Mechanism of Arc Finance - Automatic Unlocking Mining
People expected DeFi summer to return in 2021, but it did not. Despite the absence of DeFi Summer, DeFi 2.0 arrived on the scene and improved LaaS even further. In DeFi 2.0, the ownership of the Liquidity Pool (LP) was transferred from users to developers in order to address major issues that impede project development, such as severe pumping-and-dumping in liquidity mining, whales profiting from the project, and so on.
Last summer, liquidity mining was a major contributor to DeFi’s popularity, allowing projects to succeed despite a slow start. It not only helped to attract a large number of users by awarding them tokens, but it also helped to achieve the high level of liquidity required for DeFi. Nonetheless, it would easily cause the Matthew effect, which means that a small group of people would control a large amount of capital, and the capital would provide these whales with unfair advantages in quickly gaining substantial profits at the early stages of projects. When more people join these projects, they will have to pay for the profits made by the whales.
DeFi 2.0 developers have long promised to find a solution to the problem, but the solution they provided now appears to be a regression rather than an improvement. Both users and developers are hoping for a better solution to their predicament.
Arc Finance, a Binance Smart Chain (BSC)-based LaaS for Basic Economic Facilities, addresses the issue by combining Automatic Unlocking Mining (AUM) and Liquidity Premium Pool (LPP). It intends for all platform users to be able to trade in order to earn money. It is an efficient algorithm that automatically modifies the pace at which r-Tokens are unlocked.
The automatic unlocking mining algorithm permits users to utilize a particular variety of token as a collateral and create corresponding r-Tokens which will remain locked on the onset and will be unlocked when users begin to mine or trade in the liquidity pool as the AUM algorithm asserts the transaction activity of a user as the criterion to unlock and release the locked r-Tokens.
Miners could use a specific type of token as collateral with the AUM algorithm, and corresponding r-Tokens would be created. R-Tokens would be locked at first and unlocked when users began mining or trading in the Liquidity Pool. Arc Finance would use an algorithm to automatically adjust the unlocking speed. The algorithm’s main idea 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).
Moreso, during the trading cycle, extra rewards will be given to users in the form of platform tokens to encourage them to maintain a positive trading habit. There exist four technologies that are employed as indispensable technical support for the automatic unlocking mining algorithm to enhance its application viz:
- Timelock Mechanism
A timelock is a chunk of code that is utilized to secure specific elements of a smart contract, so that a time-frame can be set for the acknowledgment of the element. TimeLock smart contract guarantees the security of clients’ assets by executing MasterChef’s setMigrator and transferOwnership strategy following a deferral of 48 hours.
- The Wormhole Protocol
The Wormhole protocol is an extension that joins Ethereum entirely. The Wormhole protocol supports ETH and ERC-20 tokens. It assists clients to effectively and rapidly gain access to the Ethereum environment , making it easy for holders of ETH to take part in the Arc Finance platform.
- Tower Byzantine Fault Tolerance
Also referred to as Tower BFT, Tower Byzantine Fault Tolerance allows the network to achieve consensus by executing a universal time source called proof of history (PoH) which establishes a permanent reference for all nodes of the network. Tower BFT guarantees the correct performance and profit dispersion of community nodes in Arc Finance that have heterogeneous multi-chains.
- Heterogeneous Framework
Presently, there are numerous tokens governing several public chains and it is hard for these assets to realize liquidity rapport as different chains possess different settings. Hence, there is a need for a multi-chain functionality to accomplish this compatibility. The heterogeneous sharding capacity can understand the application situations that all the while support multi-chain, cross-chain, and resource collaboration.
Heterogeneous sharding convention expects to take care of the connecting issue between various chains, so that cross-chain exchanges can be effectively accomplished inside the Arc Finance environment.
Hence, the more trades a user executes in the liquidity pool, the more r-tokens are unlocked thereby enabling users to receive increased annual percentage yield (APY) benefits at the same expense. Arc Finance supports the prominent chains in the industry namely; Binance Smart Chain, Ethereum, Polkadot, Solana, and Polygon.
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Medium: Arc Finance