Author: Dr. Liew

Introduction to Fintech: Revolutionizing the Future of Financial Services

In today’s digital era, financial technology—or Fintech—is revolutionizing the way we interact with money, banks, insurance, and investments. Whether you’re tapping your phone to pay, buying crypto, or using a robo-advisor to manage your portfolio, you are participating in the fintech revolution.

But fintech in 2025 is not just about convenience—it’s about financial inclusion, efficiency, and global access to trusted and secure financial systems. Let’s explore what fintech means today and where it’s headed.

What is Fintech?

Fintech is the fusion of finance and technology, designed to streamline, automate, and improve the delivery and use of financial services. It disrupts traditional financial systems by offering faster, cheaper, and more inclusive alternatives.

Today’s key fintech verticals include:

  • Digital Payments: Mobile wallets (e.g., Apple Pay, Google Pay), QR payments, and instant transfers
  • Lending & Credit: AI-driven credit scoring, P2P lending platforms (e.g., Upstart, Funding Societies)
  • WealthTech: Robo-advisors, AI-managed portfolios (e.g., Betterment, Stash, Syfe)
  • InsurTech: Personalized digital insurance (e.g., Lemonade, PolicyPal)
  • Neobanks: Mobile-only banks (e.g., Revolut, Monzo, GrabFin)
  • RegTech: Compliance automation tools for financial institutions
  • DeFi & Crypto: Token-based finance platforms that cut out intermediaries

The Evolution of Fintech: From ATMs to DeFi

Fintech has evolved rapidly over the past few decades:

  • 1980s–2000s: Online banking, ATMs, electronic trading
  • 2010s: Rise of smartphones → mobile banking, P2P payments, robo-advisors
  • 2020–2023: Surge in blockchain, digital assets, open banking, and fintech superapps
  • 2024–2025: Emergence of DeFi, embedded finance, CBDCs, and AI-native banking

Fintech is no longer a niche—it’s the new face of mainstream finance.

Core Technologies Powering Fintech

The fintech industry now relies on powerful, emerging technologies:

1. Artificial Intelligence (AI)

  • AI enables predictive analytics, fraud detection, and personalized financial planning
  • Example: ChatGPT-like financial assistants integrated into banking apps
  • AI helps banks cut operational costs by automating underwriting, risk assessment, and customer support

2. Blockchain & Web3

  • Enables secure, immutable financial transactions
  • Powers Decentralized Finance (DeFi) platforms like Aave and Compound
  • Supports tokenization of real-world assets (e.g., property, artwork, bonds)

3. Big Data & Predictive Analytics

  • Transforms raw financial data into actionable insights
  • Helps in credit scoring, insurance risk modeling, and market trend analysis

4. APIs & Open Banking

  • Open banking mandates allow third-party apps to access bank data (with user consent)
  • Fintechs use APIs to deliver aggregated financial dashboards, multi-bank insights, and smart budgeting tools

5. Central Bank Digital Currencies (CBDCs)

  • Pilots in China (e-CNY), Singapore, Nigeria, and soon Europe
  • Promotes government-backed, programmable digital currencies

Latest Trends in Fintech

🌐 1. Embedded Finance

Financial services are now integrated into non-financial platforms—you can buy insurance while checking out online or get instant credit inside a ride-hailing app.

Examples:

  • Grab integrating loans and insurance in Southeast Asia
  • Shopify offering merchant loans at checkout

🏦 2. Rise of Neobanks and Fintech Superapps

Neobanks offer app-only banking experiences with no branches, low fees, and real-time analytics.

Superapps like WeChat and Gojek combine banking, payments, shopping, and investments all in one platform.

🤖 3. AI-Native Banks

Banks are being rebuilt from the ground up with AI as their core engine. Personalized investment advice, real-time alerts, and smart assistants are standard features.

💱 4. Real-World Asset (RWA) Tokenization

Tokenizing physical assets (e.g., real estate, collectibles, commodities) onto blockchain platforms increases liquidity and accessibility.

Example: BlackRock and JPMorgan are experimenting with tokenized asset funds on blockchain.

🔐 5. Fintech + Cybersecurity

Due to growing data privacy concerns, fintech firms are adopting zero-trust architecture, biometric authentication, and decentralized identity management to enhance security.

Benefits of Fintech

  • Speed: Instant payments, same-day loan approvals, real-time portfolio updates
  • Inclusion: Fintech reaches the unbanked in rural or underserved regions
  • Customization: AI tailors investment strategies and spending habits
  • Transparency: Blockchain-based solutions reduce fraud and increase accountability
  • Cost Efficiency: Fintech reduces operational costs for banks and improves margins for users

Challenges That Remain

Despite progress, fintech faces ongoing challenges:

  • Regulatory Uncertainty: Global variation in digital asset and lending rules
  • Cyber Threats: Increased sophistication of financial fraud and phishing
  • Interoperability: Ensuring seamless integration across platforms and borders
  • Trust Building: Many users remain wary of fully digital financial services

What’s Next?

As we look forward:

  • DeFi may challenge traditional finance with borderless, permissionless systems
  • CBDCs will reshape how nations think about monetary policy and remittances
  • AI + Blockchain fusion could lead to smart, self-executing financial products
  • Sustainability-focused Fintech will rise, combining green finance with impact investing

Final Thoughts

The fintech revolution is not slowing down—it’s accelerating. As new technologies emerge and regulations mature, the financial world will become more inclusive, intelligent, and decentralized.

Whether you’re a student, investor, entrepreneur, or policymaker, staying updated with fintech trends is no longer optional—it’s essential.

🚀 Welcome to the future of finance. It’s digital, decentralized, and designed for everyone.

Harnessing Fintech and Stablecoins for a Resilient Digital Economy

In today’s digital age, the financial world is evolving at an unprecedented pace. The convergence of financial technology (fintech) and stablecoins is creating new opportunities for inclusion, efficiency, and innovation. From decentralized finance (DeFi) and cross-border payments to programmable money and regulatory sandboxes, this transformation is reshaping the global financial system.

This article explores how fintech and stablecoins are building a more resilient digital economy—and how countries like Malaysia, Singapore, and Hong Kong are positioning themselves at the forefront.

💡 What Is Fintech?

Fintech refers to the use of digital technologies to enhance, automate, or reinvent financial services. It spans everything from mobile banking and digital wallets to blockchain, AI-based risk scoring, robo-advisors, and beyond.

🚀 The Evolution of Fintech:

  • Fintech 1.0: Telegraphs and ATMs marked early automation.
  • Fintech 2.0: SWIFT, credit cards, and online banking digitized financial systems.
  • Fintech 3.0: Smartphones enabled peer-to-peer payments and crypto adoption.
  • Fintech 4.0: Today’s innovations include Web3, artificial intelligence, DeFi, and stablecoins.

Fintech democratizes access to finance and streamlines services across sectors, especially in underserved markets and emerging economies.

💳 Digital Payments: A Global Shift

The move toward cashless economies is accelerating. Digital wallets, QR code payments, and contactless transactions are becoming the norm.

  • 📱 Popular Wallets: Apple Pay, Google Pay, Alipay, Touch ‘n Go, WeChat Pay
  • 🌐 Growth: Over 60% of global e-commerce payments are expected to be made via digital wallets by 2026.

This shift enhances convenience, lowers transaction fees, and supports financial inclusion—especially in rural and mobile-first regions.

🔗 Blockchain and Decentralized Finance (DeFi)

Blockchain technology provides the foundation for decentralized systems that are secure, transparent, and resistant to tampering.

It powers:

  • Cryptocurrencies like Bitcoin and Ethereum
  • Smart contracts that self-execute financial logic
  • DeFi platforms for lending, borrowing, and trading without intermediaries

Together, blockchain and DeFi are redefining how finance is conducted—offering 24/7, permissionless access to capital.

🪙 What Are Stablecoins?

Stablecoins are digital currencies designed to maintain a stable value, usually pegged to a reserve asset like a fiat currency, commodity, or algorithmic model. They serve as a bridge between traditional and decentralized finance, offering the speed of crypto with the predictability of money.

📌 Why Stablecoins Matter:

  • Reduce price volatility
  • Enable global remittances and real-time payments
  • Power smart contracts and DeFi ecosystems
  • Act as a store of value in high-inflation economies

🧱 Types of Stablecoins:

TypeBacked ByExamples
Fiat-backedUSD, MYR, etc.USDT, USDC, FUSD
Crypto-backedETH, BTC (overcollateralized)DAI
Commodity-backedGold or other assetsPAXG
Synthetic/AlgorithmicDerivative-basedUSDe (Ethena)

🌟 Major Stablecoins in 2025

1. USDT (Tether)

  • The most widely used stablecoin globally
  • Pegged to USD, backed by mixed reserves
  • Ideal for trading, DeFi, and fast settlements

2. USDC (USD Coin)

  • Issued by Circle; fully backed by U.S. dollar reserves
  • Highly regulated, widely adopted across platforms
  • Preferred by enterprises and institutions

3. DAI

  • Decentralized stablecoin issued by MakerDAO
  • Collateralized by crypto (ETH, USDC)
  • Maintained via smart contracts and governance

4. FUSD (Frax USD)

  • A partially algorithmic stablecoin transitioning to full collateralization
  • Known for yield-bearing integrations in DeFi

5. USDe (Ethena USD)

  • Synthetic stablecoin backed by hedging strategies
  • Offers capital efficiency, gaining traction in modern DeFi

6. PAXG (Paxos Gold)

  • Tokenized gold asset; each token backed by one ounce of gold
  • Combines crypto liquidity with physical value

🔧 Real-World Applications of Stablecoins

💰 DeFi Lending and Borrowing

Platforms like Aave and Compound use stablecoins for peer-to-peer lending—offering liquidity, yield generation, and financial access.

🌍 Cross-Border Payments

Stablecoins eliminate FX fees and delays, allowing businesses and workers to transact globally in seconds.

🛒 E-Commerce and BNPL

Buy Now Pay Later services can be built using smart contracts and stablecoins, enabling instant approvals and programmable repayments.

🧾 Payroll and Gig Economy

Freelancers and gig workers can receive salaries in stablecoins, offering fast and borderless compensation.

🏠 Tokenized Real-World Assets

From real estate to commodities, assets are being tokenized and traded using stablecoins as a secure, liquid medium of exchange.

🏛️ Regulatory Highlights & National Projects

Countries are moving quickly to regulate stablecoins while fostering innovation. Here’s how Malaysia, Singapore, and Hong Kong are leading in Asia:

Malaysia – Blox: Ringgit-Based Stablecoin (Proposed)

  • Blox is a Ringgit-backed stablecoin concept under review by Bank Negara Malaysia (BNM).
  • It aims to power e-commerce, DeFi, and cross-border payments using a localized, compliant digital currency.
  • May be tested under Malaysia’s Fintech Regulatory Sandbox.
  • Seen as a key tool for Shariah-compliant digital finance and boosting financial inclusion.

Malaysia’s cautious but inclusive approach emphasizes domestic utility, compliance, and Islamic fintech potential.

Check it out at https://app.blox.my/signup?invite=BLOX-3a38e5

Singapore – Project Orchid: A Global Blueprint

  • Project Orchid is a stablecoin regulatory framework launched by the Monetary Authority of Singapore (MAS).
  • It includes requirements for:
    • 1:1 fiat reserve backing
    • Guaranteed redemption at par value
    • Transparent audits and disclosures
  • Encourages real-world applications like:
    • Government aid distribution
    • Retail payments
    • Cross-border enterprise use

Singapore combines policy clarity with fintech openness, making it a launchpad for stablecoin innovation.

Hong Kong – Institutional-Grade Licensing

  • The Hong Kong Monetary Authority (HKMA) is developing a licensing framework for fiat-referenced stablecoins.
  • Key requirements include:
    • Full reserve backing in high-quality liquid assets
    • Monthly reporting and third-party audits
    • Strong cybersecurity and risk management
  • Part of a broader Web3 strategy to attract institutional capital and support regulated virtual asset providers (VASPs).

Hong Kong is shaping a rigorous, compliance-driven framework targeting institutional finance and enterprise adoption.

🌏 Regional Overview

CountryStrategy FocusStatusUse Cases
MalaysiaLocal fintech & DeFiConceptual/PilotMYR stablecoin, e-commerce, DeFi
SingaporeInnovation & RegulationActive ImplementationSGD stablecoins, enterprise payments
Hong KongInstitutional oversightLicensing in progressRegulated stablecoins for Web3 finance

🔮 What’s Next for Fintech & Stablecoins?

The future of digital finance is taking shape through several trends:

🔁 Interoperability

Cross-chain bridges and Layer-2 solutions are making stablecoins usable across ecosystems like Ethereum, Solana, and Internet Computer (ICP).

⚙️ Programmable Money

Smart contracts are enabling programmable payrolls, subsidies, taxes, and grants.

🏦 Institutional Stablecoins

Banks and financial firms are issuing their own stablecoins for B2B use, liquidity management, and compliance.

🌐 CBDC Coexistence

Stablecoins and Central Bank Digital Currencies (CBDCs) will likely coexist—with stablecoins leading in flexibility and programmability, while CBDCs serve core public infrastructure.

🌍 Rise of National Stablecoins

Countries are issuing sovereign stablecoins (e.g., Malaysia’s Blox) to promote currency sovereignty, data localization, and regulated DeFi.

✅ Conclusion

Fintech and stablecoins are more than just buzzwords—they are building blocks of the next financial era. As infrastructure matures and regulations evolve, we are witnessing the creation of a borderless, decentralized, and inclusive financial system.

💡 The financial future will be co-created by governments, developers, and users—with stablecoins at the center of trust, efficiency, and innovation.

Watch this Video to understand more about Stablecoins

RWA Tokenization

RWA tokenization has been a hot topic in the Web3 space in recently years but there were not many use cases. However, with crypto gradually adopted by mainstream institutions as a new asset class in investment, RWA tokenization has emerged as an innovative tool to transform illiquid assets into digital assets with increased liquidity and inclusivity . For your information, BTC ETF and ETH ETF are not considered tokenized RWA. A Bitcoin ETF holds Bitcoin as its underlying asset, but it doesn’t represent ownership of the Bitcoin through a token on a blockchain. Tokenized RWAs, on the other hand, are digital representations of real-world assets like real estate, stocks, or bonds on a blockchain. 

Comparison between BTC ETF and Tokenized RWA

Bitcoin ETF:

  • Focus: Provides investors with exposure to the price movements of Bitcoin. 
  • Mechanism: An investment company buys and holds Bitcoin, and investors purchase shares in the ETF, which represent a portion of the underlying Bitcoin holdings. 
  • Not Tokenized: The ETF itself is not a tokenized representation of Bitcoin on a blockchain. 
  • ETF is a stock

Tokenized Real-World Assets (RWAs):

  • Focus: Represents ownership of physical or traditional financial assets (like real estate, stocks, bonds) as digital tokens on a blockchain.
  • Mechanism: The asset is converted into a digital token, allowing for fractional ownership, easier trading, and other benefits of blockchain technology.
  • Not Bitcoin ETFs: These are distinct from Bitcoin ETFs, which are a way to invest in Bitcoin itself, not a tokenized representation of other assets. 

Key Difference:

The crucial distinction is that a Bitcoin ETF holds Bitcoin as its asset, while tokenized RWAs represent other real-world assets as digital tokens. 

Examples of RWA Tokenization

Tokenization of Real Estate

Real estate has always been considered a safe investment compared to the stock market. However, it is also more expensive and illiquid. Though real estate is the largest asset class with a global value of $228 trillion, many retail investors are precluded from investing in this asset class, particularly commercial real estate. Barriers to entry include large upfront investment, very low short-term liquidity, management costs, among others. Therefore, how to make investing in real estate more affordable and accessible to retail investors has become an urgent matter.

Real estate has always been considered a safe investment compared to the stock market. However, it is also more expensive and illiquid. Though real estate is the largest asset class with a global value of $228 trillion, many retail investors are precluded from investing in this asset class, particularly commercial real estate. Barriers to entry include large upfront investment, very low short-term liquidity, management costs, among others. Therefore, how to make investing in real estate more affordable and accessible to retail investors has become an urgent matter.

In recent decades, a process known as securitization of real assets has reduced the frictions and costs associated with accessing real estate exposure for such retail investors. Among financial instruments that provide indirect investment via securitization of real assets, the most common are public and private real estate investment trust (REIT), real estate investment fund, Real Estate Exchange Traded Funds (ETFs), and real estate crowdfunding. Though investors can already buy and sell real estate investment trusts (REIT), but these often have high minimum investments and represent a large portfolio of companies rather than a single property or new development.

To work around the issues, a new form of securitization known as tokenization of real estate aka RWA tokenization has emerged and is gaining popularity . Tokenization helps asset or fund owners raise capital more efficiently, and gives investors unprecedented access to private real estate investments, transparency, and liquidity.

Tokenization is a way to securitize real assets by dividing them into shares that can be sold to investors. It involves representing ownership of an interest in real estate with virtual tokens that exist on a blockchain which is known as security tokens. These tokens are created using blockchain technology, and once created can be traded on digital exchanges or Alternative Trading Systems (ATS).

An actual tokenization use case happened in Paris recently. The property is known as AnnA Villa, which is valued at € 6.5 million. The Villa became the first-ever property in France that was sold via a blockchain transaction. The transaction took place in three steps. First, the ownership of the building was transferred to a joint-stock company called “SAPEB AnnA.” Next, the ownership of the company was divided into 10 Ethereum-powered tokens which were distributed among the new owners. In the final step, each of these tokens was then further broken down into 100,000 units, meaning each token has a face value of € 6.50. Therefore, you can invest as little € 6.50 in the villa.

Tokenization of Bonds and Stocks

Tokenization of bonds and stocks refers to converting the ownership rights of these traditional financial instruments into digital tokens that exist on a blockchain or distributed ledger. These tokens represent a share or unit of the underlying asset and can be traded and transferred via digital exchanges or used in DeFi (decentralized finance) applications.

🏦 Tokenization of Bonds

🔹 What It Means:

Each token represents a claim on the bond’s interest payments and principal repayment. The bond terms (maturity, coupon, issuer, etc.) are embedded in the smart contract.

🔹 Benefits:

  • Faster settlement
  • Reduced intermediaries
  • Global access
  • Increased liquidity

🌍 Real-World Examples:

1. European Investment Bank (EIB) – Ethereum (2021)

  • What: Issued a €100 million digital bond.
  • Blockchain: Ethereum
  • Participants: EIB (issuer), Goldman Sachs, Santander, Société Générale
  • Features:
    • 2-year maturity
    • Settled in central bank digital currency (CBDC) simulation
    • Reduced issuance time

2. HSBC & Singapore Government Bond Tokenization (2023)

  • What: Tokenized Singapore Government Bonds
  • Tech: HSBC’s Orion blockchain platform
  • Result: Enabled atomic settlement (simultaneous delivery vs. payment) of digital assets and currencies.

📈 Tokenization of Stocks

🔹 What It Means:

Each token is pegged to an actual stock or equity. This can be 1:1 backed (custodian holds the real shares) or synthetic (price exposure only).

🔹 Benefits:

  • 24/7 trading (unlike traditional markets)
  • Access to global investors
  • Fractional shares possible

🌍 Real-World Examples:

1. Tesla / Apple Tokenized Stocks on FTX (before shutdown)

  • What: Tokenized versions of real stocks like Tesla, Apple, etc.
  • Issuer: FTX via CM-Equity (licensed German entity)
  • Mechanism:
    • 1 token = 1 real share held by CM-Equity
    • Could be traded globally, 24/7
  • Status: Shut down after FTX collapsed

2. Swarm Markets (EU regulated) – Public Company Shares

  • What: Tokenized stocks of Apple, Tesla, and two U.S. Treasury Bonds
  • Regulation: Compliant with MiFID II (EU financial laws)
  • Platform: Swarm Protocol
  • Utility: Investors can buy stocks with crypto while remaining compliant

💡 Why It Matters:

TraditionalTokenized
2–3 day settlementNear-instant
Custodian-dependentBlockchain-based
Limited accessGlobal retail access
No fractional ownershipEasily fractionalized

🚧 Challenges:

  • Regulatory Compliance: Security tokens are heavily regulated.
  • Custody & Settlement: Real assets must be safely held and legally backed.
  • Market Infrastructure: Needs mature trading platforms and investor protections.

Tokenization of bonds and stocks is revolutionizing capital markets by making them more efficient, accessible, and transparent. However, regulation, custody, and market maturity are crucial for mass adoption.

Tokenization of Arts and Artifacts

RWA tokenization for arts and artifacts refers to converting ownership or rights over real-world assets (RWAs) like fine art, historical items, collectibles, or cultural artifacts into digital tokens on a blockchain. These tokens can represent full ownership, fractional ownership, or economic rights (e.g., profit-sharing).

🖼️ Real Examples

1. Masterworks.io

  • What: Fractionalizes high-value blue-chip artwork (e.g., Banksy, Warhol).
  • How it works:
    • Masterworks buys physical art.
    • SEC-qualified offering splits it into shares.
    • Investors buy tokens representing equity.
  • Status: Regulated under U.S. law, with resale on secondary markets.

2. Particle Collection

  • Asset: Banksy’s “Love Is in the Air”
  • Tokenized on: Avalanche blockchain
  • How:
    • Physical artwork divided into 10,000 NFTs (each NFT = a particle)
    • Holders get digital certificates, and ownership is recorded immutably
  • Value to holders: Fractional ownership, participation in governance of a collective museum

3. Artex (Digital Fine Art Marketplace)

  • Focus: Tokenizing paintings from museums, galleries, and private collectors
  • Goal: Democratize access to fine art investing using blockchain
  • Token Utility: Investors can trade art tokens on a secondary marketplace or use them in staking pools

4. RARE Network (NFT-RWA Bridge)

  • Concept: Bringing physical fine art into Web3 using tokenized certificates of authenticity
  • Tech: Combines NFTs (representing ownership) with real-world appraisal and storage verification

🔒 How It Works Technically

  1. Asset Appraisal & Custody
    • The artwork or artifact is appraised and held in custody (e.g., museum, vault, gallery).
  2. Legal Structuring
    • A legal wrapper (e.g., LLC or trust) owns the asset; tokens represent shares of that entity.
  3. Token Issuance
    • Digital tokens are created on blockchain platforms (Ethereum, Avalanche, Polygon).
  4. Smart Contracts
    • Rules governing ownership transfer, royalties, resale, etc., are encoded in smart contracts.
  5. Secondary Trading
    • Tokens can be listed and traded on platforms like OpenSea, Securitize, or dedicated art token exchanges.

⚠️ Challenges

IssueExplanation
Legal ComplexityEnsuring token holders have enforceable rights over the physical asset.
ValuationArt is subjective and prices can be volatile.
Custody RisksPhysical safekeeping is essential to ensure token value.
Regulatory UncertaintySome jurisdictions treat fractional art tokens as securities.
Liquidity LimitsArt markets are niche—may not attract deep daily trading volumes.

💡 Use Cases

  • Retail Investors owning a slice of a multi-million-dollar artifact.
  • Museums raising funds by fractionalizing their collections.
  • Artists tokenizing limited-edition works and controlling resale royalties.
  • Cultural Institutions offering public participation in heritage preservation.

🧾 In Summary

  • Tokenization bridges real assets and blockchain by creating immutable digital representations of ownership.
  • It enables fractional, transparent, and efficient asset markets.
  • However, regulatory uncertainty, tech dependencies, and market inertia remain hurdles.
  • Despite these, RWA tokenization is rapidly evolving and poised for significant growth

YouTube

Impermanent Loss in DeFi

Impermanent Loss (IL) is a concept in decentralized finance (DeFi) that occurs when providing liquidity to automated market maker (AMM) pools. It refers to the temporary loss of funds experienced by liquidity providers (LPs) due to price volatility of the assets in the pool. This loss is “impermanent” because it only materializes if the LP withdraws their funds when the asset prices have changed. If the prices return to their original state, the loss disappears.

 How Impermanent Loss Occurs

In an AMM pool, liquidity providers deposit pairs of tokens (e.g., ETH and USDT) into a pool. The pool uses a constant product formula (e.g.  x  x y = k  to determine the price of the assets. When the price of one asset changes relative to the other, arbitrageurs trade in the pool to restore equilibrium, which shifts the ratio of the two assets in the pool. This shift causes LPs to end up with a different value of assets than if they had simply held the tokens.

 Example of Impermanent Loss

Let’s assume a liquidity pool with two assets: ETH and USDT. The pool follows the constant product formula  x x y = k , where:

 x = amount of ETH in the pool

 y = amount of USDT in the pool

k = constant product

 Initial Conditions

– Initial price of ETH: $1,000

– You deposit 1 ETH and 1,000 USDT into the pool.

– Total value of your deposit: $2,000 (1 ETH × $1,000 + 1,000 USDT × $1).

– The pool has:

  – 10 ETH

  – 10,000 USDT

  – Constant product   k = 10 x10,000 = 100,000 .

Your share of the pool: 10% (you deposited 1 ETH and 1,000 USDT out of 10 ETH and 10,000 USDT).

—

 Scenario: Price of ETH Increases to $2,000

1. Arbitrageurs Trade in the Pool:

   – When the external price of ETH rises to $2,000, arbitrageurs buy ETH from the pool until the pool price matches the external price.

   – The new ratio of ETH to USDT in the pool will adjust to reflect the new price.

2. New Pool Balances:

   – Let the new amount of ETH in the pool be  x’  and USDT be  y’ .

   – The constant product formula x’ x y’ = 100,000 must hold.

   – The new price of ETH in the pool is  y’/x’ =2,000 (since 1 ETH = 2,000 USDT).

   Solving the equations:

   x’ x y’ = 100,000 

  y’/x’ =2,000 implies y’ = 2,000x’

   Substituting  y’ = 2,000x’  into the constant product formula:

      x’ x(2,000x’)= 100,000

   2,000x’^2 = 100,000 

  x’^2= 50 

   x’ = √50 ≈ 7.071 ETH

   y’ = 2,000 x 7.071 USDT

3. Your Share of the Pool:

   – Your share is 10% of the new pool balances.

   – You now have:

     – ETH:  0.10 x 7.071 0.7071 ETH} 

     – USDT:  0.10 x14,142 1,414.2 USDT

   – Total value of your share:

     0.7071 ETH x2,000 + 1,414.2 USDT = 1,414.2 + 1,414.2 = 2,828.4USDT

4. Value if You Had Held the Tokens:

   – If you had simply held your 1 ETH and 1,000 USDT, the value would be:

     1 ETH x2,000 + 1,000 USDT = 2,000 + 1,000 = 3,000 USDT   

5. Impermanent Loss Calculation:

  Impermanent Loss} =value in pool-value if heldvalue if held 

   = 2,828.4-3,000

   = -171.6

  ≈-5.72%

 Key Takeaways

– Impermanent loss occurs when the price of the assets in the pool changes.

– The greater the price change, the higher the impermanent loss.

– LPs are compensated for this risk through trading fees, but they must weigh the fees against potential losses.

– If the price returns to its original state, the loss disappears.

 Formula for Impermanent Loss

The impermanent loss can also be calculated using the following formula:

Impermanent Loss(IL) = [(2x√price ratio)/(1+price ratio )]-1

Where:

 Price Ratio = New Price/ Original Price

In the example above:

 Price Ratio = 2,000/1,000  = 2

Impermanent Loss}= [(2x√2)/(1+2) ]- 1 

= (2×1.4142)/3 – 1 

= 2.8284/3 – 1 

= 0.9428 – 1 

= -0.0572  or , -5.72%

This matches the earlier calculation.

ICP Developer Guide -Chapter 2

The Building Block of ICP-Canister

Canister is a fundamental computational unit that combines both code and state. It is essentially a smart contract or a container that runs on the Internet Computer blockchain. Canisters are designed to be autonomous, scalable, and interoperable, enabling developers to build decentralized applications (dApps) and services.

Key Features of a Canister:

Code and State:

  1. Autonomous:
    • Canisters operate independently and can interact with other canisters or external systems via messages.
  2. Scalable:
    • The Internet Computer allows canisters to scale horizontally by distributing their workload across multiple nodes in the network.
  3. Interoperable:
    • Canisters can communicate with each other through message passing, enabling complex decentralized applications to be built by composing multiple canisters.
  4. Upgradable:
    • Developers can update the code of a canister without losing its state, making it easier to maintain and improve applications over time.

Cycle

n the Internet Computer (ICP), a Cycle is a computational unit used to pay for the execution of smart contracts (called canisters). It functions similarly to “gas” in Ethereum but is designed to be more predictable and cost-efficient.

Key Features of Cycles in ICP:

  1. Resource-Based Pricing – The cost of computation, storage, and network usage is measured in cycles.
  2. Stable Pricing Model – Unlike Ethereum’s gas, the cost of cycles is tied to real-world resources (compute and storage) rather than being market-driven.
  3. Conversion from ICP Tokens – ICP tokens can be converted into cycles to fund canister execution. The conversion rate is adjusted to maintain price stability. XDR (Special Drawing Rights) is used as a reference unit to determine the cost of converting ICP tokens to cycles in a stable manner.(1T Cycle = 1 XDR ~ USD1.321)
  4. Canister Management – Cycles are stored within canisters and consumed as operations are performed. When a canister runs out of cycles, it stops executing until refueled.

Cycle Usage in ICP:

  • Computation – Each instruction executed by a canister consumes cycles.
  • Storage – Data stored in the canister costs cycles over time.
  • Inter-canister Calls – Messaging between canisters also consumes cycles.
  • Network Operations – Data transmission to and from the Internet Computer incurs cycle costs.

Creation of a Cycle Wallet in Local Network

To create a cycle wallet in the local network, you start the local network in a clean mode using the following command:

dfx start –background –clean

Running the following command first time to create a cycle wallet automatically with 100T cycles in local network, otherwise it will return the cycle wallet id only.

dfx identity get-wallet

The following command will return the balance in the wallet:

dfx wallet balance

Motoko-The native programming language of ICP

Motoko is a programming language specifically designed for the Internet Computer (ICP) blockchain. It is optimized for writing smart contracts (called canisters) that run directly on the ICP network.

Key Features of Motoko

  1. Actor-Based Model – Uses the actor model to handle concurrency and asynchronous execution efficiently.
  2. Type-Safe & Memory-Safe – Strongly typed language that prevents common programming errors.
  3. Designed for Web3 – Integrates directly with the Internet Computer, supporting scalability, persistence, and seamless upgrades.
  4. Automatic Garbage Collection – Handles memory management internally.
  5. WebAssembly Compilation – Runs as WebAssembly (Wasm) for efficient execution on the ICP blockchain.
  6. Interoperability – Can interact with Rust, JavaScript, and other WebAssembly languages.

Create and Deploy Canisters

Creating a canister on the Internet Computer (ICP) involves a few simple steps. Below is a basic guide:

Start local network in background

dfx start –background

Create hello world project

dfx new hello

Select a backend language, you may choose Motoko, Rust, Python or Typescript, as shown below. We choose Motoko for our illustration.

Then select a Frontend language as follows. We choose React for illustration.

Then add extra features as follows, we choose Intenet Identity:

Pressing enter to confirm will create all necessary files and install dependencies, and arrive at the start up screen as shown below. A project with the folder name hello will be created.

The project architecture is as shown below:

Deploying Canister on Local Network

To deploy the hello project you have just created on a local network, use the following command:

dfx deploy

The following screen shows successful deployment, otherwise there will be errors:

You may access the frontend URL via the link generated.

The frontend UI is as illustrated below:

Deploying Canister on the IC Mainnet

The command to deploy the canister on the IC mainnet is

dfx deploy –network ic

If the deployment on the IC blockchain is successful, the output will display the URLs of both the frontend and backend, as shown below:

The frontend URL can be accessed on the desktop browser and the browser of the mobile devices. It does not need to register a domain nor a central server to host the web app, it is fully on chain.

In this example, accessing the frontend URL with the link will display a certificate generator app, as shown below:

Obtaining Cycles

You need cycles to deploy your ICP app on the mainnet. There are two ways to obtain the cycles, one way is to redeem the coupon codes if you are given some free coupons, the other way is to buy icp tokens and convert them to cycles.

Method 1: Redeeming cycles from coupon codes

The command to redeem the cycles with coupon code is as follows:

dfx cycles redeem-faucet-coupon –network ic <COUPON_CODE>

Example: dfx cycles redeem-faucet-coupon –network ic CE3A9-BA578-CD44B

To check cycles balance in the wallet, use the following command:

dfx cycles –network ic balance

Method 2: Converting ICP tokens to cycles

First of all you must create an empty canister using ICP token using the following command:

dfx ledger –ic create-canister <principal-identifier> –amount <ICP tokens>

You may use the following command to obtain the principal identifier:

dfx identity get-principal

Example to get the principal identifier:

Then use the following command to convert ICP tokens to cycles:

dfx ledger –ic create-canister zxyfn-yljyi-bn6dy-ixi7n-jez74-nk723-pvj3m-jykes-dhqon-3ktql-uae –amount 0.3

To check canister status on the mainnet, use the following command:

dfx canister –network ic status <canister_id>

The status is as shown below:

*You can obtain canister id on the ic mainnet using the command: dfx canister id <canister name>–network ic

Appendix: List of dfx commands

List all accounts in the device

dfx identity list

Show current identity

dfx identity whoami

Use a particular identity

dfx identity use <Identity Name>

Get ICP Tokens balance

dfx ledger balance

Top up cycles into cycle wallet or canister by converting ICP Tokens

dfx ledger –network ic top-up <wallet id or canister id> –amount <icp tokens>

Example: Add 4T cycles to your backend canister

dfx ledger top-up –network ic <canister_backend >–amount 4.0

Top up cycles directly

dfx canister –network ic deposit-cycles amount <canister_backend>

Example: Deposit 4T cycles to your backend canister

dfx canister –network ic deposit-cycles 4000000000000 weather_app_backend

To remove your identity in the device

dfx identity remove <identity name>

To get canister basic info

dfx canister –network ic info

To stop local network

dfx stop

To list the controllers of the canister:

dfx canister info ic_minter_backend