Tokemak is a sustainable DeFi liquidity distribution agreement. The core of this agreement is to create sustainable liquidity instead of short-term liquidity mining, and at the same time “guide” the distribution of liquidity through a decentralized method.
The guided liquidity pool is called a “reactor”. Like the traditional DeFi protocol, in Tokemak, users can pledge idle assets to provide liquidity and obtain revenue. The special feature is that Tokemak hopes to break down liquidity barriers and distribute these liquidities to different DEX or DeFi protocols through decentralized guidance, while ensuring the benefits of liquidity provider-LP and liquidity leader-LD. Users holding $TOKE decide to direct the liquidity of the Tokemak token pool to a certain exchange or a certain DeFi protocol through pledge voting, and obtain benefits in the process of guiding liquidity.
Improve capital utilization in a more open way
Absorb deposits with low risk to obtain sufficient liquidity
Introduce multiple roles (LP and LD) in liquidity work and do their best
The existence of LD may be strategy writer/project party/fund manager, etc. This allows more roles to participate in liquidity-related work and provide a way to obtain income. Rather than a single liquidity mining, a step toward diversification.
Solve the liquidity pain points of start-up projects
Except for some projects that received institutional investment, we know that early DeFi projects usually start as a cold start, and such projects often require a lot of energy and resources to design liquid mining in the initial stage of the project to incentivize users to make agreements. To provide liquidity, there are also problems such as unreasonable liquidity incentive distribution schemes, and this type of model is usually based on inflation. At present, most liquid mining relies on a single fund amount algorithm to calculate rewards. More dimensions have not been introduced to make the effectiveness of liquid mining sustainable. For example, 10M LP exists for 1 day than 1M LP exists for 7 days. The reward is more, so for an agreement, it may be more reliable to maintain liquidity for 7 days. Tokemak will provide balanced and sustainable liquidity for such projects through the guidance of LD.
Introduce the utility of sustainable liquidity
What is sustainable liquidity?
Sustainable liquidity includes several factors:
1. Sustainable production-not passively driven by inflation
2. Based on democratic governance
3. Efficient capital efficiency
4. Super mobility-flow to the most favorable market
5. Encourage deep accumulation of assets to reduce slippage to zero
We believe that liquidity mining is a precious resource and was very successful in guiding liquidity in the early stages of DeFi’s short history. It was and is now an important cornerstone of the movement, leading to explosive growth in product creation and the joining of millions of users. However, the fact remains: providing liquidity for new projects is costly and inefficient. The current solution to the liquidity problem of tokens is:
Cooperating with centralized market makers is costly
Incentivize users through high-yield agriculture, which is an equally expensive solution
Liquidity is the foundation of DeFi
Infrastructure is defined as the technology on which other things operate. A simple example is the power grid. Without electricity, your Internet cannot work. Similarly, without the Internet, your Ethereum cannot work, and without Ethereum, your DeFi cannot work either. Deep liquidity will bring a healthy market. For DeFi, liquidity is the next key infrastructure layer. Without liquidity, DeFi cannot work.
At present, many start-up projects pay high prices for the pursuit of liquidity, similar to the early Internet entrepreneurs spending their budgets on IT professionals and large server farms. It is redundant, and there are better solutions — in the Internet 1.0 era, the answer is AWS as a utility hosted on cloud servers; for Web 3.0, the answer is a utility for sustainable mobility: Tokemak.
Tokemak’s operational design
Each asset has its own token reactor, in which the protocol token $TOKE is used to guide liquidity. $TOKE can be considered as tokenized liquidity. When collateralizing the token reactor of a given asset, $TOKE holders not only control the flow of liquidity, but also control which market obtains liquidity, withdrawing from Tokemak’s ETH and stablecoin reserves.
Liquidity providers and farmers : Any user can deposit a single asset into the network for liquidity
DAO : DAO can use Tokemak’s liquidity flow to strengthen and guide the liquidity of its projects, providing an alternative to traditional liquidity mining
New DeFi project : The new project will be able to build its own token reactor at a low cost and use Tokemak’s protocol to control assets to generate healthy liquidity for its project from the very beginning
Market makers : guide the liquidity of various exchanges, somewhat similar to liquidity lending
Exchange : Exchanges can also use the utility of $TOKE to obtain deep liquidity to strengthen their market depth
Roles and functions in Tokemak
The liquidity provider (LP) deposits assets in the token reactor. LP will receive income from its single asset deposit in the form of TOKE. Initially, selected whitelisted projects will have a token reactor for deposit (eventually this will be open to more projects). Then, these assets will be deployed as liquidity in various currency pairs on various exchanges.
$TOKE is a local network token obtained by participating in the protocol. It is used to guide liquidity and governance. TOKE holders will include Tokemak DAO, which will oversee the assets controlled by the accrual agreement and increase the allowed assets and market whitelist. TOKE has mortgage characteristics. IL risk is transferred from LP to LD through the TOKE mortgage mechanism. This will be explained in more detail in the “Token Economic Model”.
The head of liquidity (LD) uses TOKE to control the direction of liquidity. They put their TOKE into a given reactor and use the shares as voting rights to direct liquidity to the exchange of their choice. The voting rights from TOKE in a given reactor are directly proportional to the amount of TOKE pledged and the number of assets in that particular reactor.
Pricers : Any non-automatic market maker (AMM) needs a third-party agency to provide real-time price information. Tokemak will reference Pricers to set the buy and sell order prices. More information will be introduced in the Pricer network that will be released in the future.
Period : Tokemak runs on a periodic basis, and the “period” will initially be set to one week (DAO may vote for changes in the future). In the middle of the cycle, assets can be deposited, and LD votes can be rearranged. Assets will be deployed at the beginning of the new cycle, and LPs can also request their assets to be retrieved midway through the cycle, or they can retrieve their assets at the end of the cycle.
t(Assets) : When LP deposit assets into the reactor, they will receive the corresponding amount of t(Assets), which reflects their requirements for depositing assets. t(Assets) is then burned when its underlying funds are redeemed. This is conceptually similar to c(Assets) on Compound or a(Assets) on Aave.
How to incentivize and maintain the balance of token reactors
If there is a large amount of assets deposited in a given reactor, and the amount of TOKE that guides this liquidity is the least, APY will increase on the LD side of the reactor, encouraging LD to pledge more TOKE and participate in guiding this liquidity. The same logic holds true in reverse-if a large amount of TOKE is pledged in the reactor but a small amount of assets are deposited, the LP of the reactor will receive an increased APY to incentivize further asset deposits.
The zero period will mark the beginning of Tokemak. The zero cycle will consist of three phases in the following order:
1. DeGenesis event: There will be an initial stage during which DeFi users will have the opportunity to participate in ETH and stablecoins to obtain TOKE for the first emission.
2. Reactor mortgage event (CORE): CORE will be the initial mortgage period, during which a group of whitelisted token reactors will compete to become the first active project to be fully launched by Tokemak.
3. Genesis Mining Pool: There will be an additional pre-launch stage where users will be able to mortgage single assets: ETH, USDC, DAI and sUSD to earn TOKE emissions. Even after the zero cycle, these mining pools will still maintain competitive incentives to continue to accumulate the necessary currency pairs to deploy liquidity.
Token economic model
Demand relationship and token distribution
The incentive of $TOKE is still inflationary. Although it seems to be somewhat contrary to the theory of the entire agreement, TOKE believes that because the representative behind $TOKE holds more underlying liquidity, as the agreement grows, the demand for $TOKE will increase. , So the inflation nature of $TOKE is linked to the liquidity it controls, or it is linked to the TVL of multiple projects. The final incentive structure may be part of the incentives generated by TOKE itself and the protocol controlled assets (PCA).
The demand model here is a bit similar to veCRV. Note that it is not a token model, but a demand model, because when the TOKE protocol has a large amount of liquidity, the demand for it in the market will greatly increase, and the liquidity allocation share is determined TOKE DAO also needs to pledge a large amount of $TOKE tokens. With good market feedback, the external demand for liquidity may exceed the emission rate of $TOKE. This is an official vision.
Total supply: 100,000,000 TOKE
30,000,000 TOKE (30%): Reward release (24 months release)
5,000,000 TOKE (5%): In the “Cycle Zero” (Cycle Zero) DeGenesis event and CoRE (Reactor Mortgage Event), TOKE will be issued for the first time
9,000,000 TOKE (9%): DAO equipment
16,500,000 TOKE (16.5%): Contributor (attribution)
14,000,000 TOKE (14%): Team (12 months linear release)
17,000,000 TOKE (17%): Investor (12-month linear release)
8,500,000 TOKE (8.5%): DAOs & Market Makers (12 months linear release)
The effectiveness of $TOKE as collateral: how to combat impermanence losses?
The entire agreement absorbs LP’s single currency deposits, so when LD guides these assets to other agreements, it is bound to face impermanent losses (IL), so in order to keep LPs able to retrieve the pledged assets intact, $TOKE is used as system collateral Products play an important role in resisting impermanence loss.
1. Under normal circumstances, the agreement will retrieve assets from PCA (Protocol Control Assets), although there may be a deficit
2. To make up for the deficit, Tokemak draws the system-wide asset surplus into the PCA
3. If the agreement faces a large-scale divestment and eventually there is an IL loss that cannot be covered, the $TOKE in the pledge will work. First of all, the future $TOKE income in the reactor will be dominated (as little as possible) to satisfy IL gap.
4. When the future income cannot cover the gap, the $TOKE in the pledge will be dominated to supplement the IL gap.
In principle, in extreme cases, IL risk is transferred from LP to LD, and the role of LD is usually a professional who has sufficient confidence in liquidity control strategies, or the founding team of a start-up project, so no matter which role, Either he has certain skills to maintain the efficient and reasonable use of funds as much as possible, or he has the ability to bear this loss and risk.
Between strong demand and rigid demand, it can be said that with the development of DeFi, the stronger the demand, the stronger the demand, because when the decentralization is not enough and the market is not mature enough, most institutions still control the market, while not It is difficult for mature markets to have high-quality cold start or anonymous projects.
From the perspective of the whole set of models, under the premise of a single currency pledge and a promise of rigid redemption, it has the ability to attract a large TVL. However, in theory, the larger the plate, the lower the probability of a run. If there is a strong liquidity demand side Driving force, then the economic model around $TOKE is relatively easy to establish, thus forming a positive feedback.
Disadvantages and risks:
The risk of the whole system is whether the coins pledged by LP can be redeemed in a rigid 1:1 ratio, so whether it is to preempt PCA assets at the cost of bearing the deficit, or borrow from other reactors, or the final $TOKE supplementary plan, it cannot be separated from finance. Essence (dismantling the east wall to make up the west wall), but in the final analysis, almost all financial products have the same problem (students who don’t understand can pay attention to the “DeFi in simple language” book compilation, and will start from the financial essence to in-depth DeFi), but when it flows If the sex is large enough, the demand is strong enough, and the community is strong enough, the agreement will enter a positive cycle and form a virtuous demolition of the east and the west. Curve is a very good example. So TOKEMAK is established from the demand level of the project. The risk he faces is
1. Community operation: Can there be enough liquidity requirements, a large number of professional LDs, and more cooperative project parties?
2. Product development: At present, the entire product is still unusable, most of the information comes from the official Medium, so the project’s research and development and product presentation capabilities are also important factors that affect project development
3. Run risk leads to inability to rigidly redeem: related to point 1, insufficient liquidity demand or insufficient pledged $TOKE, and large fluctuations in the market, due to the increase in IL and the fermentation of market panic, a large area Withdrawal will test the system’s ability to withstand pressure. Please note that any financial agreement cannot resist a run.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/can-tokemak-control-more-defi-liquidity/
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