[ad_1]
All eyes may be on Bitcoin right now, but in the decentralized finance (DeFi) space, investors have been caught off guard by a rally in a currency called Saffron Finance (SFI), also known as Spice.
At first glance, it may not be clear why the coin is rising: Saffron Finance is run by an anonymous team and, furthermore, the protocol contracts are currently not verified.
But it has risen 400% in the past two days alone, and even more if you look at its launch price on Uniswap five days ago.
What is Saffron Finance?
The history of Saffron Finance is unique.
Basically, it’s a clone or competitor of BarnBridge, an extremely similar protocol run by “doxxed” developers and funded by major space investors such as Synthetix’s Kain Warwick.
BarnBridge and Saffron Finance are both attempting to introduce tranches into the cryptocurrency space.
Tranches are traditional finance concepts that say that financial products can be split to separate risk and reward to meet the different needs of investors. In simpler terms, the junior tranches carry more risk but yield more while the senior tranches carry little risk but yield little.
A few weeks after BarnBridge unveiled its website, Saffron suddenly appeared on the map, launching a Discord and Telegram group with a few dozen members.
At first there was silence for a few days, then it became clear that Saffron did indeed have a product while BarnBridge did not, at least not yet.
Saffron’s first product is the provision of liquidity tranches to Compound in DAI. Junior tranche providers receive a small interest payment (~ 0.5% APY) while senior tranche providers can earn around 50% APY. The depositors get SFI.
The project, although run by anonymous developers, has generated a lot of traction on Twitter.
Investors in major DeFi funds such as Spartan Capital, Mechanism Capital and others have mentioned the Saffron Finance project in a positive light.
SFI Tokenomics is starting a pump
According to CoinGecko, SFI has risen 400 percent in the past two days, rising from $ 150-200 to $ 800 now. It’s even higher when you consider that it launched at around $ 30 ~ 40 five days ago. Spice now has a fully diluted valuation of $ 80 million.
First, the rally is partly due to an increase in interest. A number of space investors, as mentioned, have all tweeted about the coin in the past day, raising awareness of many about the project.
Second, SFI is bouncing back heavily due to unique symbolic decisions.
To deposit in junior tranches, Saffron Finance makes you deposit SFI and DAI at a ratio of 1: 1000. This helps block the protocol in case of hacks and incentivize the use of SFI.
What makes it interesting is that users earn a lot more SFI by depositing in junior tranches, although they need SFI to get in.
Therefore, the pressure to buy the junior tranche began a few days ago. The only symbolic decision to require SFI to enter the junior tranche is perpetuating the price action in the bullish price action:
- The Junior tranche is attractive due to the higher yield of the SFI
- The user purchases SFI; the price goes up
- The yield of the junior tranche increases, attracting more users
- More users buy SFI; the price goes up even more
- To repeat
Analysts are currently divided on whether or not the coin is overvalued: while many see value in tranched financial products for DeFi, tokenomics may have led to a short-term bubble.
Do you like what you see? Sign up for daily updates.
