All About The DAO-based LaaS Infrastructure on Arc Finance
Let’s take a closer look at what exactly Arc Finance is all about?
ARC Finance is a liquidity market capitalization management platform based on AUM that enables users to achieve effective high-yield liquidity management through a combination of premium mining strategies.
The Mission
ARC Finance’s mission is to provide proactive liquidity management services for various public chains and tokens.
It will also interest you to know that Arc Finance, a Binance Smart Chain (BSC) based LaaS for Basic Economic Facilities, integrates Automatic Unlocking Mining (AUM) and Liquidity Premium Pool (LPP) which enables all users on the Arc Finance platform to trade to earn unlimitedly.
What is AUM and what does it means to Arc Finance?
AUM provides users with Liquidity Pool (LP) and adjusts the unlocking speed based on users’ frequency of trade. AUM is one of the incentive mechanisms. It is similar to trade mining, except that users would be mining for tokens locked in their pools. As a result, it is titled "Unlocking Mining." AUM avoids the selling pressure on the Dex’s platform tokens, and not only adds users’ profits but also assists developers in improving the liquidity.
Arc Finance utilises liquidity premium transactions as the market basis, through using AUM algorithm, to enable projects with low liquidity trade more profitably while maintaining profitability for projects with high liquidity.
Miners may utilize the AUM algorithm to utilize a specific type of token as collateral, and equivalent r-Tokens would be issued. R-Tokens will be locked at the start and unlocked after users begin mining or trading in the Liquidity Pool. Arc Finance would use an algorithm to automatically modify the unlocking speed. The algorithm’s main principle is that the more a user trades in the LP, the more r-tokens are unlocked, providing users with a higher annual percentage yield (APY).
Liquidity Premium Pool (LPP), initiated by Arc Finance, includes mining with portfolio contracts and burning to mine.
This is the fundamental mechanism Arc Finance functions as LaaS infrastructure.
However, under this functional mechanism, the available investment options and revenues are totally reliant on DAO. There are currently two major initiatives in the LaaS space. The "protocol owned liquidity" approach used by OlympusDao, however in Arc Finance, DAOs is more widely incorporated into revenue and liquidity distribution, resulting in a DAO-owned liquidity approach.
A quick look at what Liquidity Premium Pool (LPP) Protocol and what it means to Arc Finance
LPP is an abbreviation for Liquidity Premium Mining Pool Service Protocol, and it is an essential ecological sector of Arc Finance. It enables users to earn money quickly during the transaction procedure. The more transactions users engage in, the more premium revenue they will receive, and the more income will be held in the mining pool, forming a positive economic cycle and amplifying the value of liquidity. This is a broad economic and ecological concept, not a specific mining pool.
Having fun! Before we dive further, let’s take our minds back to the meaning of liquidity and its importance to Arc Finance
In the financial context, particularly in financial markets, liquidity refers to the ease of buying and selling a financial asset, i.e. how easy it is to sell the asset after it has been purchased. An asset that is illiquid simply means it is difficult to sell at the desired price; an asset that is liquid has a high turnover rate, and the more money invested, the higher the market value of the asset.
We can’t talk about liquidity and leave out what liquidity preference is, as this is interrelated and plays out in the Arc Finance architecture. Liquidity preference on the other hand, also known as flexibility preference, refers to the psychological motive of people who prefer to maintain a portion of their wealth in the form of money or deposit it in financial institutions rather than tangible objects. Investors with high liquidity preferences are willing to make large profits in speculative markets.
This idea was first accredited to John Maynard Keynes, which according to him if the marginal utility of capital is constant, investment is decided by the interest rate, which is dictated by liquidity preference and the quantity of money. The central bank controls the money supply, and if it is fixed, the interest rate is determined by people’s liquidity preferences.
In essence, liquidity is essential in the trading of any financial asset, and more relevantly, in the transaction process, capital prefers to make investments with high interest rates, given that the difference in marginal utility (which is primarily influenced by liquidity) is not significant for capitals.
Now let’s familiarize ourselves with the term (Defi) and how it works.
Defi as it is popularly termed simply means Decentralized Finance, is an emerging financial technology based on secure distributed ledgers similar to those used by crypto currencies. The system removes the control banks and institutions have on money, financial products, and financial services.
Decentralized finance eliminates intermediaries by allowing people, merchants, and businesses to conduct financial transactions through emerging technology. This is accomplished through peer-to-peer financial networks that use security protocols, connectivity, software, and hardware advancements.
Decentralized finance uses this technology to eliminate centralized which on the other hand is regulated; this finance model enables anyone to use financial services anywhere regardless of who or where they are.
DeFi applications give users more control over their money through personal wallets and trading services that cater to individuals. Also, while taking control away from third parties, decentralized finance does not provide anonymity, as transactions may not have your name, but they are traceable by the entities that have access. These entities might be governments, law enforcement, or other entities that exist to protect people’s financial interests.
One of the most influential and successful waves of blockchain-based innovation has been decentralized finance or DeFi. DeFi protocols are continually evolving and iterating upon proven models of financial-based agreements, fueled by their inherent advantages of permissionless composability and open-source development culture. The DeFi ecosystem advances at breakneck speed—over the last few months, a surge in liquidity-focused decentralized finance projects has ushered in a new generation of DeFi innovations.
This takes us to the comparison between DeFi 1.0 and DeFi 2.0. In DeFi 1.0, liquidity attracts capital through interest rates, which is equivalent to hiring capital with high interest rates. But the problem is, DeFi 1.0 lacks the ability to macro regulate this capital-hiring system. Neither can it regulate the market. The consequence is the prevalent pumping-and-dumping and ultimately low token price. While in DeFi 2.0 from its predecessor is the different ways in which liquidity is used.
In DeFi 1.0, the cost of employing capital was basically subjectively defined, which means that the macro-regulation and sustainable support of the market are absent. The result is that capital became a double-edged sword that on the one hand, provides liquidity while on the other hand, takes a lot of money away from the project. Therefore, DeFi projects are most not healthy and sustainable. In contrast, game theory and economics are better applied in the DeFi 2.0 ecology. DeFi 2.0 liquidity is improved, that is, liquidity is used as a service. This change makes the interest rate of capital subject to the behaviour of capital and associates the return on capital with risks.
The Decentralized Autonomous Organisation (DAO), how does it relate to Arc Finance?
One of the major features of digital currencies is that they are decentralized. This means they are not controlled by a single institution like a government or central bank, but instead are divided among a variety of computers, networks, and nodes.
In many cases, virtual currencies make use of this decentralized status to attain levels of privacy and security that are typically unavailable to standard currencies and their transactions. Inspired by the decentralization of cryptocurrencies, a group of developers came up with the idea for a decentralized autonomous organization, or DAO, in 2016.
The DAO was an organization that was designed to be automated and decentralized. It acted as a form of venture capital fund, based on open-source code and without a typical management structure or board of directors. To be fully decentralized, the DAO was unaffiliated with any particular nation-state, though it made use of the ethereum network.
About Tower BFT
Tower BFT is a technique in Arc Finance’s AUM algorithm. This mechanism guarantees that community nodes in Arc Finance’s heterogeneous multi-chain state operate correctly and distribute income, as well as that the system’s assessment runs smoothly. It does, however, require that the "community node schedule" be computed long in advance of the nodes Tower BFT allocates in order for the ledger state used to calculate the scheduling to be finished.
These nodes compete with the community, resulting in a closed DAO loop. Furthermore, they actively impact the rate of return as capitals pick alternative liquidity pools. As a result, there is gaming and opposition among various capitals, as well as between capitals and communities. Capital will prioritize regions with higher returns, and the community will modify the yield of one pool to support another pool via DAO.
Now let’s look at the comparison between “DAO owned liquidity” and “protocol owned liquidity”. Olympus Pro enables protocols to construct a marketplace where liquidity providers may sell their LP tokens for tokens in the protocol’s pool, such as governance tokens, using "protocol owned liquidity." The market also enables protocols to completely repurchase and own their liquidity; nodes may offer liquidity without having to spend enormous sums of money to incentivize the liquidity pool. As a result, the protocols on Olympus Pro employ the marketing binding system to achieve automatic price discovery and, as a result, create a more efficient market.
One possible downside of Olympus Pro is that it takes a significant initial investment to begin repurchasing liquidity.
Typically, funds are raised by selling governance tokens at a discount in exchange for revenues to the liquidity provider. Another shortcoming is the inability to withstand the capital pressure created by the large outflow of cash. Although the initiative can re-attract users and cash by offering a high APY, the majority of the money invested in the early phases is still under pressure.
Now to the facts!
Arc Finance, on the other hand, allows any project to use the platform’s infrastructure to create a new liquidity pool for their project tokens. This allows projects to not only profit from Arc Finance’s liquidity, but also earn ARC platform tokens on Arc Finance. Arc Finance manages to enrich its ecosystem, raise the liquidity value of funds, produce liquidity premiums, and capture the value of these liquidity premiums to provide a more competitive marketplace for all participating projects by utilizing a plethora of new economic underpinnings.
To expand its frontier, the DeFi industry should focus on expanding the liquidity of active market capital, i.e. Arc Finance’s LaaS, on the basis of DeFi 2.0 economic infrastructure. That is, by encouraging users' active market behavior to offer a liquidity premium to market capital, market capital is activated.
Arc Finance’s approach is open ecological development, using "DAO owned liquidity" as a method to establish the LaaS infrastructure and execute a market operating base of liquidity premium trading. As a result, illiquid projects can trade more profitably while retaining income for projects with high liquidity.
Arc Finance itself is not reliant on whale capital, but it can also consistently attract a significant number of regular investors to actively participate in trading and eco-building. Arc Finance project participants may fulfill basic market capitalization while focusing only on their ecological growth.
ARC Finance aims to provide proactive liquidity management services and its vision focused on building effective economic facilities to provide the best liquidity services and market to motivate users to engage in positive trading behavior to increase capital utilization and capture liquidity premium value. Don’t be left behind in this amazing opportunity. Join Arc Finance now!
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