that investors closely watch. In the DeFi space, farms often calculate their APR by summing up the earned fees and incentives, typically over brief periods. While this method is technically accurate, it presents APR as a static figure, which is misleading. The truth is, as liquidity in a pool rises, the incentives become more diluted. Moreover, the tokens used to boost farming can be vastly inflationary, bringing their own set of challenges. It’s also essential to factor in impermanent loss, especially since many farms deal with exotic pairs.
Vaults and Their Drawbacks:
Vaults stand as a DeFi pillar, with pioneers like Andre Cronje and yearn.finance playing instrumental roles in their evolution. The primary advantage of vaults lies in their ability to efficiently sell incentives and then reinvest the returns, yielding compound interest. This model has seen tremendous success and adoption in the DeFi community.
However, structured products like vaults come with their downsides. The act of selling incentives in the market generates sell pressure, leading to inflation. On a classic vault, as half of the incentives are sold in each cycle, tokens that are poorly designed or distributed can undergo massive inflation.
During periods of quantitative tightening or bear markets, the fragility of this system becomes apparent, potentially leading to what is termed a “Death Spiral.” In such situations, as farms/vaults amplify inflation, the asset value for holders depreciates. This devaluation can trigger a chain reaction, prompting them to start selling their holdings. As the token value plummets, the incentives lose their impact. This downward trajectory prompts liquidity withdrawals, making the asset even more volatile. Once a token finds itself in this spiral, it’s almost impossible to regain traction or liquidity.
The Silver Lining and Tortle Ninja’s Approach:
It’s crucial to note that farming, in its entirety, is not harmful. Its efficacy largely hinges on the token design and prevailing market conditions. Moreover, innovative farming strategies are on the horizon, indicating that it’s not a cul-de-sac.
At its core, Tortle Ninja seeks to enhance the user experience by centering on two main goals. Firstly, it offers real-time valuation for all tokens, providing an authentic Profit and Loss (PnL) reflection of an investor’s position. This holds true irrespective of the product’s intricacy. The aim is to ensure precision in measurement.
Furthermore, considering the inherent volatility of the crypto domain, merely measuring isn’t sufficient. Tortle Ninja introduces a unique feature: if an investor’s PnL goes negative, an automatic withdrawal is triggered using Combo Triggers. This mechanism aids in curbing further losses.
Tortle Ninja stands as a testament to the continuous evolution in the DeFi space. With its sophisticated analytics and execution engine, it promises not just intelligent liquidity provision but also ensures it is sleek and safeguarded.
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About Tortle Ninja
Tortle Ninja offers users an advanced DeFi algo-trading experience, allowing them to execute spot and derivatives strategies with ease, measure their effectiveness using real-time data, and adapt swiftly to ever-changing market conditions.