Startup Profile | From Product Development to Community Governance, Chen Pin and Hakka Finance Discuss "The Way to DeFi Survival"

When it comes to the representative team of Taiwan's DeFi, it is hard not to mention Hakka Finance. After Hakka Finance launched BlackHoleSwap (referred to as BHS), it became an overnight sensation, even catching the attention of KOLs. Upon closer observation, one can see that its product direction is different from most DeFi protocols. Recently, founder Chen Pin wrote a lengthy article on his blog "My Journey with Hakka Finance", elaborating on the background story and future blueprint of the company. Here is a summary:

Back in 2018, Chen Pin founded Pelith (Peili Technology), during the phase when the cryptocurrency industry was boasting about the "mass adoption of blockchain." Therefore, Pelith Technology's main business was to take on projects from other blockchain startups. Interestingly, almost all the applications that were confidently promised in 2018 failed, which made Chen Pin realize the high risk of blockchain startups setting their roadmap too early.

Starting Point: EasyDAI

Around mid-2019, the Compound lending protocol emerged, and DeFi protocols began to gain prominence. During this period, user experience with DeFi wallets was poor, prompting Pelith to create EasyDAI: a one-click wallet. Users could complete lending on Compound within two minutes.

During the same period, Pelith participated in the Kyber DeFi hackathon and won with the Crypto Structured Fund (CSF). CSF is a crypto structured fund that allows investors to invest in the fund with preferred shares or for excess returns. Preferred share investors could earn a 20% APY, while investors seeking excess returns had the opportunity to win the ultimate prize, which was the ETH in the pool.

While a 20% APY seemed high at that time, the appearance of liquidity mining with triple-digit APYs later disrupted Pelith's plans. At this point, it was once again confirmed that the risk of focusing on a single protocol/product is extremely high.

Success with BHS and Meme Culture

Following EasyDAI, Pelith officially created Hakka Finance, and the debut of Hakka Finance was quite spectacular. Hakka Finance's BHS capitalized on the liquidity mining trend, resolved AMM liquidity issues, went viral overnight, and its governance token $HAKKA surged from $0.001 to $1.17 after launch, a rise of over 1,000 times.

What readers may not know is that the inspiration for BHS came from Curve.fi. At that time, Chen Pin noticed that Curve solved liquidity problems and capital utilization by dynamically adjusting parameters, but this dynamic adjustment sacrificed efficiency. Chen Pin believed that if something was sold out, using other spot collateral to borrow and sell would be a better strategy. He shared this concept in Curve's TG group, received a response from Curve's founder saying "interesting," and that was the end of it.

From September 13th to 15th, 2020, there was a surge in Ethereum transactions, mainly because the DAI price reached around ~$1.05, causing liquidity depletion in Curve. 1inch redirected a large number of transactions to BHS, proving that the method of creating infinite liquidity by borrowing money was indeed effective.

However, MakerDAO later introduced more centralized collateral such as USDT, USDC, WBTC, and launched PSM to further enhance price stability. Since then, DAI has not experienced significant price discrepancies. The problem disappeared, and so did the value of the answer.

In terms of the product, was BHS a successful product? I would say it was a product that "had success."

It is worth mentioning that the design process behind BHS fully utilized the unique culture of the crypto industry: meme culture. Chen Pin early on noticed the crypto industry's unique "naming meme culture," so when designing and naming the first product, the focus was on trendy concepts and naming.

Additionally, there is an art to writing whitepapers. People in the blockchain field typically like whitepapers that appear profound but are still understandable. Therefore, when writing the whitepaper, Pelith intentionally used math at the high school to freshman college level: linear algebra, calculus, making it not too difficult for readers to understand but enough to make them feel smart and willing to share, making the BHS whitepaper a perfect meme creation.

Unlike most crypto startups, Pelith understood early on that the risk of being overly focused on a single product was too high. Therefore, after launching BHS, Pelith quickly introduced a DeFi insurance product: 3F Mutual, followed by a concept solution for temporary losses: iGain.

Price Fluctuations Impact Decentralization: Don't Rise Unless You Won't Fall

In addition to products, Hakka Finance itself is a DAO (decentralized autonomous organization). Chen Pin hopes that in the end, control will be handed over to the community to achieve decentralization. To accomplish this, tokenomics and on-chain governance are crucial.

In the original plan, $HAKKA was supposed to gradually increase through GuildBank assets to naturally encourage token holders to think long-term. Short-term price fluctuations were deemed unimportant and unrelated to development. It must be admitted that Hakka's initial token and community planning were not complete, compounded by liquidity mining, resulting in selling pressure from early investors and miners.

To address this, Pelith used a "Vesting" method to delay the distribution of various "rewards." Delaying the distribution would make short-term participants (usually sellers) lose interest in participating in the mining protocol, resulting in a higher proportion of tokens being distributed to the "right" people.

Furthermore, Hakka recently implemented a staking mechanism. Those who lock up their tokens for a year have twice the voting power of those who lock them up for six months. Under the premise of shared interests, voting should lean towards more helpful long-term plans for the ecosystem.

However, Chen Pin also mentioned the "ultimate challenge" of community governance: Can the community make correct decisions under complete decentralization?

As DeFi protocols become increasingly combinable, competition in DeFi becomes more complex. It's not just horizontal competition between similar protocols, but also vertical relationships between aggregators and liquidity farms, which appear to cooperate on the surface but in reality, exploit each other (without guaranteeing mutual benefits).

Chen Pin's current conclusion is:

The community has no boundaries, and what I can do is guide the growth of the community through setting up the environment to become generally stronger.

Hakka DeFi Studio

Currently, Hakka Finance has two more clearly defined products: Crypto Structured Fund and iGain. CSF simulates medium-risk products similar to bonds with slightly higher returns than the market rate through asset layering, while iGain solves the dual-sided market mechanism for predictive and synthetic asset derivatives.

When discussing the ultimate goal, Chen Pin believes that Hakka Finance's ultimate goal is to become a DeFi DAO, but the team must clearly communicate their vision in the early stages of development.

In his DeFi worldview, decentralization will ultimately lead to organizational diversity in form and scale. It does not mean that all whales will disappear, but the stage will accommodate players of different scales.

"Just like the gaming industry, there will always be some AAA-level companies, small game studios, and even independent developers. When the future of finance no longer comes solely from large institutions, Hakka Finance's position is that flexible, productive, and always able to innovate according to market demand in the DeFi studio."

Chen Pin concluded.