The ICON Defi Guide: Part 9 — How ICON Benefits from DeFi

As an ICX holder, it’s likely you’re always wondering how certain developments and projects will benefit the ICON network: more specifically, how will they increase the number of transactions on the network (and thus the demand for the token)?

Fortunately, with a full suite of DeFi products on the network, there are a number of ways the transaction count will increase.

As evidence of this fact, look no further than Ethereum. When DeFi activity on Ethereum increases, it essentially generates so many transactions that it congests the network, causing gas prices (the transaction fee) to increase significantly, with single transactions sometimes costing more than $10.

Of course, this is partly a result of Ethereum’s scaling issues, but it also shows just how much traffic DeFi tools can generate when activity is high.

So let’s look at how DeFi could benefit ICON’s transaction count.

Arbitrage

As I referenced in the prior chapter, there will always be small price discrepancies between the two AMMs on ICON — uTrade and ICONPOOL — as well as the decentralized exchange operating on Balanced.

These discrepancies basically offer an opportunity for free profit for those who are vigilant and fast-acting enough.

Any time a trade is made of any significant size on any of these platforms (a transaction on the ICON network itself), there will be a price difference relative to the other two markets. This should trigger two more transactions — buying on one market and selling on another — in order to capture profit and equalize the price.

Theoretically, this means that anytime a trade is made on one market, it will generate two additional trades in order to bring the price back to stasis. Of course, the initial transaction would have to be large enough to move the price sufficiently, but it won’t take much to create a big enough window for a profit opportunity.

Token Proliferation

Thanks to DeFi on ICON, there will be a number of new IRC-2 tokens added to the ecosystem.

For most of ICON’s existence, ICX was essentially the only token on the network and was the only way to transfer value.

However, with DeFi and several other platforms coming to life, we now have a number of tokens either available or soon to be available, including TAP, SEED, UP, BALN, OMM, FIN, sICX, and many others. With more tokens available to do more things, more transactions will be created, as people are willing and able to transfer value across the ecosystem in different ways.

DeFi Protocol Transactions

Based just on the tools within this guide, any of the following actions will generate a transaction:

• Any trade made on an AMM or DEX
• Liquidity added or removed from an AMM
• Minting of an LP token on an AMM
• Depositing or removing collateral into Balanced
• Minting ICD
• Minting BALN tokens for Balance users
• Depositing or removing collateral into Omm
• Minting of OMM tokens for Omm users
• Depositing or withdrawing ICX in Optimus
• Minting finICX and FIN tokens on Optimus

Of course, this is just a small helping of activities that doesn’t even go into governance activities or other behavior that would generate transactions. But you can start to use your imagination in the number of ways DeFi could generate more activity, especially as people explore unique yield farming strategies and more platforms become available.

DeFi on Ethereum

Still not convinced? Let’s take a look at the impact DeFi had on Ethereum.

The graph below shows that DeFi brought about $60 billion worth of transaction volume to Ethereum in the third quarter of 2020 (during the DeFi boom).

Source: DappRadar

Meanwhile, in early 2021, there were around 26,000 unique active wallets utilizing DeFi, with several billion dollars of total value locked.

Source: DappRadar

While Ethereum is certainly a more popular chain than ICON at the moment, the overall level of activity has increased significantly thanks to DeFi. I would be shocked if the same didn’t happen for ICON.

Conclusion

As you can see, despite some of the negative narratives that have come from DeFi, the concept as a whole is generally good for the crypto space, and good for users who use it responsibly. The same should be true when it comes to ICON.

I hope you’ve enjoyed this guide and found it helpful. As I’ve mentioned, if you’d like to ask questions about DeFi, discuss strategies, or just have a general discussion, please join us in the ICON DeFi Discussion group I’ve created on Telegram to supplement this guide and build a vibrant DeFi community around ICON.