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5 Financial Setups That Have Made Early Investors Rich

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@muratkbesiroglu
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I have a particular interest in innovative financial setups being introduced in the crypto market. Some of these setups, which have provided significant returns to their early investors, have failed in terms of sustainability. Still, I think they're remarkable mechanisms because of the excitement they've managed to create.

Bitcoin Halving

Bitcoin was a combination of many innovative ideas. Its core value proposition was to be a globally valid decentralized digital currency. On the other hand, the system was cleverly designed taking into account the expectations of the investors. I think that the halving of its emission every four years has a significant impact on the widespread acceptance of Bitcoin. The Bitcoin emission provided the miners with the necessary incentive to support the system while motivating long-term investors.

Bitcoin's halving is still affecting the market years after it was created. The Bitcoin halving, which took place on May 11, 2020, was the signal for a new bull rally in the crypto market. In the 10 months following the halving, Bitcoin prices increased 6 times.

DEFI yield farming application PolyCub is now implementing this setup in an accelerated fashion. In contrast to Bitcoin's inflation, which halves every 4 years, PolyCub implements inflation that will halve once a month. We are still in the fourth month and things are going well for now.

Deflationary Safemoon Token

The number of deflationary coins decreases over time, unlike traditional coins. The most important feature that characterizes this type of coin is the taxes applied to trading. Safemoon is a prime example of such a coin. Another example is Evergrowcoin.

A total tax of 10 percent is applied to Safemoon trading. The distribution of this amount is as follows.

  • %4 Reflections: Distributed to those in the system according to their share.
  • 3% LP Acquisition: Adds to the liquidity pool where Safemoon is traded.
  • 2% Token Burn: Provides the deflationary effect.
  • 1% Growth Fund: Used for ecosystem collaborations.

Both Safemoon and Evergrowcoin delivered over 50x returns to early investors. However, due to the general conditions of the crypto market and the inability to create a significant utility, those who bought it at a high price later suffered serious losses.

Being included in the system by accepting the tax on trading reveals long-term investment intention. If combined with a significant utility, I think more successful projects can emerge. The price may also become more sustainable, especially if the LP acquisition allocation is increased and reflections are decreased.

High-Risk Category

High-risk applications contain an interesting financial setup where high payments are made in the early period. It is possible to argue that the system contains Zeno's runner paradox. Just as Zeno's runner has to run half of the way, then half of the remaining way, and then half of the remaining way, the payments continue to decrease in high-risk systems. Initially, for example, a daily return of 2 percent is promised. As we get the daily return, our share in the system decreases.

I made a small investment last year in a high-risk app called BNB Miner. After I got about 60 percent of my money back, the payouts shrunk.

To earn money from such applications, one of two conditions must be met. The first is owning the app. Because the app owner receives 10% of the income generated in the system. The second is a large investment in the system after you. Because as the investment pool grows, the income generated by the insider's increases.

High-risk applications are typical of pyramid schemes. If the system continues for a long time, it is possible for those who enter early to earn a significant amount of income. Running the system on the blockchain provides transparency. In this respect, it may be a system that would be preferred by those who like to gamble.

These practices are not sustainable in their current form, as the daily promised returns are as high as 2% per day. This is why the system soon becomes unable to pay. On the other hand, the system has an easily understood value proposition. Systems that make regular payments in blue-chip cryptocurrencies are attractive to people.

DEX Tokens

Dexes allow the decentralized trading of coins and tokens, as well as giving investors access to small-scale crypto projects.

On the other hand, giving DEX tokens as a reward to users who invest in my liquidity pools is an incentive for investors. DEXs provide higher returns to investors who invest in their own tokens. The use of trade revenue to purchase and burn DEX tokens is one of the factors limiting emissions. Therefore, DEX tokens have been attractive to investors during the period when the prices went up.

For example, Pancakewswap's Cake gained more than 100 times in value in the first four months of 2021 despite its high inflation. It was not possible to explain such a rise in trading revenues. After that, prices dropped dramatically.

Algorithmic Stable Coins

Stable coins play an important role in the crypto ecosystem. Cryptocurrencies such as USDT, USDC, and BUSD, which are issued against collateral such as cash and bonds, are still widely used.

On the other hand, algorithmic coins, whose collateral is crypto, have attracted the attention of investors in recent years. There are versions of these coins that are collateralized with multiple coins such as DAI, as well as versions that are issued based on a single cryptocurrency such as the crashed UST.

Algorithmic coins are an important tool in attracting investors who want to earn stable returns. Although the Terra incident has negatively affected this category, the experiences will make this type of product more robust over time.

Conclusion

With the effect of the bear market, many coins created with the above financial setups lost a significant amount of value. In this context, it would be appropriate to consider Bitcoin in a separate category. Because the value of Bitcoin is largely due to its utility and brand value.

The crypto world has a feature to create money from thin air. These coins, which are created in the presence of various financial setups, can bring big money to early investors, while they can cause high losses for those who join the game later.

I believe these mechanisms should still be in a builder's toolbox. Making the necessary effort to create a decent utility and adjust the financial mechanisms to support sustainability seems important.

Thank you for reading.

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