Can DeFi projects avoid getting cloned and dying?
IDEO Managing Director and Crypto startup investor Ian Lee have revealed how DeFi protocols can avoid being cloned and drained of liquidity. This can be done by improving its design and governance from the start.
SushiSwap forked from Uniswap on Friday, August 28. This suggested the beginning of a wave of similarly cloned DeFi protocols due to their open-source natures. These projects take years of research and development. They undergo several security audits and attract millions in seed funding. But they can be cloned with little or no recourse. This is a crypto risk.
By improving tokenomics and governance design, the protocol becomes more valuable. It integrates into existing DeFi platforms and pre-planning upgrades to introduce better functionality and rewards. They will then roll them straight out when a fork appears. This could also make existing protocols more resilient, going forward. It will also increase investments in digital currency.
Nowadays, yield farmers want better rewards. They need a native token that increases in value over time and protocol improvements that keep the platform ahead of the competition. You can help ensure the longevity of your project by giving them that.
It is timely advice. This is because SushiSwap has managed to leach over a billion dollars in crypto collateral from Uniswap in just five days. This has been done by giving yield farmers better rewards. In this case, it is protocol ownership through SUSHI governance tokens, which have also surged in price.
Uniswap was vulnerable because it does not have its governance token yet. It only offers a share of the 0.3% trading fee to its liquidity providers. According to the Sushiboard analytics platform, over 73% of Uniswap’s TVL (total value locked) has moved over to SushiSwap.
Another significant difference is that Uniswap raised a significant amount of capital from VCs in a funding round. Whereas SushiSwap offers rewards to its community owners. For future DeFi protocols, the venture capital funding model may need to be revised.
DeFi protocols have come under the limelight as theDeFi space has grown by leaps and bounds this year.
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