Sustainable Liquidity in a DeFi Ecosystem_Kendall Cole

all right so keeping it in the near ecosystem uh so hopefully you guys are interested in that so i guess as has been mentioned so from proximity we are the uh ecosystem fund for for near specifically focused on defy but one of the things we do in addition to gaming grants is really try to help the projects we work with think through some of the problems that they're facing and definitely the most common one is liquidity and we get to think through that at kind of like an ecosystem level so we're going to kind of walk through some of the learnings that we've had um so we're just going to touch on three main things here so first we're going to talk about what the token liquidity lifecycle tends to look like we're going to talk about some of the tools that exist for managing liquidity at each of these stages and then we're going to talk about how we can apply these tools at the ecosystem level and help as many projects as possible and also introduce a couple of new tools so yeah first up here is basically just a high level overview of what a fairly typical life cycle looks like for a token from initial launch kind of token generation all the way through to it becoming you know more more mature so let's start with price discovery so when you launch a token uh you know basically it's going to go to market and people are going to price it in some way and as a dao as well assuming your data launches a token you have a few different tools and ways that you can kind of manage this process um i guess the the default one is just yolo where you do nothing you just sort of let the token do as it will you let people decide they want to make the market for it on unit swap or or try solaris or whatever decks they want to use and it just kind of happens no managed price discovery just the market does what it wants to do um or you could you know use the more traditional routes of like launch pads or icos uh there's also like the balancer kind of liquidity bootstrapping pools which you know is an interesting type of mechanism that's a little bit more graceful and then you also have auctions moving on to a dex so you have initial prices cover you've done that whether the market did it on its own or whether you tried to manage that price discovery and like distribute a decent amount of tokens now you want to create some liquidity on an amm or or an order book but probably an amm the most common one that's been used here is definitely the pool 2 mechanism so what that is is basically you have your token paired with say ethereum so you could have you know aurora and ethereum uh to create to incentivize market or lps to you know contribute to this pool you can just give away a lot of your tokens that's kind of the pool to approach basically you incentivize liquidity providers to provide liquidity to your specific pair by just giving away your tokens definitely the most common one that's been used it's also very expensive and so some new mechanisms have kind of arose recently um that might be a little bit cheaper or maybe more sustainable v tokens is one that's been popularized by curve they were the first ones to launch this this one is interesting in that they're giving away their own token but they choose which pools to give the token to and how much based on voting and what that's led to is you know some new teams or existing teams will try to acquire a lot of their tokens so they can vote to have emissions go to their pool um and you'll see this everywhere this year i think i mean almost every team in d5 is like talk about whether or not they're gonna do something like this uh along with some criticisms of it and definitely the newest um but but mechanism that we're really excited about is this idea of single-sided pools um so bancore launched this uh i guess like a year ago now with bancor v2 where liquidity providers can just have a single token they could have say eath and they'll just put eth into this pool and earn fees and that's going to be paired with the bancore token in their case and what this does is it opens the market to people who don't have to have two tokens they don't have to like sell one of the tokens to get the other token in the pair they can just deposit tokens in a single side away some newer protocols like tokamak ondo and rift have taken this a step further even and they actually just match up they create a bunch of different single-sided pools and then paired them together on some dexes to like create liquidity um so that's been a pretty pretty interesting and definitely evolving area on the lending side which is typically the next part of the liquidity life cycle you go from the decks now you know you have a decent amount of liquidity there and you want to make it so the holders of your token don't have to sell your token in order to unlock some liquidity for themselves which allows them to take a leveraged position potentially even short the token or just you know take some usdc out and like go buy a house or something um this is where there is not that much tooling just yet um i guess one kind of you know naive way to do it that i've seen being used on a lending protocol in solana called solen is basically that pool to approach but for lending you can you know incentivize people to deposit your token by giving them your token um a newer one that's actually really exciting is by the team called tribe tribe turbo that i don't think is out just yet but uh but seems to be coming to market pretty soon this is cool because this allows a dow to basically take out one single loan against their own token with fey which is a stable coin that's that's managed by the tribe dow and then deposit this in this fae this this stable coin that people would want to borrow into an isolated pool for their token holders to then borrow against um so i think we're going to see this be be used a lot more aggressively so after you've had your token you know be usable on lending like the next sort of stage and generally the latest stage is you know derivatives against it so typically options and some kind of futures product whether that's a perpetual future or a traditional type of future definitely an area like lending and kind of price discovery where we don't really have that many tools yet the ribbon team which operates an options vault product is experimenting with v tokens and how that could incentivize liquidity there so i think that we'll see more approaches like that happen pretty soon and potentially we'll see something like the v token approach but used for perpetual swaps so yeah that's the liquidity life cycle um as we kind of touched on a little bit here one of the best sort of emerging categories of tools is this idea of liquidity as a service and to give a high level overview what this is basically in any sort of liquidity scenario you have two sort of actors you've got liquidity seekers you know a lot of times it's dao's like the issuer of this token or even a community who wants to generate liquidity for the token and then you have liquidity givers and most of the time this is the holders of tokens that are really popular that people want to like swap against or that they hold a lot of so ethereum is a great example of this a lot of like layer one tokens are decent examples and then stable coins probably by far the most dominant and the idea of liquidity in the service is you're shifting the risk in return from the liquidity seeker who's like willing to give up a lot in order to get liquidity and liquidity giver who basically needs to be incentivized to actually provide liquidity and oftentimes what this looks like is the liquidity seeker is taking on all the risk and giving away all of the returns to the giver so to make this a little bit clearer we're going to walk through an example so let's say that we have the aurora dal who wants to create liquidity for the aurora to near pair on tri solaris triceras is similar to uni swap you know automated market maker that runs on aurora so the aurora doll will can work with a protocol like rift rift is basically going to do two things they're going to well they're going to deploy two poles they're going to create an aurora token pool and a near token pool the aurora dial is then going to take aurora put it into the aurora pool and you're going to have near holders who are in this case going to be kind of that liquidity giver who are going to deploy their near into the near pole and then the those two tokens will be matched together and deployed in a traditional way to the aurora to near pool on trisolaris now the reason that the near holders are interested in this is that they are going to get all of the lp fees the aurora dial is going to give them all of the trading fees that are earned from the volume that that occurs on this pair um and and they're yeah i mean they're basically going to get nothing so the near holders effectively get double fees like double the fees that they would get if they actually provided you know one aurora to one near it themselves um so yeah i think this is really gonna like we've definitely seen this start to really pick up some steam um right now it pretty much only exists on dexes but you know tribe turbo about to launch on lending and i think what we're going to see is is uh end-to-end liquidity as a service we're going to have products like this that are launched for for dallas to manage each stage in the liquidity lifecycle starting with price discovery ending with derivatives and kind of bridging the gap across the whole thing um so we have liquidity service it's this great set of tools now let's talk about how we can actually apply this to the sort of ecosystem level and and generate some really ecosystem liquidity which is one of our goals our biggest goal is our proximity so taking a step back and just talking about what ecosystem liquidity looks like typically you know you've got the base token this is the native token of each of these protocols and then you've got the ecosystem tokens which is usually like the applications that are built on top um that may or may not have their own token so the ecosystem tokens in the context of liquidity as a service are usually going to be the liquidity seekers and the base tokens are going to be the liquidity givers and the reason for this is that base tokens just tend to be the most liquid if look at any l1 uh that token is going to see the most trading volume it's going to be listed on the most exchanges it's going to be less volatile probably still pretty volatile you know but much less volatile typically than these ecosystem tokens and it's going to have the best on-ramps which you know makes it really like the prime sort of token to be a liquidity giver uh in any kind of scenario the problem with the base token though when it when it comes to l1s is that the majority of base tokens in proof of state networks which is you know just about all of them at this point are going to be staked so just like three examples there you know near and avalanche both have about 60 percent of the circulating supply staked and solana has 74 of the supply state this is great for the network of course you know more stake equals you know better security for the network and you know it's a very obvious choice for holders of these tokens because it is the most reliable kind of passive yield which is the thing that everybody wants passive high yield uh but it's not very good for liquidity at all um however we can actually take the tools that we just talked about combine them with staking and make it so that it can actually be good for liquidity as well uh so this is something that we're working on the near ecosystem is this idea of steak farms and the high level description of it it's really just combining staking with liquidity as a service so you can basically have your cake of you know of like providing security for the network and earning that yield but then also earning additional rewards on top of it and providing liquidity to all of those ecosystem tokens so the idea here is you want to create a single entry point for users for like to provide liquidity to their favorite projects so it's pretty similar to you know what's like a a urine finance who's trying to do just to make it like the dead simplest way to earn the best yield for a single token like die um you know we want to create an opportunity for ecosystem projects to sort of manage this and like upgrade these uh these pools as as they want to manage like moving across the the parts of the um liquidity lifecycle um the real kicker here like what enables this is is liquid staking um so liquid staking is is basically issuing a derivative against the tokens that you've state so you can use those tokens in d5 so you stake one near you get one st near that near is actually locked up but you've created a new token that is basically gives the right to claim that near to unstake that near so that's unlocking a lot of a lot of opportunity here and what's going to allow us to create this staking plus type of model so you have the liquid staking token you can deploy this this liquid staking token into liquidity as a service and you can generate a better passive return than staking one so let's go back to that example that we went before just to make it really clear to kind of illustrate what we're talking about here so same scenarios before we have the aurora dal they want liquidity for aurora on trislaris so with the staking farm they're going to deploy this and essentially the deal that they're going to make to your holders is we're going to give you dual rewards like not only are you going to you know stake normally and get your stake in your rewards we're also going to give you some aurora tokens um because what we're going to do is take the mirror that you've that you've staked turn it into esteemer and then deploy it into our pool so near holders will put their tokens into the stake farm we'll bring rift back into the example here uh you'll notice the the one difference you know you have the aurora pool but now you have a different token that token is that staked near um so just imagine is the the staked version of near just gonna be earning the rewards as staking rewards come in the aurora dow is still going to put their tokens in the in the aurora pool that uh that steak farm is going to deploy the tokens into into the st near pool and then bam we have that liquid aurora to sd near pool on tri solaris and again have all of the lp fees that are going to near holders so aurora dow here they want to do this because they're going to get liquidity they're going to be able to get some new token holders because they're going to give be giving away this aurora token to you know people who are supporting their project which is very aligned with their mission and they're also going to get flexibility to deploy new pools as they want to move further along this liquidity life cycle so we can imagine a future scenario where we actually do have good liquidities of service tools for price discovery and derivatives in the in the entire cycle and we can imagine that you know a new dow will will change their steak farm to utilize the tools that the whatever part of the liquidity life cycle they're currently at and then for the near holder they get their near stake in rewards they get aurora awards like the aurora tokens and they're also going to get the lp lp tokens so they're going to get a substantially higher yield than they get away get from staking a loan in just as passive of a way they don't really have to do anything they can just keep their tokens there and accumulate these rewards so basically to recap all of this um the way we're thinking about sustainable liquidity is is doing three things we want to create the best possible passive earning opportunity for the base token which in our case is near so it's this like staking plus option we don't want people to just think like i want to be lazy and not and earn rewards on my near and stake it we want them to think okay i'm going to use a stake farm because then i'm going to get even more rewards for doing the least amount of work still um we need end-to-end liquidity as a service tools in order to enable this that's one of the building blocks and then we need to introduce the stake farm to help daos manage uh basically like navigate through this entire process all right and yeah that's pretty much it i'm not sure how much time we have left cool so yeah i can definitely take some questions thank you first of all