How to get liquidity in DeFi, how do bribes work and why should you care about them potentially coming to avalanche through @Platypusdefi and @traderjoe_xyz?
Imagine you created a new protocol, it lets some users do some things using your native COW token.
You want to let users buy and sell COW whenever they want at a fair price because you believe in the future of your protocol.
You go to a DEX and create a COW/$AVAX pair.
You want to let users buy and sell COW whenever they want at a fair price because you believe in the future of your protocol.
You go to a DEX and create a COW/$AVAX pair.
Seems pretty easy, right? But the hardest part is still ahead.
For the price of COW to stay healthy and not fluctuate too much with every buy or sell the pair needs a lot of liquidity (potentially millions).
So what are your options to get it?
For the price of COW to stay healthy and not fluctuate too much with every buy or sell the pair needs a lot of liquidity (potentially millions).
So what are your options to get it?
1. You can provide it yourself, but the chances are you don't have millions worth of AVAX lying around especially as you've just spent a lot on development. Even if you do, those millions are probably better spent elsewhere (i.e. on more development).
2. Create a "farm" and start giving out COW rewards to those who supply COW/AVAX liquidity. You crank up emissions to provide triple-digit APRs. It attracts a lot of liquidity in the short term, but as time passes you notice that the majority of LPers just sell their COW rewards.
It seems like liquidity providers don't share your long-term vision on the protocol and the token. This is the infamous mercenary capital. It will farm your token, sell it and move on once APRs end.
Alameda, for example, is notorious for using this tactic with $JOE and others.
Alameda, for example, is notorious for using this tactic with $JOE and others.
3. You can go to a DEX team and ask them to create a farm with rewards in the DEX's token. As they make revenue from swap volume it is beneficial for them to have deeper liquidity on certain pairs, so it might be worth to "leak" some value in token emissions in return for TVL.
You might even decide to throw some of your own $COW tokens on top for a double farm, or $AVAX from ecosystem incentives to make LPing even more enticing triple farm.
The problem is that it might be hard to get a good deal unless you are already an established protocol/team.
The problem is that it might be hard to get a good deal unless you are already an established protocol/team.
+ the problem of mercenary doesn't really go away, you might be still diluting your token supply unnecessary and ecosystem incentives run out at some point.
4. Instead of renting liquidity with COW tokens you can offer users to buy that liquidity from them. Liquidity providers can exchange their COW/AVAX for COW at a certain discount. The COW is vested over some period of time and owners can then choose if they want to sell or hold.
The protocol on the other hand now has a lot of LP tokens that it can lock in perpetuity + earn some trading fees on it.
This approach was pioneered by $OHM and started the whole "OHM fork season". It is still used today by many through the Olympus Pro program.
This approach was pioneered by $OHM and started the whole "OHM fork season". It is still used today by many through the Olympus Pro program.
5. If the DEX you want to use has a governance token, you can accumulate it and lock/stake to use its voting power to direct DEX's token emissions to your pair.
This is a combination of approaches 1 and 3, it removes middlemen (team) but is risky and not very capital-efficient.
This is a combination of approaches 1 and 3, it removes middlemen (team) but is risky and not very capital-efficient.
6. But what if instead of accumulating governance tokens yourself you could entice existing holders to vote for your proposal by paying them small amounts in COW, stablecoins or other tokens?
This is known as "bribing" and was first introduced for Curve's veCRV governance token.
This is known as "bribing" and was first introduced for Curve's veCRV governance token.
With bribes you don't need to have continuous token emissions - you can use the project's treasury to bribe DEX's governance once in a while.
The protocol also doesn't have to hold anything itself - the exposure risk is somewhat offloaded onto governance token holders.
The protocol also doesn't have to hold anything itself - the exposure risk is somewhat offloaded onto governance token holders.
On #Avalanche approaches 1-4 are pretty common (with Rocket Joe being a very interesting case/outlier), JOE and PTP wars make 6 very likely once governance is implemented. Because of how the vote escrow mechanisms work on Avalanche 5 is a bit hard, but not impossible.
Lastly, we learned why bribes are good for protocols, but why are they good for us users?
The biggest one is probably that the bribes introduce a source of an external yield. Holders no longer rely only on DEX doing good but can get more (stable) rewards in form of bribes
The biggest one is probably that the bribes introduce a source of an external yield. Holders no longer rely only on DEX doing good but can get more (stable) rewards in form of bribes
Hopefully, this gets you as excited about vePTP and veJOE as I am. In future, we might also see veYETI and veQI governance as well, which might bring the ecosystem to a completely new level.
Also, if it wasn't clear COW is imaginary tokens, all matches are coincidental.
Also, if it wasn't clear COW is imaginary tokens, all matches are coincidental.
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