Let's get real…. real yield!
I've decided it's time for another DeFi experiment again, this time chasing one of the recent narratives: real yield using Fusotao.
Remember the good old days during Ponzi summer, when you could earn 4-digit APY in things like wonderland or Ohm?
Well, it did not last long, and even the governance tokens of Compound — who started with this entire yield business — is down bad.
I mean, I am not a technical analysis expert, but this does not look like just a temporary correction. It's all fun if you get money for doing nothing but stake, but obviously, if there's endless issuance, the value also goes down.
So instead of rewarding people in their native token, DeFi apps have found a new thing: real yield. Real yield is a share of the protocol's revenue paid out in mainstream assets like ETH or USDC.
This is more attractive because one gets a highly liquid asset instead of a more niche governance token. And let's face it, most of the people who were airdropped governance tokens never used them. 😼
Note this is not financial advice! Please do not invest capital you can't afford to lose. Be skeptical about things, and manage your risks. The money I used is purely from my own "yolo" budget — the budget I spend on trying and learning crypto stuff. The risk of it all being lost is something I can take.
Fusotao is a verification protocol for orderbook-based matching and uses the idea of "execute off-chain verify on-chain.". Excellent marketing pitch, but what it actually means is that it's a protocol that helps users exchange their coins on orderbook DEXs without giving up custody of their coins.
If you've ever traded on a CEX or a traditional trading platform, you've seen orderbooks. They list all the open orders traders have placed on a particular market. However, most DEXs don't have orderbooks because trading on them happens differently through AMMs and liquidity pools.
When using Fusotao, users can trade on supported DEXs or stake their tokens to earn a share of transaction fees.
Proof-of-Trading describes the mechanism Fusotao uses to authorize transactions on-chain while matching them on off-chain orderbooks. Users can complete transactions without giving up custody and obtain proof. This process automates trust. Instead of transferring coins once you create an order, their status is simply changed from free to reserved. Reserved coins can't be used until the off-chain prover post proof. This is a standard matching engine enhanced by a proving engine.
The first DEX supported by Fusotao is FXDX.
A few words on the tech, Fusotao is an appchain on the Octopus Network. If you know me, you know I like Octopus — and not only because they have a cute mascot (that certainly does get extra points, though!). 🐙
Appchains are application-specific blockchains that cater only to one dApp enabling developers to customize them to fit their use case. They are different from sidechains because, unlike sidechains, appchains rely on a mainchain for security. On the other hand, sidechains are more fully independent blockchains that connect to the mainchain through a two-way bridge. One example is Polygon, which is somewhat an Ethereum-sidechain but has its own vibrant ecosystem.
One of the challenges appchains face is that bootstrapping an entire blockchain is typically expensive. Running your own set of validators isn't something you want to have as a worry when starting a project. That's where Octopus helps by facilitating the process and letting projects benefit from its rented security model. You can read my rundown of Octopus here:
Introducing the Octopus Network
Octopuses are fascinating animals, with roughly 2/3 of their neurons distributed across their limbs. This means that…
For actually using the protocol, what matters most, though, is understanding that Octopus is a set of smart contracts living on NEAR; the appchains are built with substrate and therefore live in a Polkadot world.
Let's get into it and open the gate to earning yield in $USDT!
- Get some TAO
That's the native token of Fusotao and the one we have to stake to earn. It's available on a couple of CEXs and NEAR DEXs like REF finance. That's where I got it from. The fun thing is, this token is on NEAR; that's why we have to move to step 2 before we can do much with it.
2. Bridging time.
But first, if you don't have a wallet that supports Substrate assets yet, you need one.
Somehow, the Avatar wallet that the Fusotao team created didn't work to bridge. So I ended up installing the much-beloved(hated) Polkadot.js wallet. Now I know why it's notorious. 😆
Once you've installed your Polkadot extension or the Avatar wallet, head to the Octopus bridge. Log in with your NEAR wallet, and if you also are logged into your Polkadot extension, it should automatically find your address. Then you pick the fusotao appchain on the left and decide how much to bridge.
The way to stake on Fusotao is through the web app. Note there is a minimum amount of 100 TAO you have to stake.
Connect your wallet, decide the amount of TAO to stake, and let's go 💃. Staking happens in seasons; you can only claim after a season has ended. The countdown is shown on the dashboard as well. So that's something to keep in mind. But then again, as a financially responsible individual, you wouldn't lock what you can't afford to, right? 😺
It's kinda like alchemy, but you will start earning rewards. Just like in alchemy, there needs to be an equivalent exchange. So what you give up to earn these rewards is a bit of your liquidity, and as always, in crypto, you enter the uncertain territory.
Maybe not quite, but close enough.
I've already earned nearly $1 USDT since I started. However, I have not checked the price of TAO. It might have gone down since, which would mean I'm overall in the red. The idea here is that:
As long as the overall yield earned in $USDT > downward movement of my deposit = I'm winning.
Real yield is an interesting concept and promises more sustainable earnings for people providing liquidity to a protocol. However, it's not necessarily the best metric to measure success. As usual, as soon as some metric takes off, there is definitely going to be someone trying to manipulate it for marketing purposes.
Nevertheless, for those building an actually profitable DeFi app, offering users real yield could be a great way to have them partake in your growth without diluting their holdings of your native token. I'll definitely watch this space (and hopefully, my real yield grow 🌱).
So long 👋
Happy exploring. I think I'll be spending some more time exploring the ecosystem around Polkadot and Cosmos. If you have recommendations of dapps to try, let me know.
And if you haven't already, go watch Fullmetal Alchemist: Brotherhood. Great anime!