Gabe Pohl-Zaretsky, Gauntlet

next up we have Gabe from Gauntlet who will be speaking on protocol own liquidity incentives 2.0 welcome Gabe [Applause] [Music] everyone howdy guys um really excited to be here um talk about protocol own liquidity so first off um hi I'm Gabe uh I work at gauntlets I've been there about four years before that I was working in high frequency trading so kind of came from a trafi background really trying to take what I learned working in traditional markets understanding Market structure uh into the defi World um what is gaunlet for those who don't know um effectively what we do is we offer uh protocol optimization taking offchain data science and modeling uh and providing onchain intelligence to various defi protocols um I've been on around four years now work with a pretty wide variety of protocols specializing primarily in incentives as well as like various risk uh working with a variety of protocols like Unis swap uh near Foundation immutable X arbitrum um primarily trying to focus on how to make these types of protocols more efficient uh as well as like faster growing while saving the money as well as preventing them from taking on too much risk so what are we going to be talking about today um today we're going to be talking about protocol and liquidity uh and so a lot of what defi really comes down to is trying to match buyers and sellers where you have a protocol like Unis swap or compound or GMX and like what they're really trying to do is provide a liquidity layer to enable buyers and sellers to be matched against each other and the way most most of these protocols operate is through and like most of these protocols effectively face what is a bootstrapping problem of if you've just launched a new protocol and you don't have any liquidity how do you attract that liquidity in the first place now longterm you're going to be charging LP fees and that's great because now you have this flywheel where Protocols are earning fees those fees pay those liquidity providers that generates yield which then keeps that liquidity there for a long trm however when Protocols are first launching whether it's a brand new protocol or they're trying to expand onto a new chain they have this really difficult question which is how can I attract liquidity providers to my Marketplace before they're earning any fees and so the solution that most protocols have come up with is effectively liquidity Mining and the idea is well before liquidity exists and before these liquidity providers are earning fees like what if I just pay these liquidity providers directly I can take incentives either out of my native token or out of my treasury pay the liquidity providers and cover their costs before they come eventually we expect real users to come and use that liquidity provide their own return uh and in doing so that'll compensate liquidity providers after the fact and so this is effectively the flywheel that most protocols use today in order to bootstrap liquidity on their chain so you spend incentives the incentives generate liquidity liquidity is going to then generate volume or various trading activities so on like compound or a lending protocol that would be borrow activity uh that volume or activity is then generating fees that fees generates yield uh and that yield then compounds back into the uh Native liquidity and so in doing so we've created a flywheel where liquidity gets fees fees gets liquidity and to begin with what you need is incentives in order to bootstrap that system if you don't have liquidity you're not going to be generating fees if you don't have the fees you're not going to have the liquidity in the first place or at very least that liquidity won't be there for a long time and so incentives are a very effective way to uh provide the incentive and uh yield to uh various liquidity providers to onboard onto your protocol early on in a protocol's life cycle now the issue is is incentives have a lot of drawbacks not not only are they incredibly expensive where it's a massive cost to various protocols often 20 to 30% of their balance sheet uh incentivized liquidity is often incredibly fleeting and like we'll often flee right when you need it the most and so here we have a graph from Athena um Athena had a pretty large token unlock where they basically had an airdrop unlock uh that they had distributed months prior uh by looking at this graph so this is the Unis swap V3 liquidity that Athena had in terms of their tvl uh active to trade on Unis swap you can probably guess right when that airdrop launched um of course it's like right after June and so Athena had a fairly active liquidity mining program where they were pulling in liquidity toward the Athena token however like right when they needed it the most right when there was going to be a period of Market volatility this is when we see the liquidity fall and like as a result Athena is going to have increased price volatility from this and so this isn't necessarily a great solution for Athena if AO wants to have more stable liquidity what can they do rather than potentially just providing incentives and so Po and protocol in liquidity is really just the idea of rather than going external to the market rather than paying external liquidity providers to provide liquidity to various Texas or within a protocol what if the protocol just provides that liquidity themselves what if Unis swap just takes money out of their treasury deposits it within their protocol uh and in doing so has the same effect of providing incentives without necessarily having to deal with both the high expensive incentives as well as the fleeting liquidity that comes with it where liquidity might disappear the second it's most necessary for the protocol and so if we go back to this flywheel example we can see that protocol Lo liquidity can function very similarly to incentives instead of using incentives to boost trap liquidity on a new protocol or on a new chain you can use protocol own liquidity where the protocol takes money out of their own treasury deposits it into their own liquidity pools that same liquidity generates the volume the volume generates the fees the fees generates the yield and then that yield feeds back into liquidity now that you have a historical track record of providing liquidity uh on your protocol and showing that that liquidity generates real yield and real volume over time a protocol can start to remove the liquidity that they've provided from their protocol and in doing so generate the exact same flywheel they had before except at this time rather than spending a large amount of money and like potentially having that liquidity disappear when it's needed most you've now turned a cost center into a revenue Center where instead of losing money through incentive spend you're now gaining money through the fees that you're spending on those the protocol loan liquidity and simultaneously you're dealing with the issue of fleeting liquidity where liquidity that might have left during a period of Market volatility is now very safe and very stable because you yourself as the protocol are the one providing it rather than relying on potentially mercenary third parties and so this is why uh one protocol that we've been incubating through Gauntlet is beginning to support protocol Lo liquidity so what is era era is effectively a fancy multisig what era allows us to do is uh protocols or Ras or whoever can deposit liquidity into era uh they can then set a white list of what actions a guardian on era is allowed to take and so you might say you're allowed to create a Unis swap V3 liquidity position rebalance that liquidity position but might not not be for example allowed to move all of that liquidity into a third party it or steal it and move it offshore and so era allows Dows in a non-custodial way to allow a Guardians such as Gauntlet to manage their liquidity for them and one of the product offerings that we've been recently launching with era uh is protocol own liquidity where a dow can basically transfer their money into era that Dow sets a goal of how much liquidity do they want how much volume are they trying to generate what kpis are we using to measure the success of that uh program Gauntlet as a guardian within era then can optimize the Vault strategy so we handle the automatic active rebalancing it's really just to set it and forget thing from the Dow perspective but Gauntlet has a variety of risk uh protocols and parameters in place in order to actively rebalance that liquidity and then lastly like we can using the eror app you can view the Vault performance of okay how much volume are you supporting how much slippage have you reduced how are your positions performing and so through launching era we've been able to fairly successfully and provide a system for Dows to successfully launch protocol and liquidity positions uh on their behalf and so lastly if this is something that's interesting to you either through protocol in liquidity through error or you're just interested in eror as a treasury management solution um please get in touch shoot me a DM on Twitter or telegram uh or an email either Gauntlet or era I'll also be hanging out outside after the talk as well if you want to meet in person but really appreciate the time guys and have a great rest of your conference