Defi Asset

Managemen
t&
Derivatives
 Introduction

PEACE BELLO
Team Lead, Chemotronix

[email protected]
Liquidity
provisioning,
Mining, Yield
Farming, Staking,
Lending,
Swapping
 Liquidity provisioning,
Mining, Yield Farming,
Staking, Lending, Swapping

Liquidity provisioning is the Liquidity mining is a way to Yield farming is the process
process of providing incentivize users to provide of earning rewards by
liquidity to a market. liquidity by rewarding them staking or providing
with tokens. liquidity to a DeFi protocol.

Staking refers to pledging Lending is the process of Swapping is the process of

your crypto-assets as lending your crypto-assets exchanging one
collateral for blockchain to earn interest. cryptocurrency for another.
networks that use the PoS
(Proof of Stake) consensus
algorithm.
Liquidity provisioning,
Mining, Yield Farming,
Staking, Lending, Swapping

• Liquidity provisioning and liquidity

mining are related in that liquidity mining
incentivizes users to provide liquidity.
Yield farming is related to both liquidity
mining and staking in that it involves
earning rewards by staking or providing
liquidity. Lending is related in that it
involves earning interest on your crypto-
assets. Swapping is related in that it
involves exchanging one cryptocurrency
for another.
 Synthetics
in
traditional
finance vs.
DeFi

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 Synthetics
• Synthetics are playing a large role in further “normalising”
DeFi for traditional traders and investors, effectively
mirroring the role derivatives play in traditional finance; by
tokenizing physical assets and commodities such as the
popular stocks SPY and TSLA, synthetic products can be used
as collateral in other DeFi protocols such as Aave. Synthetic
digital assets are revolutionizing decentralized finance by
offering access and liquidity to investors.
• In traditional finance, synthetics are used to create financial
products that mimic the behavior of other assets. For
example, a synthetic stock is a financial product that mimics
the behavior of a real stock. In DeFi, synthetics are used to
create digital assets that mimic the behavior of other assets

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 Derivatives in
Traditional
Finance

• In finance, a derivative is a contract

that derives its value from the
performance of an underlying
entity. This underlying entity can be an
asset, index, or interest rate, and is
often simply called the
underlying. Derivatives are financial
contracts that derive their value from
an underlying asset, group of assets, or
benchmark. They are powerful
financial contracts whose value is
linked to the value or performance of
an underlying asset or instrument and
take the form of simple and more
complicated versions of options,
futures, forwards and swaps

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 Synthetic assets
and their creation
• Synthetic assets are assets created by combining several assets that
have the same value as another asset to form a single asset. They are
made possible by smart contract systems that allow the creation of
debt in arbitrary assets with exchange rates determined by price
oracles. Protocols can therefore provide exposure to a wide range of
assets through an oracle with access to a reasonably liquid market.
• Synthetic positions (which includes synthetic long assets) are created
using a combination of financial instruments – typically options – to
mirror the same investment as an underlying asset.
• Some examples of synthetic assets include tokenizing physical assets,
bringing them onto a blockchain and imbuing them with all the
advantages listed above. Imagine anyone in the world buying a token
that tracks the S&P 500 and being able to use that token as collateral
in other DeFi projects like Compound, Aave, or MakerDAO.

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 Roles
Oracles play
in Synths
• Oracles play a critical role in the
DeFi ecosystem. They are third
parties that report the price of
assets from real-world (off-chain)
sources. An oracle acts as a source
of data that is being fed to a
smart contract. Synthetics is one
of the DeFi platforms that rely on
external oracles for price
feeds. Synthetics has switched all
of its price oracles over to
Chainlink’s decentralised price
oracles for its commodity and FX
Synths.

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 Use Cases for
Synthetic assets
• Synthetic assets are digital assets that are designed to mimic the
value of another asset. They are created by using smart contracts
on a blockchain network. The use cases for synthetic assets include
reducing financing costs, creating new investment opportunities,
and providing access to assets that would otherwise be difficult to
obtain.
• For example, Synthetics is a decentralized finance (DeFi) platform
that allows users to create synthetic assets by locking up SNX tokens
as collateral. This collateral is used to match or back the value of the
new asset that is being created.
• Another example is Maker’s Dai stablecoin which is likely the most
widely known and used synthetic in DeFi. By locking Ethereum as
collateral, users can mint a synthetic asset, Dai, which maintains a
soft peg to the US dollar.

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 Stakeholde
r Domains
(Entrepren
eurs and
Investors)

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 The top 3 DeFi
startups originating
from Nigeria

AFEN - A web3 infrastructure company in

Africa.

ANI.EARTH - Blockchain-tokenized farmlands

(landbank) for carbon offset projects.

Lopeer Blockchain - Fintech Platform bringing

Financial Inclusion to Africa.

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 What are the top 5 skills a web3
entrepreneur should have?
According to an article on Business
Insider, six Web3 startup founders
Problem-solving skills - the ability Technical skills - knowledge of
were interviewed about what they
to solve complex problems is blockchain technology and smart
look for when hiring new
essential for a Web3 entrepreneur. contracts is important.
employees. The top 5 skills they
mentioned are:

Communication skills - the ability

Marketing skills - the ability to Adaptability - the ability to adapt
to communicate effectively with
market and promote products and to new technologies and changing
team members and customers is
services is crucial. market conditions is essential.
important.

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 What are web3
VCs/investors currently
most bullish on?

• According to an article on Fast Company, Web3’s first wave is over, and

the second wave is underway. Techstars CEO Maëlle Gavet says that
this is when things start to get interesting. The article also mentions
that investors remain bullish on Web3 technology 1.
• In addition, InnMind has compiled a list of the top 20 active Web3
venture capital firms that are investing in Summer 2022. The list
includes firms such as Andreessen Horowitz, Coinbase
Ventures, Digital Currency Group, and Pantera Capital.
• Business Insider has also reported that some venture capitalists in
Europe are betting big on Europe’s burgeoning Web3 sector. The
article mentions 13 VCs who are backing experimental Web3 startups.

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 Here are the top 5 VCs
Who are the
top 5 investing in DeFi projects:
VCs/investors • Coinbase Ventures
investing in
DeFi projects? • Framework Ventures
• ParaFi Capital
• Lemniscap
• Union Square Ventures
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 Is investing in web3 startups different
from investing in web2 startups? How
profitable is the web3 VC industry?

• According to Steve Glaveski of LinkedIn, one of the fundamental differences between investing
in a private SaaS company and a web3 project is that almost anybody can buy into a web3
project on the ground floor, with private and public token sales being the most common ways
to do so. This is in contrast to private SaaS companies that are typically only available to
accredited investors.
• Web3 companies have used the term “web2” to describe social-based, centralized
technologies such as those controlled by Big Tech or “FAANG”: Facebook (renamed Meta in
late 2021), Apple, Amazon, Netflix and Google. Web3, on the other hand, describes open-
source, blockchain technologies that decentralize data.
• As Chris Dixon of a16z wrote, web2 typically startups would need to spend millions on
aggressive customer acquisition strategies to get to scale and orbit, whereas web3 startups
have the luxury.
• Regarding how profitable the web3 VC industry is, I couldn’t find any recent data on this
topic. However, according to a report by Outlier Ventures in 2019, the average return on
investment (ROI) for web3 projects was 132%. Keep in mind that this data is from 2019 and
may not be representative of current trends.

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