Dead coins. Always an interesting part of the cryptosphere. Over time wallets are lost or forgotten about, coins sent to the wrong address (many Ethereum smart contracts "own" an awkwardly large amount of coins), people die without willling their coins and many other reasons.
A lot of crypto is dead- gone and can never be used. But not all crypto is designed to only be used by its owner- what happens when they "die"?
DEFI LP Tokens
Most defi smart contracts operate by someone adding one or more tokens to a pool and receiving an LP tokens in return. Then, others can use the pooled coins for a variety of uses, paying a fee. The owner of the LP tokens can then redeem them to receive their share of the pool, plus the accumulated fees, back.
But what happens when the LP tokens become "dead" and will never be redeemed? What happens when they can be used.... forever? What happens when they enter the Zombie Crypt?
Imagine you decide to invest $100k into the wETH-LINK pool on uniswap v2. People can now use your coins to trade between the two until you are happy with the fees collected and withdraw. Unfortunately, before you tell your family about this decision, you meet your untimely demise. So it goes.
But now your liquidity is half-dead. The LP tokens lack an entity to give them free will, yet they still move. People may still trade back and forth . And they always will, as soon as the exchange rate is off.
When uniswap moves on to v3, your coins will still be there, slowly moving. v4, then v5, v6. Uniswap may go the way of EtherDelta, abandoned as something better comes along. Your tokens will still be there, lurching around and mindlessly feasting on fees.
Has this already begun? While uniswap has been on v2 for awhile, v1 is still in use:
Now, some of it is actual use. Coins are still being added and removed from the liquidity pools, for whatever reason. But is that all of it? Could there be some undying Zombie Crypts on it? Even if not, I'd say its guaranteed for v2. Its becoming much bigger, and especially with the "free money" aspect of the UNI airdrop encouraging less experienced, more reckless behavior its inevitable that little Zombie Crypts are being built all over the protocol.
Necromancy?
Of course, zombies don't have to happen by accident, they can be conjured. We already have several attempts at proof of burn coins, and while they don't excite me, what happens when someone builds one around burning LP tokens?
A pretty common bootstrapping method is to reward users for providing early liquidity. What happens when you reward undying liquidity?
Lots of defi protocols are reliant on overcollateralization to work. Any collateral that ends up in a Zombie Crypt strengthens the underling protocol. Are there ways to incentivize this?
Conclusion
Zombie Crypts are becoming my current fascination in the cryptosphere, and so far I haven't found anyone discussing them. Please, share your ideas and views! If anyone else wants to write about them, please do, I'm not a very good writer. And link me! If there are discussions happening, can anyone get me in the room where they are happening?
Zombie Crypts are inevitable. They likely already exist. We will have to confront them, even if its eventually by surprise. Are Zombie Crypts a network effect, a moat? Is it hard to for a newcomer to compete with a protocol full of The Undying?
Its also inevitable that people will experiment with necromancy in their projects. So, what are the good and bad ideas with that? If they are a moat, is this something important?
These discussions are inevitable, either freely now or later when forced. I'd like to be early. Join me.
Posted Using LeoFinance
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