Interest in liquidity farming is still high. The Bella Protocol (BEL) was Coin Gecko’s most trending cryptocurrency on 14 September 2023.
Bella is a protocol that harvests liquidity with three tools. Those tools are Bella Flex Savings v2, the Bella LP Farm, the Bella Tuner. They claim Bella optimizes returns for ordinary users and enhances quantitative strategies for speculators.
A quantitative investing strategy uses advanced mathematical models to search for the protocols that deliver the best returns. Historically, human experts, known as “quants,” created and executed quantitative strategies. However, artificial intelligence (AI) and algorithms often design and execute modern quantitative strategies today.
What is Flex Savings v2?
They describe Flex Savings v2 as a hedge fund for decentralized finance (DeFi) protocols. A hedge fund is a group of investors who pool their money. In a traditional hedge fund, professional managers invest the pooled money on behalf of the investors.
Essentially, Flex Savings v2 is a liquidity pool that routes funds to the DeFi products that offer the best returns. Users deposit stablecoins and supported tokens in the Flex Savings v2 pool. A smart contract routes Flex v2 funds to mining pools using different liquidity mining and yield farming strategies.
They claim Flex Savings v2 is delivering a high return from multiple protocols, including Curve.fi. Ideally, Flex Savings v2’s will change strategies and move funds to the DeFi protocols with the best returns. Flex Savings v2 pays returns through Bella’s BEL incentives program.
What is the Bella LP Farm?
The Bella LP Farm is a liquidity protocol built to generate returns through zkSync.
zkSync is a layer-two protocol that scales (expands) the Ethereum (ETH) blockchain with zero-knowledge (ZK) technology. To explain, zkSync expands the Ethereum blockchain’s capacity to process transactions by adding a second layer. To explain, traditional Ethereum can only process a limited number of transactions per second (TPS).
Zero-knowledge means zkSync’s smart contracts do not identify or verify users. This increases speed but creates enormous security risks.
For example, Ethereum was processing 10.26 TPS to 23.64 TPS on 14 September 2023. This limits Ethereum’s capacity to serve large markets.
They claim the Bella LP Farm can boost Decentralized Exchange (DEX) liquidity. Moreover, the Bella LP farm lets users stake LP tokens from DEX pools so they can earn additional rewards in BEL. Potentially, Bella LP Farm could stake other tokens.
Bella LP Farm supports the iZiswap of Izumi Finance. The iZiswap of Izumi Finance is a Dex that supports swaps between Binance or BNB-Chain tokens and other tokens, such as the Tether (USDT) stablecoin. iZiswap also supports liquidity pools, swaps, a liquidity farm, and a rewards program.
What is the Bella Protocol’s Tuner?
The Tuner is a Uniswap V3 simulator that lets speculators backtest strategies on a transaction-to-transaction basis outside the Ethereum Virtual Machine (EVM). The EVM is the virtual computer that operates the Ethereum blockchain.
Hence, the Tuner tests strategies outside the Ethereum blockchain. That lets users test strategies before they implement them in Ethereum.
Uniswap V3 is an automated market maker (AMM). An AMM is a protocol that builds DEXs and centralized exchanges on the blockchain. The Bella Protocol uses Uniswap’s AMM technology to build markets.
What Risks does the Bella Protocol (BEL) create?
I think the Bella Protocol (BEL) could create risks by building unregulated financial markets. This could lead to crashes, power frauds (remember FTX?), and attract the attention of regulators.
In particular, financial regulators could see Flex Savings v2 as an unlicensed, unregulated, and uninsured bank account. Just the term Flex Savings makes a hedge fund sound like a bank savings account, which is dangerous.
To explain, governments insure savings accounts in many countries. For example, the Federal Deposit Insurance Corporation (FDIC) insures most American bank accounts up to $250,000. Notably, the FDIC does not insure crypto assets, such as the Bella Protocol (BEL).
Hence, the Bella Protocol could get into serious legal trouble. Thus, the risk is you could lose everything you invest in Bella.
What Value Does Bella Protocol (BEL) offer?
Mr. Market thinks Bella offers some value. For example, Coin Gecko gave it a 60.5896¢ Coin Price, a $35.968 million Market Cap, a $60.450 million Fully Diluted Market Cap, a $3.155 million 24-Hour Market Volume, and a $12.194 million Total Value Locked on 16 September 2023.
They base those numbers on a 59.5 million BEL Circulating Supply, and a 100 million BEL Total Supply.
In the final analysis, I think the Bella Protocol (BEL) could be a useful DeFi protocol. However, I think the only way Bella can survive is to comply with regulations.
In particular, Bella needs to add Know Your Customer (KYC) and Anti-Money Laundering (AML) capabilities to its platform. To explain, many governments require all financial institutions to comply with KYC and AML. Without KYC and AML, I think Bella has no future.