Importance of Communities; related Incentivization Mechanisms in DeFi
Introduction
Gone are those days when people used to deposit the whole income of theirs in the traditional financial institutions to get an interest amount on the money they saved. With the Advancement in Decentralised Finance ecosystem, it has not only revolutionised financial services but offered a platform to people to earn passive income or large numbers of incentives.
Decentralized Finance, the financial system for all, has become the buzzword for many blockchain tech enthusiasts and finance analysts.
Several platforms make use of different mechanisms to verify the transactions based on which they offer a large number of incentive tokens.
Community Plays an important Role in Defi
Since the foundation was laid of the bitcoin, the community has always played an important role in the different mechanisms used to verify transactions. Several communities have contributed a lot to make the cryptocurrencies ecosystem successful. If we talk technically, many communities have taken part in the mining process of the cryptocurrencies.
Mining is an activity in which different miners compete with each other to verify the transaction and add it to the public ledger of the blockchain. Similarly in Defi, we have liquid mining that has led the Defi Ecosystem to reach new heights.
Liquid mining is the community based, data-driven approach in miners who get the reward to bring more liquidity for specified tokens. In liquid mining, the community plays a great role works on a common goal which is to bring liquidity for a specific token.
In Return, all members in communities(miners) are rewarded based on the transparent rules that are algorithmically defined. For each token platform, there is a unique amount of rewards associated. Economically reward depends on the risk, and it is calculated based on the three parameters, time, spreads, and order size.
Several Incentive mechanisms used by various protocols and exchanges.
Yield Farming
Decentralized Finance being at the forefront of the innovation in the blockchain ecosystem has led to the emergence of a new concept called Yield Farming. It is an eccentric way of earning rewards by holding cryptocurrencies on permissionless liquid protocols. It has to lead many users to earn a passive income in the decentralized ecosystem.
A huge boom in yield farming as seen with the launch of governance tokens that grants the governance rights to token holders. Distribution of the governance token algorithmically attracted a large number of liquidity providers to farm a new token by providing liquidity. Different Defi Projects have brought up innovative schemes to attract communities to their ecosystem.
Governance tokens
Governance tokens are the tokens that can be earned by people who take part in the protocol that accumulates value. Governance tokens are deployed on Defi Protocols that rewards people based on their performance.
Governance tokens have proven to be powerful when it comes to offering an incentive to Defi Users’ Behaviour. A tremendous amount of innovation is made in the Defi Ecosystem. Now in many of the protocols, the governance rules are delegated to people in a fair manner and decentralized way.
Earn Incentives by Lending on Defi Protocols
A Defi Platform leverages the peer to peer lending. Different peers in a blockchain network can lend tokens to the borrower and earn a good amount of interest. Every decentralized Platform has a unique way to calculate the interest on the tokens lent by the peers on the platform. If you want to earn a great passive income, a decentralized platform is the best choice.
Conclusion
Communities in peer to peer lending and cryptosystem play an important role. In order to make the crypto ecosystem work, there is a need for communities that can be an essential part of governance, validation, and improving the protocols. In order to support and motivate such communities, different protocols have come up with several incentives that community members are paid on the valuable contribution made by them.
Different communities are pillars of such platforms on which the whole decentralized ecosystem and crypto space are dependent. Most of the protocols do believe it and came up with unique incentive mechanisms such as yield farming, governance tokens, and many more. Hence communities and the crypto ecosystem work together and offer great financial services on decentralized platforms.
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