April 3, 2022
April 3, 2022

NeoNomad: DeFi, Nomad Farms and Liquidity Provision

NeoNomad: DeFi, Nomad Farms and Liquidity Provision

DeFi has seen enormous growth within the cryptocurrency ecosystem over the past few years. This can further be seen through the $82.23B total value locked up in DeFi, according to DeFi Pulse. Additionally, there has been an increased demand among people for financial opportunity and financial autonomy, creating the perfect conditions for DeFi to establish its presence!

DeFi not only promotes financial autonomy by removing the need for brokers, banks, and centralized middlemen, but it also provides people with a variety of tools and investments to choose from and invest in. A good example is a quote from Hendrith Vanlon Smith Jr:

“The Decentralization of Finance is really good for humanity and it’s ultimately a win for each and every one of us. Because now that we can circumvent banks, exchanges and brokerage companies by using smart contracts on the blockchain… every person, every family, and every business will experience more more liberty, more freedom, more opportunities, more abundance, more power, and more wealth.”

At NeoNomad Finance, the community is at the very core of our DeFi tools and products. Our goal is to provide a more inclusive decentralized finance ecosystem to facilitate financial stability and to allow the sustainable growth of wealth for all, including the unbanked and underbanked. One of the ways we are planning to achieve this is by providing useful education, guides, and opportunities for the marginalized or underbanked groups while also providing opportunities for the everyday investor. An example of an opportunity we are providing is the ability to invest in NeoNomad liquidity pools or yield farms.

DeFi terms to understand before we move on

  • DeFi is a term used to describe the whole decentralized finance ecosystem.
  • CeFi is a term used to describe the whole centralized finance ecosystem.
  • Peer-to-peer transactions allow individuals to buy, sell and exchange cryptocurrencies with each other without the need for brokers, banks, or centralized organizations.
  • A Smart Contract is code that defines and carries out certain conditions .
  • DApps are decentralized apps that do not need centralized organizations or middlemen to function. Instead, they allow people to transact, interact and receive crypto on a peer-to-peer level. This is made possible by the DApp interacting with its smart contract on the blockchain.
  • Swap DApps are regulated by smart contracts and allow users to swap one cryptocurrency for another cryptocurrency.
  • Exchanges are global markets that can be used to perform different transactions, such as buying and selling cryptocurrencies.
  • A DEX is a decentralized exchange that executes all its transactions through the smart contract it is built upon.
  • A CEX is a centralized exchange that executes all its transactions through a centralized organization that is managed by a group of people.
  • Cryptocurrency stablecoins are the crypto-fiat equivalent of a country’s native fiat in traditional finance. For example, USD, which is America’s native fiat, will have a USD crypto stablecoin equivalent. There are two types of stablecoins — these are algorithmic stable coins and centralized stablecoins. The difference here is that algorithmic stablecoins do not need to be pegged 1:1 to the traditional finance fiat whilst centralized stablecoins must be pegged 1:1
  • TVL in DeFi shows the Total Value Locked up within the entire DeFi ecosystem or Dapp.
  • An LP (liquidity provider) is a person who provides liquidity to a liquidity pool, thereby contributing to the liquidity of the DeFi ecosystem.
  • LP tokens are tokens that are distributed using a smart contract to people who provide liquidity (LP) to a liquidity pool.
  • APR refers to the annual percentage yield. It is the amount of interest you earn on your investment yearly, excluding fees. APR is not compounding.
  • APY refers to the annual percentage yield which is compounding. APY is calculated by considering the amount of interest earned on the initial investment and the interest earned on the amount accumulated.
How to calculate APR vs APY.

What are DeFi smart contracts?

Smart contracts are an integral part of the DeFi space; without the implementation of smart contracts, DeFi would not exist. Many cryptocurrencies or DApps use smart contracts to facilitate transactions, services, data, and more. They ensure the transaction is trustless, transparent, quicker and more secure, while certifying that both parties hold up their end of the agreement. Smart contracts remove the need for middlemen, such as centralized institutions, making crypto transactions truly peer-to-peer. In simple terms, a smart contract is code that is deployed and stored on the blockchain. The code carries out the specific conditions set out within the smart contract. Each smart contract is automatic and enforceable from the code it’s built upon.

How do liquidity pools & yield farming work?

Liquidity provision is the driving force of DeFi, as it allows DApps, DEXs, or decentralized organizations to function independently. By using smart contracts to lock up the provided liquidity and govern the distribution of rewards to the respective LPs, it enables DeFi to be truly transparent, trustless, and peer-to-peer. This is in contrast to centralized finance, which is reliant on middlemen, order books, and is not peer-to-peer. Moreover, it provides DApps or DEXs with the liquidity they need to function while allowing users to receive funds directly from the smart contract.

Many other cryptocurrencies or DApps provide various types of yield farming, as well as the steps required to start yield farming. For instance, a person will begin by providing liquidity to a liquidity pool. The liquidity pool will fund DeFi platforms such as DEXs, swaps, lending and borrowing, and so on. At the same time, people who use these DeFi platforms will pay fees for the transactions they make, and those fees will be used to pay liquidity providers (LP) their pro-rata shares of the fees. Liquidity providers can hold these LP tokens to earn additional APY. Alternatively, LP’s can stake their LP tokens in the yield farm they are providing liquidity to and earn additional APR.

Here’s an example: Let’s say you want to become an LP on Neonomad. You go to the Liquidity pools tab and decide that you would like to provide liquidity to the NNI-USDC pool. You deposit both $200 dollars of NNI and $200 dollars of USDC to the NNI-USDC liquidity pool. The NNI-USDC pools are being used for NeoNomad swaps and everyone using those swaps is paying fees each time they swap. Those fees will then be distributed in LP tokens amongst you and all the LPs in accordance with everyone’s pro-rata share of the NNI-USDC pool. You could then hold your LP tokens to earn additional APY, or you could stake your LP tokens in the NNI-USDC farm to receive an additional $NNI APR.

Join the NeoNomad Finance Ecosystem

The Nomad Community is at the core of our project, products and services. NeoNomad’s mission is to provide the community with a more inclusive DeFi ecosystem to enable financial stability, sustainable growth, and wealth for all. We are all Nomads in spirit and we value each Nomad that is part of our community!