Meet BlockSwap - The London Startup Using DeFi for Sustainable Yields on Crypto
(Photo : Meet BlockSwap - The London Startup Using DeFi for Sustainable Yields on Crypto)

There was a time, not too long ago, when cryptocurrency investors had limited ways of earning returns. They could buy and hold, or trade pairs of different tokens against one another to profit from volatility.

Now, thanks to a wave of fintech innovation that's swept through the crypto sector over recent years, there are now multiple avenues for returns. These include derivatives trading, lending platforms, staking, and yield farming tokens, a practice popularised by the recent emergence of decentralised finance. Now, UK startup BlockSwap is poised to put London on the DeFi map with a new application allowing everyday users to earn sustainable profits from DeFi. 

What is DeFi?

For the benefit of the uninitiated, decentralised finance, or DeFi is one of the biggest phenomena in cryptocurrency over recent years. It aims to replicate some of the features and products available in traditional markets. However, DeFi eliminates many of the brokers and intermediaries, automating transactions using blockchain-based smart contracts. It's grown to a market size worth $50 billion over the last couple of years, and has led to leading industry figures to predict a future involving "self-driving banks.

It's worth pointing out that the risk-reward ratios in DeFi are massive. Users have flocked to the space for the opportunity of earning two, three, or even four-figure percentage yields. However, these rewards mean that users are accepting the sizable risks of significant losses. Often, they're using multiple protocols, borrowing tokens from one application to lend them on another, in a kind of complicated financial daisy chain.

Sustainable yields with Proof of Stake

The vast majority of the value captured in DeFi is on the Ethereum blockchain. However, Ethereum, now coming up for six years old, is dogged by issues. It's slow and clunky, thanks to the fact that it runs on an energy-gobbling algorithm called Proof of Work, the same one used by Bitcoin.

Environmental campaigners will be pleased to note that newer iterations of blockchain platforms are shunning Proof of Work in favour of a different algorithm called Proof of Stake. Rather than performing energy-intensive computations, network participants in a Proof of Stake network stake their funds in cryptocurrency for a chance to validate blocks, for which they earn rewards. 

Therefore, staking represents another way of earning returns on crypto, and Ethereum is in the process of upgrading to the greener algorithm. Other platforms, including Polkadot, Algorand, and Tezos, already use it.

In some variations on Proof of Stake, users don't have to get involved with validating transactions. Instead, they delegate their crypto to nominate others to validate and still receive a share of the rewards.

Solving the Liquidity Squeeze

The biggest challenge for crypto users who want to engage in staking is that it ties up their funds - they can't access their stake while participating. Ultimately, if all platforms move to a Proof of Stake model, it will wipe vast amounts of liquidity off the cryptocurrency markets.

This is the challenge that BlockSwap aims to solve. It offers huge potential to bridge the gap between everyday crypto users looking for some stable and sustainable returns and the wildly variable opportunities available in DeFi.

Anyone who wants to participate in staking, and earn the relatively stable rewards therein, will be able to stake their funds via the BlockSwap Saver feature, which the firm dubs a "Universal Basic Savings" tool. Saver doesn't come with the many technical barriers to entry that face newcomers to cryptocurrency, so they don't need to learn about concepts like wallets and blockchains. Once they stake their funds, they can start earning steady returns of 7% APY, which is still significantly higher than most banks.

However, just because it's easy to use, BlockSwap isn't alienating the more financially savvy users. When users deposit their funds, they receive the platforms $aver tokens representing their stake in return. These tokens offer the opportunity to unlock the liquidity tied up in the stake. For example, the user could lend the tokens out and earn interest on the loan. In this way, there's potential for even higher yields.

BlockSwap incorporates the automation of DeFi by using smart contracts to handle the deposit, staking, and withdrawal activities. Therefore, users can always withdraw near-instantly, and there's no minimum investment period or any strings attached.

Upcoming test launch

The platform is currently in development, with BlockSwap set to launch its "CommunityNet" testbed over the coming weeks. The company is seeking out users who are willing to participate in testing, for which they can earn tokens that are convertible to BlockSwap mainnet tokens when the full launch happens.

BlockSwap recently raised $2.5 million in a private funding event, which provides the necessary financing for developing the community net. Investors include NGC Ventures, Digital Finance Group, and others.

The continuing maturation of the cryptocurrency markets is a testament to the innovative capabilities of companies like BlockSwap and its predecessors. Thanks to these developments, investors can now find ways to get into cryptocurrency that deliver better returns than a traditional bank account without incurring the same excessive risks as in the earlier days of digital assets.

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