All eyes may be on Bitcoin right now, but in the decentralised finance (DeFi) sector on Ethereum, investors were surprised by the rally of a coin called Saffron Finance (SFI), also known as Spice.
At first glance, it may be unclear why the coin is seeing a rally: Saffron Finance is run by an anonymous team, and moreover the contracts of the protocol are currently unchecked.
But the coin has risen 400 per cent in the last two days alone – and even more if you look at the starting price on Uniswap five days ago.
What is Saffron Finance?
The story of Saffron Finance is unique. It is basically a clone or competitor of BarnBridge, a similar protocol run by „doxxed“ developers and financed by leading investors in space such as Kain Warwick of Synthetix.
BarnBridge and Saffron Finance are both trying to introduce tranches into the crypto-currency space.
Tranches are concepts from the traditional financial industry that say that financial products can be split to separate risk and return to meet the different needs of investors. Simply put, junior tranches carry more risk but generate more return, while senior tranches carry less risk but generate less return.
A few weeks after BarnBridge unveiled its website, Saffron Bitcoin Millionaire review suddenly appeared and started a group at Discord and Telegram with a few dozen members.
At first it was quiet for a few days. Then it became clear that Saffron actually had a product, unlike BarnBridge.
Saffron’s first product is the carved liquidity provision for Compound in the DAI. Providers of junior tranches receive a small interest payment (~0.5 percent APY), while providers of senior tranches can make about 50 percent APY. Depositors will receive SFI.
Although the project is run by anonymous developers, it has attracted much attention on Twitter. Investors from prominent DeFi funds like Spartan Capital, Mechanism Capital and others have mentioned the Saffron Finance project in a positive light.
Tokenomics from SFI initiate a pump
According to CoinGecko, SFI has risen 400 percent in the past two days, rising from $150-200 to now $800. It has risen even further considering that it started out at around $30-40 five days ago.
Spice now has a fully diluted valuation of $80 million.
The rally is due in part to a rise in interest rates. As mentioned earlier, a number of investors have all tweeted about the coin in recent days, raising awareness of the project among many.
Second, SFI’s rally has risen sharply due to unique symbolic decisions.
To pay into the junior tranches, Saffron Finance is having an SFI and DAI pay in at a ratio of 1:1000. This helps to reverse the protocol in the event of a hack and promotes the use of SFI.
The interesting thing is that users earn much more SFI by paying in the junior tranches, although they need SFI to get in.
So the pressure to buy started a few days ago to get into the junior tranche. The unique symbolic decision to commit SFI to enter the Junior Tranche continues the price action upwards:
The Junior Tranche is attractive because of the higher SFI yield
User buys SFI; price increases
Yield of the Junior tranche increases, attracting more users
More users buy SFI; the price goes up even more – and from the top
Analysts are currently divided on whether the coin is overvalued or not. While many see value for Ethereum-DeFi in tranched financial products, the „token comics“ may have led to a short-term bubble.