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Sustainable Liquidity for DAOs
Tokemak is a liquidity engine that enables DeFi and Web3 protocols to efficiently generate deep, sustainable liquidity without the cost, risk and complexity of traditional liquidity mining methods.
Tokemak helps bootstrap or deepen existing liquidity through Token Reactors that act as ‘advanced’ liquidity pools which utilize dynamic APR incentives to attract and seamlessly pair assets to be deployed as liquidity across a range of decentralized exchanges.
The history of sourcing liquidity for projects in DeFi and other web3 applications has relied upon expensive liquidity mining programs. While these programs have proven effective in sourcing liquidity, they present a number of consequences that negatively impact the sustainability of the protocol:
- Impermanent Loss: When a project is successful, the native token appreciates in price creating an extreme impermanent loss scenario for liquidity providers. This not only adds an extra layer of complexity but actively disincentivizes long term supporters from contributing capital, instead it attracts capital whose interests are only to extract short term value.
- Resource Intensive: Traditional liquidity provision consumes significant human and financial resources in efforts to attract liquidity. This time could be better spent incentivizing behaviors that add value.
- Misaligned Incentives: Liquidity providers are incentivized by short term gain rather than a strong belief in the success of the protocol. Once rewards are exhausted, liquidity providers will exit their position and move on to a higher yielding opportunity.
- Hyper-inflationary Emissions: Protocols often reserve a large percentage of their total supply for the purpose of incentivizing liquidity providers. This results in hyper inflation and an inevitable decline in depth of liquidity once those rewards dry up.