BaseCamp 2025 — DeFi Deals: How to Bootstrap TVL on Base

Thanks for coming. We're going to talk about DeFi deals, how to bootstrap TVL in your protocol. It's one of the things uh we talk about the most. My name is Zach. I lead DeFi on base.

You may know me as Johnny TVL on Telegram. Um so let's talk about bootstrapping liquidity. We'll start with a little history. DeFi summer was electric. Uh but we learned a lot a lot of air drops and incentives um and a lot of very unsustainable capital um and exploited bootstrapping points.

Similarly work really well to get money in don't work great to keep money in. One of our big takeaways from these learnings isn't necessarily that incentives are bad or points are bad. It's about how to use them and when to use them. premiumf or uh excessive rewards will get gamed. Any rewards will get gamed to some extent.

But if it's in an ecosystem or a protocol that can scale with liquidity, they can be positive ROI. Um and the allocation should scale with your product. So a lot of teams who are premiumf and don't have any assets think just dump a bunch of incentives. um and that might lead to some unsustainable and exploitative use cases. The main menu and options that we see today that work pretty well for bootstrapping liquidity are building a community and rewarding them with incentives.

And one of the keys to this, Devin from Gamma Swap is here and we'll talk more in detail about it, but one of the keys to this is scaling your incentives with your community and product. So you want to build that core of power users, your board, um your community. The other is protocol BD. There are some huge protocols uh in crypto today that have a ton of capital and are seeking yield. The Athenas and Skies and Spark, Dara from Gauntlet is here.

They have a lot of capital and are seeking yield and understand DeFi really well. They can be great partners for both long-term growth and bootstrapping liquidity and TVL on your protocol. And last one is off-chain LP deals, market makers, whales, um, yield funds, and institutions. So, I'm going to hand it over to Devon. A little bit about Gamma Swap.

Incredible protocol. If you're not familiar, there's a really big yield opportunity in crypto in LPing and concentrated liquidity. It's really hard to do that. It's really a professional's game. And so the yield and risk premium is astronomical.

Uh Gamma Swap has a product, their V1 enabled you to hedge the IL and LVR from concentrated liquidity. Um but it was still quite complicated. And so their V2 actually has single-sided deposits. So, you just deposit ETH or BTC or perhaps other tokens and earn the yield difference between the concentrated liquidity yield and the hedging. Um, Deon's done an incredible job.

He has maybe one of my favorite Telegram uh channels called the Gamma Swap Think Tank with a bunch of DeFi big brains. Um, people who've been EVM DeFi for a while, get it and have capital and keeps them updated, builds a community, and rewards them for participating with incentives. Um, so without further ado, take it away, Devin.

Awesome. Yeah, thank you for that, Zach. That was great. So, I'm gonna talk a little bit about how Gamma Swap works, but I'm gonna try to focus on uh the greater theme of this event, which is just bootstrapping uh TVL. But essentially, how gamma swap works is we allow people to borrow liquidity from AMMs.

So, that could be used to hedge in permanent loss. So for example, we have uh these pools where people lend into they earn swap fees plus additional fees from the borrowers and uh when someone opens a loan we burn the LP let's say it's ETH ETH USCC pool we hold on to the ETH and USCCC collateral in our smart contracts and then the debt is in the invariant so the K and the XY equals K formula so doesn't depend on the price of the assets so we can support um this hedging or this type of volatility trading on any asset. Um, and then it grows with swap fees. So, your debt is the fees the LP position would have earned. And if there's any volatility when you remint that LP, uh, it's worth less, so you keep the difference.

And that's how we turn impermanent loss into a gain. But, of course, um, that's pretty uh, complex for the average person uh, to use. And then all of our pools are constant function market makers like Uni V2. So it's fungeible and and that um helps us not acrew like any bad debt but then matching that to concentrate liquidity position is complicated. So calculating those notionals was difficult for people they'd have to manage the liquidation risk rebalancing all that.

So we saw the success of products like Athena and we're like okay we should tokenize this as well. This is an example of a strategy. So in um unis swap v3 it's very expressive in these like concentrated liquidity amm or like aerodrome slipstream. They both work uh similarly except how the fees are generated. But um yeah, so if you were to do a 50/50 ratio and like a concentrated range from an ETH perspective, that's like selling a covered call.

So we'd combine that with a long position in Gamma Swap, which is weighted more towards ETH and it's kind of like buying a covered call. And so in simple terms, that's as simple as I could make it at least. That's uh how you get delta neutral exposure to ETH. So we allow people to to basically deposit ETH, get a yield token called GET. It earns yield over time and it's from uh providing equity in a concentrated liquidity decks but with um that uh with single-sided and a lot of that risk hedged away.

But um yeah, in terms of actually like uh bootstrapping TVL, it's been a iterative process for us because we were we were creating this new type of product that was pretty complex. So, we had incentives going this whole time since we were live. We started with a points program until we felt like we had a little bit more PMF. Then we launched token. But, uh, with the token launch, we had all the incentives on the liquidity pools because that's basically without that's like our bottleneck.

That's what we need to actually like create the flywheel. And I think something that's uh important that I've seen like protocols doing well more lately that historically like during uh DeFi summer they haven't done that well is having basically structuring your incentives around your product growth. So instead of having like a set, you know, reward schedule where you're giving X amount of tokens per week on a set schedule, maybe that's that works if it's a protocol that already has like proven PMF, but for something new, you want to do it around like campaign structure. So like for example, we launched our new um yield token product and so we had a campaign for three months around that where we committed to the three months but after that um the incentives are variable and that way you can align your incentives with where you think that like the the TBL could go for that set period because otherwise if you're over ambitious or not you know seeing some of these scaling challenges or uh addressing them as you launch incentives you may launch a lot of incentives but people aren't able to actually use the protocol effectively. And so that's a lot of wasted spend essentially that might not be going into the growth.

So that's like a big learning lesson we've had is to just um structure those incentives around the protocol growth and then benchmark on what we think uh we can achieve. So looking at hurdle rates for yields, how competitive our yields are going to be at certain sizes versus something like Pendle or um something like money market or just similar types of products. We also take into account how new this product is and a risk premium on that and then also constraints around the actual hedging strategies like how much could we support based on this pool TVL how expensive is it to support that amount of TVL and the yield token how much revenue we can get and uh what our burn will be so that's how we've done it it's mostly been we haven't done any private TVL deals it's mostly been focused on those onchain incentives and just being very iterative in terms of how the protocol is scaling And then um yeah the growth of the protocol

and I I actually I just want to double click on one thing because I think I think Devon and the gamma swap team did two things really well. Um I just think like Avantis which recently had their TGE similarly did this really well. They had a points program for a long time but it was an early product and the points program was almost more of a community building reward than a an incentive structure. And so they would be pitching this to users to learn to get feedback and these early users would buy in and kind of build with them, provide the feedback, talk about this the friction while they earn a share of of the protocol of the token. And when they learned from it, they iterated on the product, came out with the V2, which got really great feedback, at least for me, I was very excited.

Um, launched it with with after their TG with an incentive campaign. So the points was community building and there's there's also not a financial piece to this but it's communicating with the stakeholders. It's keeping them in the loop on the product build. It's iterating and having those long-term um stakeholders and community members. And then when you find the PMF and and a great product and you incentivize the bottlenecks where you need liquidity in order to scale um it's like just really good consistent smooth growth and a product that's really taken off.

So, I think it's a great example of how to use points and and incentives.

Yeah, I just want to touch on that one last bit um is that I think one of the great things about points programs is that although it's all offchain and it's very speculative is that you can get really creative on how you structure rewards. So, like when we did our points program, we were giving a premium to people that were actually like borrowing because it was risky, it was hard to understand and uh we wanted people to try it out and give us feedback. And then we also had like referral programs and stuff like that versus now that we have a token because we're not like a per it's kind of hard to track um the actual fees accured. So we don't have like the referral program anymore. So I think there's certain things with points that you can do in terms of like community building or getting people to try out uh specifically certain parts of the protocol so you can get more feedback um around that.

And then the other thing uh I think is TVL is really important but also how effective is that TVL because there could be one protocol as 20 million TVL doing um you know 10K in revenue a year and there could be another protocol with 20 million TVL doing 10 million uh a year and it really depends on the type of protocol how effectively liquidity is being used. So, I think TBL is a good benchmark. Um, it show is kind of a DeFi Lama's done a good job of this, but the way they structure it is kind of a hard to scam. Uh, it shows how many how much liquidity people are actually putting in. But I think there's a lot more to the story, too, especially as you try to build out a product and make sure that your incentives are actually being effectively used.

So, points and incentives, good tool if you can execute it.

Yeah. So, I'll hand it over to Brian now who's the founder of Alpha Growth.

All right. Lot to go over. Um, Brian Colligan, founder of Alpha Growth. Uh, been in and out of crypto since 2013. Got founded Alphrowth in uh, 2020 uh, around DeFi summer.

And little couple stats about us. uh we helped most recently uh in 2020 2021 we were helping like ecosystems in L1's grow their TVL mostly acting like as a buy shop for chains deploying grants we've deployed over like $50 million worth of grants and incentives to like 190 protocols and we've seen every single type of uh deal structure you could go from chain to protocol. Uh most recently we helped out compound finance. Uh we did a growth program for them and helped the compound grow from like 1.7 billion to like uh I think 2.

32.4 billion or 800 million in TVL. All right. So uh two things I'm going to go over today is uh what we call uh token as a product. So your road map of a token and uh what how you should think about your token as a product and then a little bit more diving into the details of what we did at compound to uh grow TVL and protocol growth.

All right. So first off uh this is a chart and it's kind of inverted but on the bottom left we talk about liquidity. So this think of this as like your DEX pools, your centralized exchanges, things like that. that first step of the process is going to be the most that you're going to spend incentives on, right? It's going to be the most expensive TVL.

It's going to be um hypervolatile generally if you have a token. And then as you get to the next step, which is like getting listed on a money market, you're going to have to incentivize it a little bit less, right? So your token gets a little bit more lindy. It gets a little bit more liquidity. Um people start to price in its risk.

you kind of know what to do. Uh money markets would be compound, a oiler, morpho, these types of uh DeFi money markets. And uh once you have that, you can start to run leverage. And so you can start to run hedged positions and leverage. And then your token price can start to stabilize.

You can run volatility scalping, uh like autoco compounding, levered loops depending upon your token. And then uh finally, you get into the structured vaults. We generally recommend uh you stay on one chain or a base chain uh before you do the next step which is you can start to around the $50 million to hundred million mark uh of TVL uh you'll start to get inbound from other chains and start to start to attract more um attention and then there's different ways that you can do those grants and deals. Um cool. I was also asked to talk a little bit about how we got to the 850 million TVL.

So, uh, we ran a lot of grants campaigns for chains and and a lot of DeFi protocols. Uh, one of the main things that we did where we were able to get a grant for Compound for about $4 million from the Arbitum Foundation. Um, we ran this incentive campaign that Deon was talking about incentives like we would do performance marketing. So, we have a couple performance marketers on the team from Web 2. All the companions we ran weren't like constant product.

They weren't just, you know, take our incentives, throw in a Merkel and just run it. Uh what we would started to do is like load balance testing for every single channel, for every single asset. Uh and we would find the diminishing returns and the diminishing opportunity cost for each dollar of incentives. From that, we were able to generate uh around a $25 to $1 of incentives uh on compound. Now, interesting enough, we also did a campaign with a new protocol called Vaultcraft.

Um, what we found on one of our distri distribution partners, uh, Compound versus new protocol, Vaultcraft, uh, with the same distribution partner, there was kind of infinite capital at the the 12% APR for a stable coin. Now, Vaultcraft's like infinite capital was around 21%. So there's a there's a risk premium on new protocols and uh obviously the more Linda you are the long you know the bigger brand name the the cheaper your incentives are going to be. So that was one main thing. The other thing that we did was really about protocol to protocol business development and effectively there is a lot of demand for compound.

So uh there was a lot of inbound deal flow and but if you're a D5 protocol you can think about this as well uh reaching out to new assets and new asset issuers. So uh the Athenas at the time when we were when we first came in Athena was really big and a lot of these LRTs. So working with these asset issuers and making business development relationship with these asset issuers they have needs right they either want to hedge their tokens. And so if you're a D5 protocol and you're uh you know a DEX uh a DEX uh a vault a money market um some sort of like yield aggregator or like compounding product uh you effectively can run an outbound BD program just like you would do in like SAS or web two or whatever make a cohort analyze it sequence it and then figure out how to do your outreach. Uh usually when an asset is issued instantaneous like at the very very beginning they're going to be really open.

I I remember we were uh structuring a deal with Athena and uh they were at like 50 million TVL super easy super easy to work with. By the time they got to 150 million TVL the deal just completely changed. So when a when a new asset issuer launches a new product that's like the time if you're a D5 protocol to do that BD and uh get those assets in.

All right. So let's um talk about deals when whether it's a protocol or a market maker. It's really important to come prepared and a lot of teams will come and say we want to bootstrap TVL and and we kind of start with a list of questions and we're happy to make those introductions but we want to make sure you guys are prepared to execute on those. So business model is really important. There's a lot of demand for capital.

There's a a saying in finance from I think it's from the GFC that if if I said if I could die I would come back as the bond market because you could scare anybody. I think in crypto you would come back as a market maker. Um because you can basically demand any cost of capital you want. And the point is you need to be able to pitch the LPS on where the yield is coming from, why it's sustainable, why there's a meaningful TAM there and how your product and yield are going to grow. Right?

They have a lot of looks at different things. So they need to believe in the vision of the product and sustainability of the yield. Asset composition is really important. Are you looking for DEX LPS? Do you just need USDC?

Are you also open to ETH or Bitcoin? There's very different cost of capital and risk appetite for the different assets. So being clear on what you're asking for is is an important prerequisite. The yield composition. When you do these deals, there'll be some underlying native yield that your product offers and then you're probably going to have some sweetener or deal on top.

And how are you paying for that? Did you have a big VC raise and you can just give them USDC on top of the yield and it's fixed? Are you paying in tokens? If you're paying in tokens and you say you'll get an extra 10%, how'd you come up with that number? What are the assumptions?

Is your token liquid? So the composition of the yield is really important for the LP to evaluate their confidence in that number and maturity or vesting. Uh this is this is two parts. One, how long do you need the money for or want the money for? There's a it's it's something of an art usually like six months is the standard.

Three to nine is probably okay. If it's too short term, LPS don't really want to be moving their money every week. Um, and if it's too long term, the the liquidity premium starts to get really expensive. So, in the three to nine month range, most are around six is a good middle ground where LPS feel like it's worth it for them to move this money um, but it's not so prohibitive that they need to jack up the liquidity premium. And then vesting is is ties back to yield composition.

Are the tokens liquid? Can they sell them instantly? Is there a lockup? Can they earn yield on the tokens while it's locked up? Um, you want to come in with a full picture, frankly, like a a clean term sheet, one page that says, "Here's our business and where the yield's coming from.

We need this asset. We're going to pay you in this way. Here's how you're going to earn it over this long and get this liquidity." And the LPs can evaluate the risk of the business and the underlying of the capital and and of the term premium. We break down the types of LPS or partners into four main buckets.

The first one is market makers. Market makers can handle really any risk. Um when when I was on the trading desk, we used to say there's there's no bad deals. There's just bad prices. And market makers are kind of like that.

They can do just about anything. It's just about how much are you willing to pay for it. So I said 40 to 60% here. It can be higher if you're asking for something riskier. They're open to different assets.

They're open to different structures if you want to loan them assets for them to drive usage or volume. Um, or they can deposit their own. There are some benefits to market makers despite the high cost. If you're going to launch a token, they can be great partners to give you a discount either on the cost of the capital or on your token launch if they support it. Um, yield funds are growing a ton in crypto.

There's probably over a billion dollars today in yield funds and their returns are really good, really steady, and the capital's coming in. Yield funds have a much different risk appetite than market makers. They really want like delta neutral yield. They just want one asset that's going to acrue the yield. They much prefer liquid yield.

But many of them do have um like venture capital arms or strategic arms and they they you know might be willing to underwrite a venture investment and take the call option on the token while earning the underlying yield. cost of capital for yield funds depends a bit on the market right if if um we're in bull times in on uh morphe you can earn 12% this is going to go up but 15 to 25% on USDC 10 to 15 on ETH 5 to 10 on BTC um and the other another thing yield funds have started to do a lot I'm sure you've seen it is be risk curators on lending protocols so this is a really way to bootstrap and also increase your yield Because if your underlying yield is 12% and they can loop that versus a 6% cost of capital in the lending market and you get a sweetener, um it's both a good way to get more capital in and get more deposits from from people you aren't incentivizing. Protocol own liquidity. I love seeing love seeing P. Takes me back.

Um to Brian's point, these are the EtherF, Athenas, uh Grove, Sky, Spark, they have huge pools of capital and their only job is to get yield on it. So they're very good partners because one, they have a lot of partners like Pendle and Morpho and Gauntlet or Risk Curators, and two, they have a lot of capital. They're also DeFi native, so they they will understand your business model faster than anyone. And they tend to have the lowest cost of capital. Not always true, but tend to.

So, this is an area where I think um we're probably seeing the most growth in deals and people sourcing liquidity. They can be really good strategic partners for for long-term growth and scale with you because they have such big pools of capital. The last one is Wales. very diverse group. Um, typically like early DeFi or crypto adopters who have a bunch of assets on chain, typically very passive allocators, um, can be great strategic partners because they're either very connected in DeFi and in crypto um, and also often, you know, want to be an angel or seed investor and help you grow.

cost of capital it if they're not a strategic investor is probably a bit higher. Um and the other thing I'll say about Wales is it's um a little more like spurious on how to find them. They're while all these others are like out trying to sell business and raise uh you got to go and find the whales. Um but all these are opportunities to find the right strategic partner to make a good deal to grow your capital and grow your your product and protocol. Thank you very much guys.

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