What does liquidity pledge give us?

The original title: "liquidity pledge, reconstructing the water of life | select knowledge of DeFi

原文作者：Kadeem Clarke， m6labs

Old Yuppie

One of the most popular financial activities in the cryptocurrency industry is undoubtedly pledging. From an investor's point of view, a pledge is an option to place deposits in a bank's crypto wallet for a fixed return over time.

The key difference between the DeFi ecosystem and traditional banks is that everything is transparent thanks to blockchain technology.

Pledge under PoS consensus mechanism is an ecological alternative to cryptocurrency mining. The pledge helps secure the blockchain network in exchange for rewards granted by the network during the transaction verification process.

While it has been one of the most popular DeFi products used by many cryptocurrency enthusiasts, its lack of liquidity has been one of the significant challenges for investors.

Simply put, liquidity pledge allows users to pledge their cryptocurrency in order to earn low-risk interest, while also keeping their money liquid to maximize capital efficiency.

Why participate in liquidity pledge?

流动性质押允许 Token 持有者在将 Token 用于 DeFi 的同时将Token质押。

Advantages of liquidity pledge:

Fast access to funds: In PoS agreements, there is no lengthy "discharge" process and no penalty for early discharge of a pledge.

Derivatives strategy: Addresses the DeFi cross-chain incompatibility crisis by using derivative assets in the DeFi protocol to generate revenue and pledge awards, helping to free up an estimated $600 billion of liquidity locked up in PoS networks.

收益叠加：通过 Yield Farming 等实践，用户可以在使用流动性质押协议进行交易的同时，利用 Token 化衍生品获得收益，并通过锁定一批资金同时从众多资产中获得回报。

Exposure to cryptocurrency-backed loans: With liquidity pledges, investors do not need to divide their assets to address unexpected restrictions on access to fiat money funds. In addition, investors can use their existing cryptocurrency assets to obtain cryptocurrency-backed loans through liquidity pledge agreements.  

Low fees: Liquidity pledges support borderless finance without the high fees of financial intermediaries, making it easier to shop around for the best fees and performance.

更好的风险回报平衡：由于 PoS 网络的强度和安全性与被锁定的 Token 数量直接相关，因此流动性质押有助于提高网络的整体实力。较低的风险可以鼓励更多人参与这些协议，从而增加 PoS 网络中质押的资本。

How does liquidity pledge work

通过流动性质押，我们已经看到用户可以同时获得质押奖励和在 DeFi 应用中使用其 Token 获得的任何奖励。

本质上，流动性质押以与用户原始 Token 相同的比例授予 L-token，以换取在各自协议中对其 Token 进行质押。

因此，如果你在永续协议中质押 ATOM，你将收到一个 pATOM Token ，其比例与你的 ATOM 资产相当，你可以在任何 DeFi 协议中自由使用它。

例如，在永续协议中，这些来自于流动性质押的 Token 既代表了主要资产 (ATOM)，也代表了为帮助确保 Cosmos 网络的安全而持续积累的质押绩效。

So while you are generating passive income from a traditional pledge through ATOM, you can use pATOM to move it into the DeFi protocol and take advantage of the opportunities offered to maximize your potential return (e.g. yield farming, LP, lending).

Anyone can take part in a liquidity pledge by following a few simple steps:

使用权益证明协议中的 Token 连接到你的钱包。

在以权益证明运行的第 1 层网络上质押你的 Token 。

在收到代表基础质押资产的合成 Token 后，你将能够连接到任何 DeFi 协议，以接触到最大化资本回报的策略。

Withdraw your rewards at any time, whether it's the DeFi strategy of your L-token application or the underlying pledged assets that continue to earn the pledge rewards.

你可以随时赎回该合成 Token 来解锁对基础资产的访问。

Liquidity pledge needs to consider the risk

In addition to the benefits of liquidity pledges and the satisfaction of maximizing the capital in our wallets, we must be aware that there are certain risks when using derivative (or synthetic) assets in DeFi:

我们应该注意到，如果验证者出现故障，用户也有可能丢失一部分 Token 。

Strategies used in liquid pledge investments, such as Yield Farming and lending, are risky. Every increase in leverage means greater liquidation risk when markets change so dramatically that the value of derivative assets falls below what is required to prevent the collateral from being liquidated.

If you don't have a proper financial education and investment plan, trading and interacting with numerous liquidity pledge agreements simultaneously to maximize capital may not be profitable.

Liquidity pledges on trading platforms or centralised platforms may pose risks under the slogan "no keys, no funds".

With liquidity participation, you can add and remove funds as needed, but the annual interest rate compensation is usually lower.

A growing potential market

According to jpmorgan Chase, pledge returns will increase to $40 billion by 2025, almost five times the current market size, and ETH2 will be a major driver of the industry.

As part of the ETH2 implementation of the solution, liquidity pledge is one of the sectors that has experienced rapid growth in recent months, with close to 30% ETH pledge achieved through pools of funds under liquidity pledge agreements such as Lido, RocketPool or StakeWise.

The above just shows the growing interest in the emerging industry of decentralized finance under the PoS consensus mechanism, which to date is just over $190 billion.

As rhetoric about climate change challenges networks under the PoW Consensus algorithm, further investment is likely to flow to greener alternatives such as ETH2, giving a boost to the pledge industry envisioned by jpmorgan.

Thus, once liquidity pledge platforms begin to significantly release pledged assets for multi-chain availability, they will open the door to unprecedented growth and revenue generation.

summarize

How liquidity pledges are used to increase DeFi yields will depend on the risk profile of each investor or average user and what DeFi strategies they find most convenient to apply at a given time.

The benefits and improvements that liquidity pledges bring to DeFi remind us that we are living at the beginning of a new era in decentralized finance that supports the pure essence of the DeFi ethos: empowering users with financial instruments to manage their capital and build their future without third party intervention.

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