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Over the course of 2022, we have seen the rise of what has been called "DeFi 2.0".
As a farmer, degen, student, and builder in DeFi, the vision of the future of DeFi is beginning to materialize in my mind& #39;s eye.
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THREAD TIME
As a farmer, degen, student, and builder in DeFi, the vision of the future of DeFi is beginning to materialize in my mind& #39;s eye.
THREAD TIME
There have been a number of awesome project that are a part of the second wave of DeFi. Let it be known that the second generation is only here thanks to the trailblazers in the space, such as @MakerDAO, @compoundfinance, @AaveAave, @Uniswap, @SushiSwap, and @iearnfinance
Building on top of these giants is the next wave of protocols. Slapping me right in the face is the absolute monster known as @OlympusDAO. It was initially described to me as a $1000 algo-stablecoin -- something I immediately brushed off. Big mistake, womp womp.
Olympus DAO did something that no other protocol had done up until this point -- instead of renting liquidity via LP mining, they flipped the model on its head with the notion of protocol controlled value with their innovative bonding mechanism.
Their bonds are elegantly constructed. Set an amount of bonds you want to sell and an initial price to kick it off. The bond price decreases until someone buys one. Once bought, the price increases, and then starts to decay again. This always ensures that supply meets demand.
The big difference between Olympus and an ICO is that the money isn& #39;t going to the team, but to the liquidity of the protocol itself. When bonds are purchased with LP shares, it turns the protocol into its own market maker, earning revenue and providing liquidity.
In comparison to something like a Pool 2, the liquidity it attracts is much healthier. No longer will others in the pool be exposed to toxic liquidity whose only objective is to extract maximum value from the believers in a project.
A few months ago it really dawned on me that liquidity mining is a double edged sword -- great for initial growth, but bad for long term sustainability. I didn& #39;t think there was another way to do it other than vesting rewards or other inconvenient features.
Well, that was what I thought until I had observed Olympus DAO in earnest. I got a modest $OHM bag to see what the fuss was all about, and my curiosity got the best of me. One day it really dawned on me that the solution to the farming problem was Olympus bonds.
So I reached out to Olympus DAO to see if they could offer their bonding tech to Alchemix. They likewise saw great utility for DeFi protocols in using their mechanisms, and as such, these were the seeds of Olympus Pro.
Now, if you are part of a DeFi protocol, or are thinking about launching one, I highly recommend you look at Olympus Pro (OP). Liquidity mining is great for early growth but it& #39;s kind of like a drug. AWESOME at first, but the more you use it and rely on it, the worse it is.
The main problem is that a lot of toxic liquidity comes into the pool and dumps on the other participants. Other participants see this and realize the only winning strategy is to do the same. OP changes this and cleans the pool of any floating turds.
In this process, something magical happens. Something I think everyone is very familiar with now -- (3, 3). When the toxicity is gone, then the community strategizes together. What was once a PVP game turns into a comfy couch co-op game. Olympus& #39;s dope community is proof of it.
OP brings this magic to any protocol that uses their service. It may take time to change the dynamics of the liquidity, but I truly do believe that when the LPs are diamond handing, it gives holders and traders a lot more confidence in a project.
Exhibit A of toxic liquidity. Here are a few examples of charts of popular defi protocols with robust liquidity mining programs. I left the names out and kept it USD (its much worth in ETH). This is what liquidity mining does to you ***IN A BULL MARKET***
In being a part of @AlchemixFi, I have been extremely pleased with how OP has been going for us. In under 10 days, we have already bonded approximately $500k in value. Continuing this will allow $ALCX to get its inflation in check a lot faster than initially planned.
Since we also incentivise our $alUSD and $alETH markets, we will start offering bonds for those as well. This will help us to ensure we have long term liquidity, which will allow people to have confidence in our platform for decades to come.
So yea, if you are part of a protocol doing liquidity mining, get your ass on OP now. I couldn& #39;t think of a better usage of funds earmarked for liquidity mining. Do both at the same time bc liquidity mining is great for growth, and then slowly adjust the dials towards bonding.
Onto the next protocol that makes me get goosebumps, @TokenReactor. They also aim to solve the liquidity problem in DeFi by making the renting of liquidity a lot more efficient than having a pool 2.
Tokemak has yet to launch their reactors yet so we are not 100% sure how well it will work, but I am extremely optimistic. Let me explain how it works and why your protocol should aim to be among the next selected in their second batch of reactors.
Tokemak aims to be a decentralized market maker. So what is a market maker anyway? Basically, they provide liquidity on exchanges so others can trade with low slippage and make money on the spread. It& #39;s a tough business, but those good at it can do extremely well for themselves.
Some CeFi market makers participate in arbitraging DEX markets, but there are no real decentralized market makers, until now. Tokemak has fat reserves of ETH and USDC, which they pair with tokens that have reactors in their protocol.
Users stake their tokens in tokemak (first batch include $ALCX, $FXS, $TCR, $OHM, and $SUSHI) and receive a tToken as a receipt of their deposit. Being a tToken holder makes you eligible to earn $TOKE for matching the other side of the liquidity.
For LPs in Tokemak, it gives you a way to provide liquidity while minimizing your exposure to impermanent loss. Their design for $TOKE is also pretty f& #39;in awesome, let me explain.
When you hold TOKE, you can stake it on a reactor. The more TOKE a reactor has delegated to it, the more the reactor can direct the available liquidity to that token. The cool thing is that liquidity directors are incentivised for providing the right amount of liquidity.
If liquidity is high but volume low, it means you have allocated too much liquidity, and vice versa. The trick is to get it just right. Tokemak rewards liquidity directors for doing just that. If you want to maximize your rewards as a liquidity director, you must allocate wisely!
Looking into the future, I definitely see DAOs being the biggest holders of TOKE. I& #39;ll make an entirely different post about this another time because the game theory involves is cool, but would take a while to explain.
For protocols with liquidity mining, just know that the dollar price per unit of liquidity will be more efficient with Tokemak than just running your own pool 2.
Next up is the next generation of CDP platforms. In my totally unbiased opinion, @AlchemixFi and @MIM_Spell are going to lead the way going forward. If you follow me, I& #39;m sure you& #39;ve heard a lot about Alchemix. We invented non-liquidatable, self-repaying loans. Pretty cool, yea?
Our version two will allow for multi collateral, multi strategy alAssets. Now, people put their tokens into yield aggregators such as yearn, pickle, harvest, and a whole bunch of others. Alchemix will sit at the top of all of them, and extend CDP functionality to them.
Additionally, we will expand our offerings of synths with alBTC, and a whole host of other assets in DeFi with an expansion I lovingly call Altchemix. DAOs using Alchemix for their treasuries will be BIG. Look forward to this and a plethora of other improvements for $ALCX in 2022
Much like how Alchemix puts your collateral to work earning yield, abracadabra does the same for when you borrow $MIM. Their team moves at a breakneck speed and isn& #39;t letting anything get in their way. Having more decentralized stables is crucial in these uncertain times.
The last protocol I want to talk about today is @ConvexFinance. Standing on the shoulders of @CurveFinance (one of my favorites), convex synergizes with their veCRV governance is the most beautiful and lucrative way.
For those of you unaware, curve& #39;s entire liquidity mining program is 100% under the control of liquid token voting in the curve gauge system. veCRV holders vote for gauges (lp mining pool), and direct how much each gauge gets.
In addition, the more veCRV you have, the more your own farming rate is boosted in the pools you deposit into. Convex is built on top of this system. They have a metric ass load of veCRV in their possession, and do the good guy thing of extending the boosts from veCRV to everyone
Convex also sweetens the pot by emitting their own $CVX token (which has some awesome qualities as well). The end result is the best place to stake your stable assets on Ethereum. They take some of the farmed $CRV to lock into veCRV, and give you the rest.
Innovations by @AndreCronjeTech and @VotiumProtocol have turned veCRV and CVX holders into powerful liquidity directors who can accept bribes to boost rewards for gauges. If people are dumping these tokens for rewards, the passive income from bribes more than makes up for it.
All in all, this next generation of DeFi protocols will make DeFi more capital efficient, fix tokenomics, and bring sustainability to all of DeFi, and as such I am betting heavily on all of the above.
TLDR: DeFi 2.0 is pretty f& #39;in awesome.
TLDR: DeFi 2.0 is pretty f& #39;in awesome.
