4RC x Tokemak Deep Dive


4RCapital x Liquidity Wizard

Editor's Note: Pardon the formatting – the blog doesn't like nested bullets. More readable as a Gist.

Carson Cook Background

  • Ph.D. in Physics
  • Fintech
  • Wealth Management
  • Got into crypto 2018
  • Wanted to solve liquidity issues in the crypto space

General Thesis

  • internet of value replacing internet of data
  • value flow is new data flow
  • liquidity plays paramount importance
  • liquidity is bandwidth
  • “broadband moment” unlocks potential of apps
  • “broadband moment” of liquidity is Tokemak

Thesis Details

  • Partner with builders and market makers to solve liquidity issues and market making issues
  • Market making started on CEX, moved to DEX
  • Passionate builders and teams were building DeFi protocols, web3, that don't have direct connection to financial industry
  • There needs to be a DeFi native solution to enable builders to get to market
  • Get rid of headache for DAOs and builders

“Liquidity == Servers”

  • Compare liquidity to servers as pieces of critical infrastructure
  • Tokemak flips the economics
  • Effectively, analogy is “each building team is trying to solve bootstrapping liquidity. For each project. Lots of mindshare, exorbitant fees to MMs.”
  • Like the 1990s where IT had to deploy massive expensive servers. Now, easy with AWS.
  • Expensive to pay market makers or inflation via emissions
  • “Liquidity as a Utility”
  • More capital-efficient

“Touch on Sustainability”

  • Post DeFi-summer, 3-4 yrs worth of dev happened in a few months
  • Why? Liquidity mining, staking, yield farming was good for bootstrapping, powered by inflation “for a good thing” but not sustainable.
  • How can we move off of inflation?
  • Like pumping oil, limited reserves, need to find sustainable energy source. Same with liquidity. Inflation worked at first, but now we need sustainable liquidity.
  • Get started with emissions (inflationary rewards)


  • LPs provide assets into system
  • LDs: holders of TOKE, direct liquidity wherever needed across DeFi
  • Balance is supply and demand.
  • Lots of LDs, LPs get more APR
  • Lots of LPs, LDs get more APR
  • At first, LPs are paid via TOKE emissions to bootstrap

"Phase 2"

  • After paying out TOKE, internalize rewards (fees, spreads [diff between bid and ask], asset rewards)
  • Protocol takes these assets, PCA grows
  • Argument third-party liquidity supply
  • Eventually, protocol (and therefore TOKE holders) own these assets.
  • Can stop paying TOKE emissions, use PCA as liquidity
  • THE SINGULARITY: All L1s, L2s, can be supplied by PCA liquidity

“Single Sided Liquidity”

  • As an LP, you are better aligned by providing liquidity/staking on Tokemak
  • Lended tokens can be used to express short position
  • Token-as-liquidity reduces friction of value flow
  • Can only help improve fundamental reach and value of project you are supporting
  • LPs are wired to think pooling equals ASSET:ASSET
  • We break this apart
  • New users can be confused by this complex process
  • Tokemak simplifies this via abstraction
  • Not capital efficient — LPs need both sides
  • Tokemak is single-sided, like a pool 1
  • but has benefits of pool 1&2
  • Also get back tAssets
  • System mitigates IL by advanced surplus mechanic
  • Removed IL risk from LPs and routed to other parts of the system
  • Remove friction for liquidity flow and users
  • “To summarize, the advantages are”
  • Not needing to worry about IL
  • Not needing to track various returns, managed my LPs
  • Carson: “Front page of liquidity”
  • Never worry about paring, wallet-efficiency
  • (Will be rapidly increasing supported tokens, any token hash)
  • Very attractive rewards
  • Tokemak controls APRs
  • Initial group of
  • Balancer, Uni, Sushi, 0x
  • Quickly expand to other venues
  • “How would you compare to Bancor?”
  • Tokemak is meta-liquidity layer, can add Bancor as a venue
  • Uniswap to Coinbase, we are to Jump Trading/Citadel
  • No pairing against TOKE, not dominant asset (value doesn’t flow across TOKE)
  • TOKE == tokenized liquidity
  • We don’t trigger market selling/buying
  • we have sidelined reserves for ILP
  • TOKE Curing, TOKE Holders have assets seized to resolve IL
  • “What's after Exchanges?”
  • Expand across exchanges
  • Other dimensions
  • What is supported as liquidity?
  • Expand beyond ERC20 into ERC721
  • Where is it supported?
  • Expand into money making protocols, vaults. e.g. Yearn.
  • Go to different L2s and cross chain to other L1s
  • System is designed to operate on liquidity cycles
  • Evolve into an Any-Any protocol
  • LDs could direct liquidity cross chain regardless of L1

“Who can be a Liquidity Director”

  • Relevant LDs
  • Users (active trading, farming)
  • DAOs
  • Investors, VCs
  • Exchanges
  • Market Makers
  • “All DeFi Participants”
  • Mostly power users
  • Inundated with requests from DAOs
  • Working with groups to replace Pool 1 and 2 with tAsset staking
  • Pool 1 exist to remove sell pressure
  • i.e. collateral and governance
  • not much utility or value
  • Pool 2 supports liquidity
  • DAOs carve up pie
  • t1 Pool, instead of ABC is tABC pool
  • Incentive users to stake in Tokemak
  • Users get paid same amount even with single asset stake
  • Liquidity is provided across defi
  • Protocol earns TOKE
  • DAOs becomes powerful LDs
  • Exchanges
  • Sushi, Uni
  • Tokemak has $500mm in TVL
  • Exchanges will want to acquire TOKE
  • Instead of directing liquidity for a certain token
  • Exchanges want to route liquidity to their venue
  • Exchanges will fight to control Reactors in order to have deeper liquidity and tighter spreads


  • Read Medium article
  • 34% earmarked for LPs/LDs in system
  • May never need to reach 100mm max cap
  • System dynamically adjusts APR
  • LD/LPs actions affect each other
  • “Play Balance the Reactor”
  • Like a real reactor
  • LPs will be on left, LDs on right
  • If overweight on one side, increase APR on other side
  • Can max out emissions that occur during peak efficiency
  • More value system provides, more emissions
  • Efficiency == more rewards

“Long Tail effect of fee capture”

  • Ex. Sushi
  • You earn SUSHI
  • These fees/rewards are internalized into the PCA
  • DeFi-trading weighted portfolio grows via the PCA
  • TOKE changes from being “Tokenized Liquidity” into being “your share/claim on the portfolio of PCA”
  • Intrinsic value of TOKE is backed by PCA
  • e.g. Tokemak has 50B of PCA owned free and clear
  • Could vote to redeem/burn TOKE for share of PCA assets
  • “In addition to benefits of LP experience is the benefit of a crowdsourced yield farm pool”
  • Despite paying out TOKE rewards, long term you earn a claim on a yield farm portfolio via PCA


  • “How profound of an event is this?”
  • The Singularity is point in time where the system no longer needs third-party LPs. Protocol owns enough assets free and clear.
  • Thesis that liquidity is bandwidth, want spreads to go to 0
  • If you remove friction, market price should == market price.
  • Protocols can be highly efficient users, zero spread allows value to move without waste
  • How does Tokemak monetize if there are no spreads?
  • Can introduce new decentralized participants
  • Post-Singularity, instead of withdrawing share of PCA, you can intro a decentralized manager e.g. Fund Manager that can do various trading strategies to generate returns on a huge pool of PCA

What’s next on the roadmap?

  • Next big event is the CORE event on September 28th.
  • Collateralization of Reactor Events
  • Community decides which Reactors to launch
  • Anyone with TOKE can vote to decide which of 25 assets to launch into the first Reactor
  • Can allocate any amount of votes
  • Week-long period
  • A few weeks later, LD goes live.

Gas Optimization

  • Gas sucks right now. How do we optimize?
  • LPs and LPs (assets, or toke holders) only interact with surface contracts
  • Manageable expense once in system
  • Reallocating votes just requires a signature from wallet
  • Handled by Tokemak DAO
  • Should be a nice UX

Dumb Down ILP. Who is picking up the bill?

  • Earnings in early phase; rewards are in TOKE
  • How do we protect the user’s principal?
  • Sidelines reserve of underlying asset
  • Has done lots of modeling under varying circumstances
  • Asset (put up by DAO)
  • If this surplus doesn’t cover, local TOKE is pulled from LDs
  • LPs are always made whole 1:1
  • Surplus mitigates most of IL risk
  • LDs then carry remaining risk

“What are you excited about?”

  • Team has been teasing NFTs
  • Can reward active users who have participated in degenesis, CORE
  • Utilize tAssets w/ NFTs

Hop in #the-leaky-reactor!

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