Mobility in the Web 3 Era = Bandwidth in the Internet Era

The Internet is changing at a tremendous rate.

The vast network of data exchange known as the “Internet” is evolving into an increasingly complex ecosystem where direct value exchange in the form of tokens is possible. Web3 will revolutionize the economy, the way businesses operate, individuals work and organize, and products are delivered and consumed. This decentralized economy requires grid access and network access (just like the Internet).

In addition, it requires blockchain access and, most importantly, liquidity.

The goal of this article is to discuss how liquidity will become the bandwidth of the future “Internet”, and the entire future of the decentralized economy. Then, we will briefly discuss the role of Tokenak in increasing liquidity bandwidth.

Broadband mobility is almost here.

Mobility in the Web 3 Era = Bandwidth in the Internet Era

In order to better grasp the concept of liquidity as bandwidth, one should first understand the meaning of these two terms. We will start with the definition of bandwidth, which is easier to define, followed by the definition of liquidity.

bandwidth

Network bandwidth is the speed at which data moves across the network. Therefore, more bandwidth means more data flow. In a world where users communicate with each other over the internet, it’s clear that higher bandwidth means a better internet-based economy (think all the hype around 5G).

Bandwidth is measured in bits of information per second (bits per second). In the early days of the modern Internet, consumers used dial-up modems to transmit data at 56 bits per second. This enabled early Internet products such as web pages and email.

When ethereum arrived, the game changed quickly. Ethernet boosts bandwidth at speeds up to 10 Mbit/s. This means that Ethernet can send about 180 times more data over the Internet than a dial-up modem. Broadband bandwidth and data transfer has arrived!

Speeds have since gotten faster and are now typically between 1-10G/sec (18,000-180,000 times more than dial-up data).These speeds are needed to unlock a range of internet-based products that would be unimaginable at the low bandwidth of dial-up. Streaming services like Netflix, cloud-based gaming, and always-on servers in the cloud are all made possible by the current increase in internet bandwidth.

More importantly, however, reliable network bandwidth requires more than strength and speed, but also sustainability.Users send and parse data asynchronously across the Internet, which means reliable bandwidth needs to be available on demand. More on this later.

fluidity

Liquidity is a more difficult role to define. In DeFi/Web3, liquidity is used to define tokens (value) that are offered or parked almost anywhere. While there is nothing inherently wrong with the general use of the term, here we will try to be a little more specific.

We define liquidity in a more targeted way that can be used to exchange one token for another. In a sense, liquidity is the magic juice for trading and converting tokens. For example, if I have ABC Token and I want to trade or “convert” it to XYZ Token, then I need to interact with liquidity.

In trading terms, I need to interact with the liquidity of ABC/XYZ, i.e. sell ABC/XYZ. Selling ABC/XYZ means I sell my ABC in exchange for XYZ.

Next let’s discuss the good and the bad of liquidity, starting with the bad.

Poor liquidity is any liquidity that you lose a lot of value when you interact with it. This means that “thin liquidity” is poor liquidity. Thin liquidity occurs when there are not enough tokens to trade. For example, let’s say you want to sell ABC for XYZ, and let’s say every 1 ABC is currently worth 1 XYZ. If there isn’t a lot of XYZ available as liquidity, that means there is a premium to the available XYZ. You want to sell 10 ABC for the 10 XYZ you should get (at the price of 1 XYZ).

But instead, you only get 8 XYZ in the trade due to illiquidity. By interacting with scarce liquidity and buying XYZ for more than its actual value, you lose a lot of value (in this case 2 XYZ) in the process.

On the other hand, good liquidity is any liquidity that you can retain most of the value when you interact with it. As you might guess, “deep liquidity” is good liquidity.

Let’s go back to the example above. Looking back, you want to sell 10 ABCs for XYZ, and the price of 1 ABC is still worth 1 XYZ. Then in the case of deep liquidity, which is a lot of XYZ to buy, you can leave the trade with 9.9999 XYZ. You still get a little less than 10 XYZ, and that’s the cost of getting liquidity. But you retain almost all the value you started with.

✍️ Author’s Note: Some exchanges may offer better or worse pricing for the same level of token liquidity, but that is beyond the scope of this article!

“Deep liquidity” means the preservation of value when trading between tokens, while “thin liquidity” means the loss of value when trading between tokens.

In other words, when there is deep liquidity, you can trade at the price of the market. With thin liquidity, when you interact with it, the price fluctuates wildly.

Who needs liquidity?

Having explained bandwidth and liquidity, we next need to understand why this is important and who really needs liquidity. One word: everyone. Also, this is not broad enough. It does include everyone and everything.

The above discussion may lead to the impression that only traders should care about liquidity. In Web3, this is not far from the truth. All users interact with liquidity because all users need to buy and sell the tokens needed for the token-based economy. Likewise, all protocols need to interact with liquidity as they buy/sell and lend/borrow between themselves and the other protocols they interact with.

Here are a few examples.

example 1 ?

First, let’s illustrate with an example of a user seeking yield. Suppose a user wants to get APR from staking ABC. Then he will most likely start with ETH or USDC (or other stablecoins), so they need to interact with the liquidity of ABC/ETH to get the initial ABC to stake.

At the same time, they start accumulating gains. Once they claim these, they may want to sell to pay bills, shop, or make other investments. Again, they will interact with liquidity to do this.

Example 2 ?

Suppose a game user decides that he wants to buy real estate and an avatar in a new “P2E” game. And the game only accepts the in-game currency ING. Well, users first need to trade with ING’s liquidity to get ING. Next, users will use ING to buy real estate NFT and avatar NFT, and interact with liquidity again (this time it is the liquidity of ING and NFT).

Example 3 ?

The function of many protocols is to convert part of their TVL to something else on a specific trigger. For example, let’s say Protocol A interacts with Protocol B to hedge when the price reaches a certain point.

When the trigger happens, Protocol A needs to take a certain amount of their Token AAA and exchange it for Protocol B’s BBB so that it can interact with Protocol B. A specific example of this is the liquidation of the MakerDAO vault when the value of the collateral falls below the minimum collateralization rate. When this happens, sell enough collateral to cover the debt in addition to the existing liquidation penalty.

Example 4 ?

Suppose a DEX protocol relies on liquidity deposited by liquidity providers (LPs) to make its entire business model work.Well, more liquidity deposits means they can offer better pricing (less loss of value for users). This in turn attracts users to trade here, rather than other venues, which increases the trading volume through this DEX. Of course, an increase in trading volume means an increase in fee income generated by the DEX.

After examining a few examples of how liquidity is used in Web3, we will move on to the issue of liquidity bandwidth.

Liquidity = Bandwidth

In this new “Internet of Value”, liquidity is fundamentally needed to do everything. So, in this world, liquidity acts as bandwidth.

To recap, as the data internet grows, additional bandwidth is needed to do more things and move more data. Low data bandwidth means participants cannot move more data. You simply can’t create Netflix until you have enough data bandwidth to stream movies reliably over the network.

In the Internet of Value, more liquidity is necessary to do more things and move more value. Thin liquidity means that participants do not transfer greater value because their loss of value is too high. Imagine an economy in which value cannot flow freely because every time it is exchanged or transferred, it loses value. This is the current state of DeFi and Web3.

Value transfer has replaced data transfer, and liquidity is the new bandwidth of the Web3 network. The problem is, the current liquidity bandwidth is thin and unreliable. Take a look at how many tokens are currently on hold and not being used as liquidity. The answer is most.

Taking ALCX as an example, on Sushiswap, less than 20% of its circulating supply can be used as liquidity. Additionally, there is additional non-circulating supply, so the vast majority of the ALCX generation is not actively used as liquidity. Note that this is not specific to ALCX, rather it is an example that applies to all phenomena in general.

The root cause of thin liquidity is that the DeFi space introduces too much friction for users to become LPs. For a normal holder, they do not provide liquidity for three key reasons:

  1. User experience challenges
  2. indefinite loss
  3. capital inefficiency

The UX challenge arises because veterans can discover and provide liquidity to Uniswap, Sushiswap or Balancer (as an example), while regular users are simply put off by the whole experience.

For those able to face the challenges of user experience, they still need to understand impermanent loss and be willing to take that risk. Furthermore, they need to have the “other side” of the trading pair, making them very capital inefficient to provide liquidity. For example, if they want to provide ABC liquidity, they need to own and provide both ABC and ETH in order to provide ABC/ETH liquidity.

As a result, DeFi liquidity is currently in a dial-up state. There just isn’t enough liquidity to enable and encourage transfers with low value loss.

Furthermore, existing liquidity is very unreliable. Projects typically incentivize their liquidity through inflationary rewards.And this inflation-based liquidity is unsustainable and can be shut down in an instant. Stop rewarding? lost liquidity. Keep rewarding? Dilute your token value.

Neither is a good result.

Mobility in the Web 3 Era = Bandwidth in the Internet Era

Tokenmak is a solution that aims to solve these problems by unlocking deep, reliable and sustainable liquidity bandwidth.

How Tokenak solves the liquidity problem

Tokemak is a tool that attempts to usher in the broadband moment of liquid bandwidth. This bandwidth will unlock coveted Web3/DeFi/GameFi applications. Tokemak’s liquidity engine will power it all.

So, what is Tokemak?

Tokenak is Web3’s unified liquidity layer, spanning all DEXs, chains and layers. It removes the friction for users to become liquidity providers and comprehensively improves liquidity bandwidth. The diagram below illustrates the functionality of Tokenemak.

Mobility in the Web 3 Era = Bandwidth in the Internet Era

Starting at the top of the graph, any user or protocol can provide liquidity simply by depositing their ABC directly into Tokenak. They do not need to go through the UX challenges of LPing at the exchange level, nor do they need to take the risk of impermanent losses.

They can deposit only the assets they own without pairing with other assets (ETH, USDC, etc.). In this way, Tokemak converts the one-sided liquidity supply into two-sided liquidity in the market, which is drawn from the one-sided asset pool.

Users known as Liquidity Supervisors guide the routing of liquidity across all DeFi. Routing the economic bandwidth provided by Tokemak ensures liquidity and ensures the success of DEXs, chains, L2s and stablecoins by providing liquidity across the spectrum. Users and protocols can then go to exchanges and interact (by buying and selling into) the deep liquidity provided by Tokenam.

If you look at Tokemak’s diagram again, you’ll notice something very interesting. The supply layer and the demand layer are the same: both consist of users and protocols as participants. This is because with Tokemak, everyone can now become a passive liquidity provider. When all the underlying assets of the entire network sit in the DEX as liquidity and can flow freely according to the needs of the participants, this unified liquidity layer becomes powerful for all users and loses value for all also the smallest.

future

So what happens when the maximum liquidity bandwidth is provided? This is the final state of liquidity bandwidth, and Tokemak will fulfill its destiny as the liquidity engine that drives the entire network.

The decentralized economy will truly be unleashed.

As we move towards a future with broadband mobility, it becomes challenging to imagine what that future will look like.While we know deep liquidity will enable reliable pricing and less volatility, the impact is far more intriguing.

Trying to imagine what will be on the imminent deep liquidity bandwidth is as difficult as someone using dial-up internet in 1995 trying to imagine Netflix streaming video to their phone. Future innovations unleashed by deep liquidity bandwidth will be even more important.

Nonetheless, I will try to speculate on a few examples of innovations built on broadband mobility that I believe are coming.

Mobility in the Web 3 Era = Bandwidth in the Internet Era

First, consider how challenging it is for individuals in developing countries to get a loan for something as big as buying a home.

In most cases, the financial infrastructure (i.e. banks) either does not exist or individuals do not have access to the system.In the new world of democratized finance with deep liquidity bandwidth, an individual’s cash flow can be verified on-chain, and lenders around the world can provide that individual with a loan or mortgage on demand. Smart contracts can instantly check the flow of funds and verify an individual’s on-chain activity, and flow funds to his wallet the moment that person requests a loan.

Second, imagine an entrepreneur with a great idea for a new on-chain business, but no capital to launch. In the future, users will post an overview on the internet and use a token template to pitch to initial “idea investors”. Individuals and protocols will see these materials, decide if the idea is worthwhile, and fund new ventures at the seed stage (or pre-seed).This compresses the entire capital raising process to something that can happen as soon as an idea and model is formed; it is every entrepreneur’s dream.

Finally, imagine the world we’re heading towards through GameFi and the Metaverse. All people will own their identities, data, and the cash flow associated with those data and identities. Web2 giants no longer have users. Built on deep liquidity, tokens used to pay and incentivize users can flow to individuals in real-time on the blockchain. All forms of entertainment and gaming can flow value and payment to participants as users interact, buy, contribute, and simply spend time in a virtual “always-on” universe, much like getting high rates in today’s video games It’s just as easy to divide.

All in all, the impending deep liquidity bandwidth will allow any value stream to flow freely without friction, middlemen or rent seekers.

The future will be even more incredible and unimaginable than those examples outlined above. The whole economy will soon run on liquidity bandwidth, and you heard it first here

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/mobility-in-the-web-3-era-bandwidth-in-the-internet-era/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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