All eyes may be on Bitcoin right now, but in the Decentralized Finance (DeFi) space, investors were caught off guard by a rally in a room called Saffron Finance (SFI), also known as the name of Spice.
At a glance, one might not know why the coin is rallying: Saffron Finance is run by an anonymous team, and furthermore, protocol contracts are currently unaudited.
But it’s up 400% in the past two days alone, and even more if you look at its introductory 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 leading investors in the field such as Synthetix’s Kain Warwick.
BarnBridge and Saffron Finance are both trying to introduce slices into the cryptocurrency space.
Slices are concepts from traditional finance that say that financial products can be divided to separate risks and returns to meet different investor needs. In the simplest terms, the junior tranches carry more risk but pay more while the senior tranches carry little risk but pay little.
Weeks after BarnBridge unveiled its website, Saffron suddenly appeared on the map, launching a Discord and Telegram group with a few dozen members.
It was quiet at first for a few days, then it became clear that Saffron actually had a product while BarnBridge didn’t, at least not yet.
Saffron’s first product is the provision of liquidity in tranches to Compound in DAI. Junior tranche providers receive a small interest payment (~ 0.5% APY) while senior tranche providers can make around 50% APY. Depositors get SFI.
The project, although run by anonymous developers, generated a lot of success on Twitter.
Leading DeFi fund investors such as Spartan Capital, Mechanism Capital, and others have mentioned the Saffron Finance project in a positive light.
SFI’s tokenomics pump up
According to CoinGecko, the SFI has risen 400% over the past two days, from $ 150-200 to $ 800 now. It’s even higher if you consider that it launched at around $ 30 ~ $ 40 five days ago. Spice now has a fully diluted valuation of $ 80 million.
First and foremost, the rally is partly due to an increase in interest. A number of investors in the space, as mentioned above, have all tweeted about the coin over the past day, raising awareness of the project for many.
Second, SFI rallies strongly due to unique symbolic decisions.
To deposit in the junior tranches, Saffron Finance makes you deposit SFI and DAI at a ratio of 1: 1000. This helps to support the protocol in the event of a hack and encourage the use of SFI.
What makes this interesting is that users earn a lot more SFI by depositing in the junior brackets, although they do need SFI to enter.
Thus, the buying pressure started a few days ago to enter the junior segment. The unique token decision to force SFI into the junior bracket perpetuates the price action in the upward price action:
- The junior tranche is attractive due to the higher SFI yield
- The user buys SFI; the price goes up
- The yield of the junior tranche increases, attracting more users
- More users buy SFI; the price increases even more
Analysts are currently divided on whether the coin is overvalued or not: While many see the value of financial products sliced for DeFi, the tokenism may have led to a bubble in the near term.
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