We are in one of the most technological markets in history. In all likelihood one of the largest markets in the world, besides being a challenge, it is a competitive advantage against other sectors that struggle with bureaucracy, productivity and an obsolete system. For this reason, this market pushes you to constant R+D+I, looking for new ways to optimize time and capital. One of those ways that is becoming necessary with the entry of new capital and companies into DeFi is to earn profits from the liquidity you have in different chains, and that this position (LP) allows us to borrow stable currencies. Without liquidity no new markets are created, and DeFi is no exception. You cannot trade assets if there is no counterparty to provide you with the asset and forge the price. We’re talking about giving speed to capital.
Liquidity providers, let’s say, are the lifeblood of DeFi. They need clear and honest incentives to continue to provide liquidity, as they expose themselves to critical risks as soon as they become LPs. Today, liquidity is fragmented across many different blockchains, which is detrimental to the user experience on those blockchains and their protocols.
All that liquidity deposited in DeFi on different chains leads to difficulties such as fees, transactions, slippage, security and friction among many other things. These uncompetitive experiences naturally lead to low trading volume, which in turn is even less attractive to LPs, as their profit potential is minimal. Being able to gain exposure to interesting annual returns with stablecoin and LP Tokens, through chains such as Fantom, Avalanche, Solana and Tezos without switching networks and without slippage, is a great innovation coming to the industry.
Being able to use synthetic tokens that emulate LP Tokens from any of the major blockchains adds up to a resource of incredible flexibility and agility. Imagine the potential of being a regular user of the Avalanche network, and without leaving it, or using bridges, being able to access other investment opportunities in world-class DEXs on Ethereum, Fantom and Polygon for example. A real advantage for those of us who have been with DeFi for a while, know and work with the existence and use of synthetic tokens, but have not been able to use synthetic vaults to date, which give you a synthetic LP ready for use in other networks.
Being able to deposit stable coins in a protocol. Not being exposed to market volatility and being able to borrow a synthetic LP token and then connect it through the protocol’s own network of validators, will elevate your strategies to another level and eliminate the direct impact of market sentiment on your results. Helping to improve the flow of liquidity between chains, and therefore democratising access to investment opportunities (due to excellent liquidity), will attract new and capitalised users. It provides great usability and utility due to the simplicity of the process, minimising the risks to which it was previously exposed.
Supporting any type of asset through stable coins has 2 sides, we cannot deny the evidence or erase from memory the events that struck down many protocols, and that caused a very significant level of stress to others. Having learned these financial lessons, I am left with the improvement in capital efficiency that this support implies, since without having defined monetary policies, DeFi are profitable when borrowing, since the annual interest rate per loan (approx. 2% / 4%) is well below the annual interest rates of the traditional sector (approx 8% / 12%).
When accessing money is expensive, it becomes unattractive, since it diminishes your ability to generate wealth in the same period of time, and it does not serve the purpose for which it was conceived: to offer opportunities for growth and development by being applied as a means to achieve it.
If you want to continue to explore this aspect in more depth, I recommend that you investigate the Entangle protocol, follow their social networks and carefully review their documentation.