In the past three years, DeFi has grown explosively twice from DeFi 1.0 to DeFi 3.0, bringing revolutionary changes to the entire encryption industry. Defi Llama data shows that the top five public blockchains in terms of the total value locked (TVL) were Ethereum ($160.4 billion), Terra ($21.05 billion), BSC ($17.55 billion), Solana ($12.43 billion), and Avalanche ($12.24 billion) as of the end of 2021.

The gradual decentralization of traditional finance is no longer a castle in the air, and more and more people need decentralized finance (DeFi). It can not only provide financial services to people in less developed areas, but also provide people in developed areas with more transparent and fair financing options. The concept of DeFi is forced into the public eye, which is the inevitable result of the development of modern civilization.

At present, many DeFi applications have some basic operation modes successfully explored, which, following the global loose monetary policy, has brought great opportunities to the development of DeFi 3.0 and therefore attracted a great number of investors. In 2022, the DeFi asset management protocol based on decentralized autonomous organization (DAO) governance seems to see a similar dawn in 2019 for the entire encryption field, and the third wave of explosive growth of DeFi is coming.

1. Development of and Problems with DeFi 1.0

1.1 Representative Projects of DeFi 1.0

DEX: Uniswap and Sushi; lending: Compound and AAVE; stablecoins: Curve and MakerDAO; vault: Yearn

1.2 Problems with DeFi 1.0

From 2018 to 2019, DeFi 1.0 represented by Uniswap and Sushiswap created a new financial ecosystem represented by decentralized exchanges and demonstrated the initial charm of DeFi. However, DeFi 1.0 is unsustainable due to the following shortcomings:

1. High Threshold and Not Friendly to Common Users

Farming in DeFi requires setting a slippage factor, grouping LPs, staking, understanding impermanent loss, etc.

2. High Potential Risks

In order to obtain a high annual percentage yield (APY), considerable time needs to be devoted to researching and finding new liquidity pools. Meanwhile, many potential risks are faced, such as “mining disasters” caused by large investors, rug pulls, and high risks of on-chain operations. Moreover, its “mining architecture” is often unsustainable.

3. Insufficient Liquidity and Continuous Motivation

The participants are independent and are not motivated to jointly participate in platform governance, which seriously hinders the development of the ecosystem and makes the liquidity of the platform unsustainable and subject to the performance of the underlying public blockchain.

4. Whale-caused Vicious Sell-offs

Institutions are able to rely on huge funds and sophisticated algorithms to accurately snipe the liquidity of mining pools, resulting in a constant squeeze on the returns of retail investors. That is, the whale has become DeFi 1.0! It is also a major obstacle in the path of the popularization of DeFi 2.0.

2. Development of and Problems with DeFi 2.0

DeFi 2.0 (2020–2021) tends to link all community members who may provide liquidity and bind users’ incentive relationships in all future transactions with liquidity incentives. It has successfully achieved “protocol controlled liquidity” in less than half a year, solving the problem of unstable liquidity in DeFi 1.0. This is also an ice-breaking journey of DeFi 2.0.

2.1 High Inflation Brought by High APYs

The liquidity controlled by the protocol itself ensures the stability of the liquidity, but fails to produce sustainable yields. DeFi 2.0 (protocol controlled liquidity) represented by Olympus (OHM) mainly solves the capital efficiency problem of DeFi 1.0. Many DeFi 2.0 protocols try to rapidly expand the treasury by providing high APYs, which cannot be sustained for a long time. Some protocols don’t even last a week because the tokens are diluted so quickly.

3. Development of and Problems with DeFi 3.0

3.1 Concept

DeFi 2.0 is relatively not friendly to common investors due to its high farming threshold, and DeFi 3.0 has started to appear by the end of 2021. The DeFi 3.0 protocol provides farming as a service to users, produces higher returns with professional and diversified cross-chain farming strategies, and returns profits to token holders, thus helping common investors to obtain better returns in the DeFi ecosystem. Therefore, DeFi 3.0 aims to lower the threshold for common investors to participate and increase farming returns.

3.2 Features

1. Lower threshold for use: Compared with the operations performed by common investors themselves, the DeFi 3.0 protocol helps investors obtain higher returns. Investors do not need to spend time researching and selecting safe mining pools with high APYs, nor do they need to transfer assets in different liquidity pools. Instead, they only need to hold the tokens of the protocol to share the farming profit earned by the protocol, avoiding the risk of on-chain operations. DeFi 3.0 lowers the threshold for users to enter DeFi and increases their returns, especially for common users.

2. Certain percentage of transaction tax (buy/sell): The DeFi 3.0 protocol sets a certain percentage of transaction tax (buy/sell). A portion of it flows into the protocol’s treasury, which is farmed by the protocol following the designed strategy. Moreover, the protocol repurchases tokens with the profits earned, thus reducing the supply to maintain the token price, or rewards some of the repurchased tokens to token holders in the form of airdrops. In addition, token holders can also receive a certain percentage of transaction tax incentives from each transaction.

3.3 Problems with DeFi 3.0

• Token deflation: In the early stages, high APYs were used to capture users. However, higher APYs mean higher yields of tokens, resulting in an imbalance between supply and demand.

• Varied economic models: The economic models come on the market without market verification or audit and have low applicability.

• Unclear DAO governance: Mostly, DAO governance stays on paper without a real progressive community governance route.

• Concentration of early tokens: Early token quotas are concentrated in institutions and teams, and there is no real community-based operation, which may bring problems like “mining disasters” caused by large investors, rug pulls, etc.

• High risks of on-chain operations

4. Industry Problems Solved by BlackHoleDAO

DeFi is an emerging cryptocurrency innovation that goes beyond banking and beyond borders to create a new Internet-native global financial ecosystem. The DeFi 3.0 iteration has rapidly matured and facilitated some of the foundational banking services, including stablecoins, lending, exchanges, derivatives, data, asset management, NFTs, etc. DeFi applications are a new layer of the tech stack representing ownership of the financial networks powering this Internet paradigm shift called Web 3.0.

Based on DeFi 3.0+, BlackHoleDAO formulates corresponding farming strategies to generate profits through the protocol, provides farming as a service, and returns profits to token holders, which aims to lower the threshold for common investors to participate and provide secure and generous farming returns.

BlackHoleDAO has multiple functional protocols such as VC-Pool, Transaction tax, Donation Pool, Black Hole Reactor, and DAOs Ranking, each of which has a clear purpose. The protocols are interdependent and create an open and highly composable asset management protocol infrastructure.

4.1 Innovation Based on the Nature of Finance

BlackHoleDAO is an asset management protocol deployed on the Binance Smart Chain (BSC) based on DAO governance. It is one of the first DeFi 3.0 projects launched, and an unprecedented innovation in DeFi governance. It leverages an open-source encrypted network to gradually grow into an open-source software protocol jointly governed by members of the DAO community, thus disintermediating many services offered by traditional finance companies.

The BlackHoleDAO asset management protocol competes with bank deposit and savings accounts by letting users freely store encrypted funds and access higher interest rates. Protocol-based return automation strategies are boosting the capital operation efficiency of the traditional capital market and encryption market, which weren’t possible before DeFi’s open banking data APIs. BlackHoleDAO enables anyone to provide these services to anyone else with an Internet connection anywhere across the globe.

4.2 Solutions to Token Inflation in DeFi 2.0

In order to rapidly expand the treasury, many DeFi 2.0 protocols used high APYs to attract users in their early stages. However, as the tokens were diluted too quickly, doing so caused the project to go into a death spiral more quickly. BlackHoleDAO provides the following solutions:

a. Directly Burning 60% of the BHO in the Transaction Tax Pool

Such a high fixed percentage is rarely found in similar competing products, or even in the entire DeFi field.

b. Burning BHO in the Liquidity Pool with 50% of the VC Pool Funds

This means that every time a fund enters the VC Pool, at least 50% of it will be used to repurchase and burn BHO in the liquidity pool.

c. Triggering Global Deflation in the case of Extreme Inflation

When the stock (BHO) in the market reaches a certain amount with a 0 support rate, the deflation mechanism will be triggered. The interest on Stake will gradually decrease by a proportion, so is the proportion of the stock (BHO) purchased through Bond and then, the stock (BHO) minted through VC Pool. If the support rate is less than 0, the Stake will stop generating interest, Bond and VC Pool will stop minting new coins, and the deflation mechanism will be triggered, starting to burn the inventory circulating supply according to time and proportion until the support rate is greater than 0.

X-[X/(Y*H)]=Z

x: amount when the burn mechanism is triggered

y: burn rate

h: number of hours

z: amount remained when the support rate is greater than 0

Summary: These three burn mechanisms are designed to solve the inflation problem in DeFi 3.0, which restrain the inflation of tokens to the maximum extent and realize BHO deflation. In particular, the first two mechanisms aim to reduce the tokens currently in circulation in the liquidity pool, and global deflation is the last security barrier for BlackHoleDAO inflation prevention and control, which keeps the number of tokens in circulation less than a certain amount from the bottom layer, the market demand greater than the supply, and the BHO price rising healthily.

4.3 Risk Avoidance/ Prevention of Whales

BlackHoleDAO sets a small quota for some seed users in the early stages, thus further reducing the risk of rug pulls and whales.

BlackHoleDAO adds quality tokens and formulates the best investment strategies through community voting. These tasks are all done by the protocol. The only thing users have to do is to hold staked tokens, without the high approval threshold.

More importantly, the DeFi 3.0-based BlackHoleDAO (BHO) project has set a small quota for early community seed members, further reducing the risk of rug pulls and future whales.

5. Advantages of BlackHoleDAO over DeFi 3.0

BlackHoleDAO is dedicated to breaking the cold trading model of DeFi 1.0 by promoting a close connection between users, hoping to establish close horizontal ties between users while forming strong vertical ties through the following competitive functional modules. According to the development structure of BlackHoleDAO (BHO), BlackHoleDAO (BHO) is really considered the Hathaway Group in the field of digital assets.

5.1 VC Pool –

The BlackHoleDAO protocol can be interpreted simply as an asset management service protocol, which includes splitting and merging functions while providing unsecured credit loan services based on the protocol itself. VC Pool accepts valuable vouchers such as non-stablecoins, NFTs and liquidity LPs. The tokens, NFTs, and LPs online in VC Pool are proposed and voted by the DAOs community, which have the attributes of financial loans and will develop into DAO-based credit loan services in the future.

50% of the assets entering the VC Pool will be used to burn BHO tokens in the liquidity pool, and the other 50% will remain in the pool for future credit loans in DAOs communities.

• Long-Curve Growth Trend

Any project token’s entry into the VC Pool will undergo rigorous reviews and screening to prevent malicious behaviors from causing the long-tail bleed effect on potential assets, resulting in deflation and inflation of stocks (BHO) and failure to play a locking role in the token project entering into the VC Pool. If we don’t end up with a long-curve growth trend like BTC, it will go against the original idea of creating the VC Pool, so any voucher that can enter the VC Pool must have a long-curve growth trend.

• DAO-based Credit Loan Service

A DAOs community user who makes a successful donation on the Donation Pool page will receive a unique community ID to be a DAOs community advocate, enjoy the transaction tax pool dividend and expand its own DAOs community.

Each DAOs community is provided with the corresponding credit value calculated and the reward and punishment mechanism. The credit value is obtained through weighting calculation according to the following dimensions. The DAOs community with the top-ranking credit value can get additional transaction tax pool dividend and later higher loans.

• Providing Liquidity for Leading Asset Protocols

After the assets in the VC Pool reach a certain amount, a certain proportion of different tokens will be taken out to form LPs, providing liquidity and LP loan services for leading products such as Curve, Compound and Aave. All the earnings will enter the VC Pool to support the circulation value of the stock (BHO).

5.2 Donation Pool

The donation pool is managed by multi-signature addresses and is divided into investment institutions, DAOs, and individuals. It is a kind of investment to get the return by funding the Project.

The donation pool is a long-term investment strategy to provide financial support for BlackHoleDAO (BHO) in the early stage. The identity functions are divided according to the investment amount and the user role adapted, and the ratio of returns also varies. Pay attention to the donation of a DAOs community user that comes with a return self-increasing strategy based on its own resources. For example, after making a donation, a DAOs community user can obtain a unique ID to obtain credit loans based on the promotion and development of its own DAOs community.

Gradually Realizing DAO Community Governance

BlackHoleDAO (BHO) finally entrusts the governance and decision-making on the ecosystem to the community members. All decisions are jointly made by all members, and community members do not simply rely on enthusiasm and interest to participate in community activities. All members are stakeholders with shared interests, so that they have the driving force for participation, thus truly achieving decentralized DAOs governance.

5.3 Transaction Tax Pool

DeFi 3.0 is designed with a tight token policy, following which both buy and sell slippages are set, that is, tax. This has become the iconic model of DeFi 3.0. Although paying taxes will be obstructive to the market and users, products in the DeFi field should have this, because it can increase the cost of malicious behaviors and protect the products. For example, despite of the high miner fee of Ethereum, the fee itself also provides corresponding protection. According to incomplete statistics, among all public blockchains, the Ethereum chain and Ethereum-based products have the lowest proportion of attacks and malicious behaviors.

For a buy of 15% of BHO tokens and sell of 25% of BUSD tokens, BlackHoleDAO sets an indeed high transaction tax. However, 60% of BUSD tokens enter the Black Hole Reactor, and BHO tokens are burned directly, thus reducing the supply to maintain the currency price. Then, 20% of BUSD and BHO tokens is given as returns to individuals, DAOs communities, institutions and other consensus users, as well as rewards for DAOs community rankings. Only 20% will be used for technological development, project development, community development and marketing. And according to the document, the transaction tax will gradually decrease as liquidity grows until it is eliminated. Such allocation in the early stages allows each holder to be a beneficiary undoubtedly.

Transaction Tax Pool Distribution:

• (BUSD + BHO) 60%: BUSD into the Black Hole Reactor and BHO burned directly
• (BUSD + BHO) 10%: returns to donation pool investment institutions
• (BUSD + BHO) 10%: marketing wallet
• (BUSD + BHO) 10%: development team
• (BUSD + BHO) 5%: rewards for DAOs community rankings
• (BUSD + BHO) 3%: DAOs community investors
• (BUSD + BHO) 2%: individual investors

5.4 Black Hole Reactor

The black hole reactor of BlackHoleDAO (BHO) is continuously accumulated from BUSD tokens in the 60% of the tax. By default, when the market circulation triggers the Blackhole protocol mechanism to finally deflate to 10 billion BHO and the reactor contains 100 million BUSD, the reactor will be opened.

It is certain that the amount varies depending on the stage of the reactor, and the amount of the reactor in the second stage may be 1 billion BUSD. The purpose of this project is to give the DAOs community a more reasonable valuation of the market. It is also an additional reward for investors. After the reactor is opened, users can choose to exchange or continue to hold BHO.

According to the official release, the reactor is triggered in accordance with the following rules:

• When a total of 100 trillion tokens are minted, the market circulation will trigger the Blackhole protocol mechanism to eventually deflate to 10 billion BHO. Then, the Blackhole protocol contract will burn a certain proportion of the wallet address tokens until the deflation reaches 10 billion BHO, at which point the reactor will be opened.
• Regardless of the result, the bonus pool for redemption will be opened after three years.
• During the minting process, when the bonus pool reaches 100 million BUSD, the minting will be stopped and the bonus pool will be opened for redemption.

5.6 Cross-chain Protocol

In order to obtain higher returns, users have to transfer funds among different blockchains. Traditional protocols cannot automatically transfer funds to liquidity pools with higher APYs on other blockchains, requiring users to operate by themselves, which will cause users to miss higher-APYs pools on other blockchains. This is relatively not friendly to common investors.

The BlackHoleDAO (BHO) protocol based on DeFi 3.0+ implements diversified cross-chain farming strategies on the roadmap, and optimizes the farming investment strategy depending on APYs provided by the protocols on different public blockchains. The BlackHoleDAO protocol provides farming as a service to users, produces higher returns with professional and diversified cross-chain farming strategies, and returns profits to token holders, thus helping common investors to obtain better returns in the DeFi ecosystem.

6. Summary

• BlackHoleDAO is an asset management protocol deployed on the Binance Smart Chain (BSC) based on DAO governance.
• BlackHoleDAO has multiple functional protocols such as VC-Pool, Transaction tax, Donation Pool, Black Hole Reactor, and DAOs Ranking, which are interdependent.
• Based on the nature of finance, the BlackHoleDAO protocol provides three solutions to token inflation in DeFi 2.0, and minimizes risks and prevents whales through a small community quota and voting-based DAO governance.
• Based on DeFi 3.0, BlackHoleDAO solves and optimizes the current problems with DeFi 1.0, DeFi 2.0, and DeFi 3.0 through coordination among protocols of VC Pool, Transaction Tax Pool, Donation Pool, and Black Hole Reactor, and gradually implements diversified cross-chain farming strategies.

BlackHoleDAO conducts continuous rapid iteration and integration on the basis of the protocol to build new financial products. Essentially, it aims to construct application scenarios for better flow of funds. Now DeFi 3.0+ is still in the early stage of development. The DeFi 3.0+ ecosystem represented by BlackHoleDAO is trying to provide a more far-sighted driving force in shaping liquidity, investment strategies, etc.

There is only one way out for DeFi, since people won’t budge on their needs for transparency and fairness.

Twitter: https://twitter.com/BlackHoleDAO_

DISCORD: https://discord.gg/VqjyGMZ6FA

Medium:https://medium.com/@blackholedao

Official Email: Business@blackholedao.finance

WEB:https://blackholedao.finance/