Index Coop DeFridays with Liquidity Wizard
Liquidity Wizard sits down with the Index Coop team to discuss Tokemak.
Listen to the end for alpha!
Thank you to Bullish Bear for the following transcript & takeaways!
Liquidity deployment has been scaling up. Around $350 million is deployed, with Sushiswap and Uniswap deployment starting this week. Meaning: a lot more liquidity is coming from Tokemak over the next few weeks, which will be monitored carefully by the Tokemak team.
C.O.R.E 3 will be coming next month. More details are expected to come soon.
The Tokemak team will have some more info on L2 integration in the near future.
An interesting and exciting update to the tokenomics is coming. To quote the Liquidity Wizard:
“I think it's going to probably blow everyone's mind…if their mind was already blown by Tokemak.”
The tokenomics update is related to elevating other tokens and evolving their tokenomics in doing so.
Curve & Convex
The Tokemak team is working more closely with Curve and Convex, and has hinted that more will be shared on that soon.
$MAK is going to be instrumental in the pricer network. $MAK is basically going to be used in order to allow market makers to access bids, offer prices, RFQs, etc. Liquidity Wizard has hinted that there will be some interesting use cases for the broader community, with more information on that coming in the future.
Exaverse & $EXA
Exaverse is a big nod to the Tokemak pilots (Tokemak community). Exaverse will have NFT GameFi connectivity and will reinforce the liquidity of Tokemak in interesting ways. Tokemak and Exaverse will be essentially supporting each other. There will be an $EXA token associated with Exaverse and some other goodies as well.
Membrane & $Brane
Membrane (an OTC trading and bespoke lending protocol) is going to roll out over the next several months. The Token's name is $BRANE and its estimated launch is around the summer.
You can find every speaker in this transcript simply by entering their @name in the Twitter search bar.
All right. Welcome in, everybody.
We are here for another round of the DeFridays $GMI series. Today's guest will be the Liquidity Wizard from Tokemak. We'll give him a few minutes to arrive and get settled in. I'm gonna get a tweet off in a second, and I'll come back for some housekeeping items to get us cracking.
Thanks crypto Texan for popping in here today…and there is the Liquidity Wizard.
Happy to be here.
All right. Welcome to Mr. Liquidity Wizard! Is that right? How should we address you?
That's perfect. Liquidity Wizard is fine, Carson is fine, whatever. I'm easy so I appreciate you having me. This is great.
Awesome. Thank you for coming on, Carson the Liquidity Wizard. So I always open it up by kicking it over to Mr. Ben, one of the GMI methodologists.
Ben, what is GMI? Why are we all gathered here today?
Yeah. Hey everyone.
Hey Carson. Great to have you here. Yeah, so…GMI is the Bankless DeFi innovation index. We are an index that holds DeFi tokens across a bunch of different sectors, including liquidity management. We typically hold tokens from kind of newer, faster growing projects – a little more, a little farther out on the risk curve. A little more experimental with their token design and with their protocol design.
So yeah…it's really great to talk about Tokemak. Huge fan. I'm super excited for this conversation.
Yeah. Excited to be on here.
Yeah. Carson, go ahead and introduce yourself to everyone gathered here today.
Yeah. Absolutely. I’m Carson Cook, also known as Liquidity Wizard, founder of Tokemak and the TOKE token. Probably will be best at some point on here…I'll give a little Cliff's Notes for any of you that aren't super familiar with the protocol.
My background is in tech. I came from academia. Did a Ph.D. in physics and ended up in the trading side of things, which is where I saw the need for Tokemak…and really sort of see liquidity as bandwidth in this space. The rationale being that as web3 is replacing web2 you have tokens moving around, so the value flow is really in the form of tokens.
Value flow is replacing data flow, and the goal with Tokemak is to effectively be this infrastructure utility. That is the liquidity provider that ensures that the value can flow as freely as possible…and as many protocols, users, and really interesting applications that will be coming in the future in web3 can flourish in the space built on top of that liquidity.
Awesome. All right, Carson. What is the TL;DR for Tokemak? Obviously the GMI index is a composite index of many different tokens, so what are folks getting exposure to in the TOKE token that is a part of our index?
Absolutely. So I'll start with just a real quick overview of how the protocol works – which is going to hit on the TOKE token – and then I'll get right into sort of what you have when you're holding the TOKE token.
So to come back…as I mentioned, it is a decentralized liquidity provider or decentralized market maker, and effectively it is disaggregating three key pieces that make any market maker or liquidity provider work: the capital, the sort of direction where you're going to deploy that capital, and then ultimately the actual sort of operational piece of trading, setting bids and offers into the market.
Within Tokemak, there are two main groups that interact with the protocol at the moment. There will be more in the future. Right now it's liquidity providers and liquidity directors.
Liquidity providers provide any tokens – so, say, ABC. These can be governance tokens – things like ALCX or FSX – or it can be stablecoins like Fei, Frax, USDC, or ETH. When they provide liquidity into the ecosystem, they get back a tAsset. You can kind of think of it like an aAsset on AAVE. Then what Tokemak does is it directs that liquidity – that we hold as inventory – out as usable liquidity in the markets across Sushiswap, Uniswap, Curve, and in the future Balancer, 0x, etc.
And the people that are actually orchestrating that deployment, or voting on where our inventory should be deployed as liquidity, are the liquidity directors. Liquidity directors are those that hold TOKE and stake it…and we kind of call TOKE tokenized liquidity, so they're staking the TOKE and then they are using the votes or the governance associated with that to route liquidity.
So coming back to your question of what it is when you hold TOKE: you're really in a lot of ways holding tokenized liquidity – or a share in the control and ownership of this protocol that houses inventory, but importantly flows liquidity across DeFi.
Excellent. Thanks for the overview..and "TOE-KUH" not "TOAK." What percentage of the community is aligned on that? Or is it a little bit of a decentralized naming? Index Coop versus Index Co-op is a common battleground for us.
So I'd actually love…before I answer that, what is the official terminology on Coop versus Co-op?
I think it depends on who you ask.
OK, yeah. Same with ours.
It's very decentralized.
Uh, yeah…we found…I mean it is technically Index Cooperative, you know, so Co-op would kind of be the official person. I used to be a, uh, Index Cooperative, but…a coop for short kind of person. But I'm kinda just a coop maxi now. I like it.
There you go. Well, I'm with the bird connection. I think…yeah, you go either way. I literally was talking about that earlier today before I joined, and it's the same thing with TOKE. I would say there's no official pronunciation. So anyone on the call: if you're hearing me say TOE-KUH and you don't like that one, yours is just as good as mine. I usually say TOE-KUH.
Sometimes I say TOKE. Sometimes I say TOKIES, which…one of our community members in the really early days started sort of teeing that up, and made some pretty funny videos with it. So I often jokingly referred to it – or lovingly referred to them – as TOKIES, but really I would say TOE-KUH, TOAK, or TOKE-EE. Seen all of them. Nothing is more correct than the others. Pick whatever you like. We like a sort of decentralization of verbalization on this.
Yeah. Whatever meme sticks is kind of how most things work in this space, right?
Yeah. So I would love to just talk a little bit more about it. Were you the founder of Tokemak, Carson?
Yes. Correct, correct…
…so…founder and, sort of…initial, call it architect-strategist, at the top-down.
So my…forte is mechanism design, architecture design, and…top-down sort of product. Like, I basically create the first version of it, and then I have the rest of the people on my team who are the developers, and are much better on any given nuanced piece of it. Really dig in and clean things up. Number of…and obviously this is a team effort, so we've got, I think, the best team in DeFi here – and a big group of developers, strategists, et cetera, operations, all of which make all this happen, so…
Awesome. Yeah. Shout out to the whole core team and the community. You guys are all part of making this happen in DeFi and DAOs.
So. Yeah, Carson, I'd love to just go through the founding journey – especially through the lens of Tokemak being kind of considered a DeFi 2.0 protocol – and I'd love to hear you give your take on when the idea for Tokemak was conceived. Was it before or after DeFi summer? Meaning, like – did the base primitives of DeFi, Uniswap, Compound, AAVE – did they already exist when you came up with that idea or conceived this? Or…yeah. Take us through that journey.
Yeah. Great question.
So…in 2020, as everything was taking off…and maybe I'll actually go back a little bit, pre-2020 even. So…a number of the other OGs in Tokemak started with me at a firm called Fractal. That started in January 2018. It started as market making on centralized exchanges, and then quickly went into DeFi market making.
I remember in, probably, early 2019…we had these sweatshirts that said Fractal on the front, and DeFi in all caps in the back…and you would go to crypto conferences, and people would be like: "What does this mean on the back of your sweater?" Because it just…very much wasn't established yet.
But we were always either one of the biggest or the biggest market makers on 0X at the time. So that sort of got us to see a lot of this stuff before 2020. And really, even starting in the spring of 2020, things took off…and then by DeFi summer we were sort of positioned in the right spot to watch this stuff happen, and try to quickly digest and understand what this really meant for the ecosystem.
So as we were watching all this, making markets, partnering with projects, providing liquidity…it was in the April/May time frame of 2020 where we…started asking this question to ourselves, which was: OK, we had these great relationships with all these different DAOs. All these different token projects. We're helping them with liquidity and market making out in DeFi on 0X, and Uniswap, and others, but…we were a decentralized market maker, but we weren't a decentralized decentralized market maker.
In other words, it was still a company. We still were running things from servers communicating out with the blockchain, but we weren't running it from smart contracts. So we started asking the question: well, what does a proper decentralized market maker look like?
And to answer your question of sort of what priors we had: Uniswap was already out there, so we were looking at these things and saying: OK, the sort of analogy was OK Uniswap is to Coinbase...as at the time we were just calling it Fractal, what would become Tokemak. We said…Uniswap should be to Coinbase as Tokemak is to a centralized market maker, so something like a Jump Trading or an Alameda. So that was kind of the thing that we started pulling on…
I always start from a cartoon or, like, at the highest level and top-down, and just sort of work and dig deeper into it…and then have the team help sort of plug the gap and fill out details where maybe I got things wrong. But the starting point was: OK, if you zoom out far enough from a market making firm, what actually makes them work? That was how we sort of arrived at these three different things that we decentralize, which we call liquidity providers, liquidity directors, and pricers. Pricers, by the way, we haven't turned on yet. We might get to that later in this call.
But really, what we were looking at is: OK, if you zoom out far enough from, say, a Citadel or something…some market maker. What are they centralizing to make it work? And the answer is capital. Plus executives that basically set strategic direction on what assets will be traded and where…and then third, basically, the actual trading technology stack and traders that make things work and set bids and offers. And so, when we have that, sort of…OK, this makes sense.
Now we can actually start architecting. That sort of piece of the story came together kind of in April/May 2020. We started then on building it. Initially Tokemak did not have...it was still called Fractal at the time, and later we decided, well, that's really confusing if some people knew us as this centralized decentralized market making firm called Fractal.
And now we're going into a protocol. It makes sense to have a new term. So for a while it was called Fractal. But basically all of us say Tokemak now. So Tokemak started being sort of built out in DeFi summer. And as we were watching everything – and as you had Compound with the COMP token and the airdrop, these things starting and then going forward – you had Synthetix and YFI, and all these really interesting things developed in the summer. We realized that a token could be very powerful.
And this sounds, like, hilarious in hindsight, but…at the time, I loved tokens as long as they had utility. But I was not…when we first were constructing it, or constructing the architecture, it wasn't immediately apparent where the token would fit in or how. Because I was always of the opinion that if the token can be used for something beyond just a paperweight, then it makes sense. And as we were decentralizing these different groups, I mentioned those three buckets. We sort of had this a-ha moment. And I remember one of our people on our team, John, was like: hey, we should have a token!
And I was like: no. And then a day later I'm like: wait, we should have a token. Because then I realized that the three different groups that we were using – the way capital gets in the system – that's the liquidity providers. They can provide anything in the form of the tokens they already have. That doesn't need our token. That participant makes sense. The way pricers enter the system, which is going to happen later in 2022. This would be just for any venue that doesn't trade on a curve. So: things that aren't Sushiswap, Uniwap, Balancer, Curve, et cetera. So, something like a 0x, DiversiFi – an order book RFQ model there – you need a pricer.
Those are just going to be a distributed network of market makers or contracts that can basically interact with these and inject pricing. That part was fairly clear. But the part for this sort of strategic direction of, like: where does the liquidity actually need to be deployed? Where can it be useful? That was where we sort of had this a-ha moment. And I realized: OK, if you can use our native token – if we do introduce a token here, and you use that to almost tokenize – the concept of liquidity gets really powerful.
So now you basically have inventory, and your proxy to that inventory for deploying is the token. So that all came together again. Sort of started in April/May 2020, and then really evolved kind of through the summer into the fall. And then we really got started writing code. And I see that.
I think Craig was on this call. He can keep me honest here, but…I think kind of November/December/January was sort of when initial code started being written. And then from there it was just drilling down deeper into all these things going into our launch in summer of 2021. So kind of a 6-8 month period of…writing the initial stuff. And then – since then – we've been, of course, adding more features. And now, of course, liquidity is being deployed and we're scaling up.
So that's…the history of Tokemak.
Awesome. Yeah. So it sounds like you definitely had the idea for this decentralized market maker to serve the role earlier on than DeFi summer. So how did you feel about watching this space develop over – I guess – early 2021, before Tokemak was really rolling? What do you think the ecosystem was lacking without a protocol like Tokemak in place?
Yeah. So. It's a good question. I think – I still think – there are, by the way, lots of interesting things that the ecosystem is lacking. Not just at a DeFi level, but at a broader web3 level. And so there are all kinds of interesting things, some of which you're already seeing. Protocols starting to step in to fill the void, and then a lot where there's just going to be crazy innovation still to come. But, I think, specifically for Tokemak and the void that this filled, it really was…looking at the fact that being a liquidity provider had a lot of either friction – or friction for normal individual users – and/or was sort of reliant on these very non-DeFi, non-web3 constructs.
So…what I mean by that is: let's start with…why it was challenging for individuals. I like to say that…for a while I was always thinking: "OK, DeFi is easy, and TradFi is sort of hard." But it really isn't like…for most of us on the call, I think – if anyone found their way into this – you're a pretty advanced DeFi user. But if you actually think about it…stop for a minute, and think about all of…not only the profile of the person you are and how your brain works in order to get you into this space.
Like you need to understand, to some level, finance…or at least financial risk technology and technological risk. A lot of different things that you have to sort of have crawled through in order to just get access into all this stuff. [To] find ways to flow assets into DeFi and web3, and then be able to interact with all these things. So it's a pretty unique…at the moment it's still – if you really think about it – a pretty hard thing for people to access. Once you're in it feels easy, but it's a little bit tricky.
Just to compound that, once you're in, it was a very advanced user in my opinion that was able to provide this liquidity bandwidth that I thought the space needed so much. So you need to not only be someone who knows how to trade or on Uniswap, but now you've got to stumble into the liquidity provider tab. Maybe or maybe not understand the risks of IL. And then, importantly, once you find it and you are ready to do it, it's very capital inefficient.
So if you're a supporter of SNX and you were sitting in 2020, you're going in 2021, and you had $50 million of SNX. Or maybe that's an extreme case. Let's say $50,000 of SNX, and you wanted to go and then provide more liquidity. You also needed to have $50,000 of ETH, USDC or something other on hand. So it's very capital inefficient. The onus was on the user to have the right inventory of these things and go directly into the liquidity providing layer, sort of, at the exchanges.
So that was a big opportunity…for Tokemak to abstract things up one level and say: OK, whatever you have in your wallet, it's much more efficient for us to just say: as we add more and more tokens (and we might get to C.o.R.E. 3 later in this call)...just give us the tokens you have. If you have SNX, in that case you have $50,000; you shouldn't need to have $50,000 in the other one to provide liquidity. Flow it into Tokemak separately. We're crowdsourcing the ETH and the stables, and then our manager contracts will combine those things and deploy into SushSwap and Uniswap. So that was definitely, I think, one of the things that was needed prior to the launch of Tokemak.
Another thing is, in order to do that…this is sort of the other side of the coin, right. It's hard for retail. On the other hand the groups that are able to do this were ones that often were centralized in an entity, and just had massive amounts of capital available to them to sort of do this at scale. And it's great that they were and are supporting the ecosystem. You could just sort of tell looking at this that…OK, that's not where the end state of all this is in the future, where ultimately this is all protocols interacting with protocols.
So I think those were the things we were seeing, sort of, at a structural or mechanics level. And I think the actual state of that meant that the liquidity was quite thin in a lot of spots. Still is, by the way. And Tokemak obviously is just getting into liquidity deployment, but it means low liquidity, which means volatile market.
Now that's not just from liquidity, but low liquidity contributes to more volatility. And it also means that as users are trying to access governance tokens that get them into games.
That meant when they went to buy themselves tokens, they were losing more money because not only are they paying the fees on the exchanges, but they're also enduring large slippages because the pools of liquidity just weren't deep enough. So, those were really like the things that we're trying to address here.
And I think this is a little bit off topic, but I want to say it now in case I forget later. Along those lines, sort of: OK, we want to have a protocol that can do this instead of relying on centralized companies.
I think ultimately what a lot of insiders, at least myself and I think probably other insiders within DeFi are seeing right now is…I think DeFi is going to get more and more opaque, and I think at some level that's OK. So it seems like a retail phenomenon; it has been thus far, but I mentioned how hard it is for…we might not think it's easy, but how hard it is, and how many things you keep in mind and index in your head in order to use this space.
I think the reason all of us probably feel like the space moves so fast, and maybe I often say I think I'm aging myself at five years to one right now…being in the space and innovating in the space and just using this space is because retail has currently stepped into to play the role that protocols or what would normally be called business B2B…
…but here I'll call it P2P (protocol to protocol) were meant to do. So a lot of this stuff is going to slowly sink into basically the internet stack, and just like you know developers now that are in web2. They're choosing Google or iOS, and then they're just building on top like their software there. They don't think about TCP/IP and all these things that are lower in the stack. I think the same thing will happen with web3, as you have this massive new decentralized economy that's going to be built on the foundation of DeFi. Those applications will interact with DeFi. But the world of DeFi will often be a lot of these different protocols and individuals.
It's still, of course, democratized. So luckily, all of us can still participate. But I think it gets harder and harder to understand what's going on and why, and that's OK. If Tokemak and a lot of these things sink in, and you have an amazing sort of emergence of an interesting economy with gaming and entertainment and experiences that are built on top with all of this promising stuff that's coming with web3…I think that's what really matters.
Yeah, it definitely resonates with me…the building for protocols world. Here at Index Coop, earlier on in DeFi, we kind of relied upon retail to provide the liquidity for our products, and across DeFi you saw folks doing liquidity mining incentives to try to incentivize that. But as we kind of get more mature here, providing liquidity is more of larger ticket LPs. Kind of makes more sense for them to be providing liquidity, especially with the rise of Uniswap V3. We really don't want to just lead retail in to get slaughtered, providing liquidity in a Uniswap V3 architecture where they may not quite understand the risks and be able to manage their position against that volatility. So definitely appreciate Tokemak’s role and kind of building out that protocol to protocol future. And I'll hand it over to Ben here to get some questions or Crypto Texan if you have any. I think I saw you come off once or twice.
Yeah. Sorry – I'm driving right now. So that was kind of my signal to let you know that I had a question or two. But yeah, so…just something I was kind of curious that you touched on earlier. I mean, you mentioned Alameda and Citadel. And do you see those centralized market makers as competitors? Because I don't think that they are really in the business of market making on the centralized protocols. And so I guess my two questions are like, why do you feel like they are not interested in market making on the centralized protocols? And also who do you see as your competitors in this space?
So I'll start with the first question; then I'll go on to the competitors one.
I don't see any of the centralized market makers…by that just meaning where there's a company running things from servers, whether they're active in DeFi and DEX or DeFi liquidity or not. I don't see it as competitive really in any way to Tokemak. I would say Tokemak is really just showing…it's ushering in basically a new way of doing things. And so if anything, this is saying: hey, we should maximize liquidity. We should maximize liquidity bandwidth.
And so this just gives another tool in their arsenal, basically, to go after deploying liquidity. As you correctly identified, right…some of these only are active in centralized exchanges anyway. For centralized market makers, some do go in DeFi. But now they can sort of play the…do they want to flow liquidity into Tokemak and have that be deployed across the space, or do they go directly to Uniswap, or do they do a mix of both? And I think all these things, as long as they sort of open up more avenues for more capital, more liquidity bandwidth in the space…I think that's like a net win.
So the goal of this was never to put centralized market makers out of business…more just because ultimately you still need protocols, individuals, or firms that blow capital in. So I think over time, right….this is not a statement about centralized market makers, but rather, I would say just corporations and centralized entities in general. I think those models die out over time. Right. But that's not something that's sort of inherent to that. It's…you get these tools out, and then you just slowly realize that they can run things better in some sort of a smart contract based protocol model or DAO model. On the competitor side. So it's interesting.
There's a couple…I would say more like clone things that are very small, like popping up. But really it was interesting…when we sort of launched, in my opinion, there were no competitors. And I'll even say that I don't think there are any competitors right now. There are some clones that are popping up. But the reason I say I'm not worried about any of those: this is really, in a lot of ways, like a utility or public good. And once you have that, there's some absolutely insane things.
I'll maybe leak a couple of small alphas today – pieces of alpha later, if we get to it. But the next few phases of this that are coming are going to be very crazy. This is also sort of interesting. It's very hard, if not impossible, to fork Tokemak right now…unless you know the other pieces of the puzzle that we haven't divulged yet. We'll just leave it at that for the moment.
Yeah, that's good. It seems like you really want to leak that out, but I guess we'll just wait 'til later. That's all I have right now. Ben, if you wanted to...oh no no, go ahead Carson.
I was gonna say…I'm sure at some point questions will come up. Sort of what's next and things. And if we get to that, I'll leak a few little pieces of alpha anyway.
Yes. I always hand it over the last couple of minutes. We'll go ahead and tease the roadmap. What's next?
Yeah, that's all I had for now. Ben, you got something.
First of all: very excited to hear those alpha leaks. But yeah, my question is with regards to DAOs. Just working on GMI sourcing liquidity is just painful. It's so expensive. And our own liquidity has just been stagnant, really, since launch. And this is something I've learned: like we need liquidity, pretty much, if we want to get a Chainlink oracle. If we want to be able to do anything, you need liquidity. My question is: how can Tokemak reduce the cost of liquidity for DAOs and make it easier for DAOs to get their own liquidity?
Yeah, very good question. I think this will link a little bit over here in C.o.R.E. 3, so I'll get into that as well. And I also wanted to mention where I was talking about…competitors and forks and stuff. We're also seeing some interesting things where we've seen at least one that's sort of a fork that actually could be very synergistic in sort of a way…where you've seen other things where they sort of fork and you figure out an interesting way to link together economics. So probably nothing I'll share at the moment, but there could be some interesting ones where groups are using very different use cases of these things, or can be actually synergistic with us.
OK. So coming back to your question on sort of, how can DAOs leverage Tokemak to reduce the cost of liquidity? So someone on my team, I'm trying to remember if it was Bruno or who within the protocol…they did an analysis once for ALCX as liquidity is deployed, which of course, we just started a couple of weeks ago…and then this week started dripping it out now on Sushiswap and Uniswap. What the reduction in sort of token emissions would be, versus what groups are currently emitting.
So if you take a big step back from everything right now, groups are generally incentivizing pool 2s, which are basically compensating for whatever the market's perceived risk in their mind is of the IL. With Tokemak, this gets a little bit into sort of the next phase of these things, which I'll leak a couple of things briefly today on.
With Tokemak, you can actually show that the cost to them was provably the minimal amount of IL that they endured. So it's not what people think it might be, sort of overcompensating and maybe paying 100-200% APR; it's whatever actually the valve sort of introduces in terms of IL. So I think when we did that analysis, it said: once Tokemak is deploying at scale…and ALCX is just as an example…is using this, if they turn off their pool 2 incentives and instead just incentivize the staking of a tALCX asset which they have started…they just haven't turned off their pool 2 yet because we've been inching into the liquidity deployment…they could reduce it something like 8-10X what their emissions were.
So you get really interesting sort of network effects here, which come from…there's multiple things that contribute to this, one of which is just basically crowdsourcing liquidity…and getting interesting network effects from crowdsourcing each one individually and then using this separate pool – which we often call the reserve – to manage the IL so that you're not pushing it on the users and you don't have to overcompensate them for the IL.
And that leads to, we think, a really interesting model for DAOs where they can charge or basically emit less for liquidity. Now, the way that right now, obviously, there's only about the nine reactors that are live on the token reactor side. And then separately, we have basically the stablecoin side or the base reactors, and we are going to be doing a C.o.R.E. 3. We want to get to where we can do permissionless reactor spin up, but we're going to be doing one more C.o.R.E event first. It will happen sometime over the next month, and we are going to level up more stuff that we'll be sharing soon on that. But C.o.R.E 3 will make sure we get probably five more reactors sort of online.
And then after that, we want to push quickly to permissionless reactor spin-up, which will – coming back to your question – mean not only can projects sort of reduce their emissions, but they can get on Tokemak in the first place. By dropping a token hash in, getting some inventory in there, and getting enough TOKE to stick to it, they can sort of be up and running. So that's where we want to go.
And at that point, then this thing really functions sort of in a manner that can help projects not only once they're established, but as they're getting off the ground and starting their liquidity.
Cool. Yeah. I think…just a plug for the audience. I think you or someone on the team put out like a great piece on Alchemix and reducing emissions a few months back. So everyone should check that out.
Yep. A good plug. I think it's on medium, right? I think that's where we put it?
Yeah. My next question relates to C.o.R.E. 3. Interestingly, and during the the last round of quorum, Votemak spun up and they got acquired by REDACTED. I was curious to hear your thoughts on it. The…emergence of bribe markets for TOKE holders and Hidden Hand. And what are your thoughts on a C.o.R.E. 3 and how bribes will play a role in the protocol?
So I think it's really interesting. This is one sort of where first I think…obviously the term bribe sort of was pioneered over in the Convex/Curve ecosystem. And I think ultimately it's just an unfortunate name, maybe only because of the non-DeFi connotations that it has. But I think fundamentally it's something that just sort of naturally is a part of the ecosystem. So whether you love it, like it, dislike it, whatever, it's sort of something you just want to acknowledge that…yes, this can happen. This is sort of the free market.
And so if groups want to…ultimately for us, what it signals is which groups really want a reactor the most. So they're basically encouraging – with emissions of their own – them to say: hey, if you vote some certain way, we can get things turned on.
So the interesting thing here is: I think what it does right is…it sways people that are not loyal to a certain project. So what I mean by that is: if we have 30 different projects, 30 different tokens that are eligible to be ignited or to get reactors in C.o.R.E. 3, and if the top five are going to get it…you're going to have a lot of people who have massive belief – massive positions, whatever – in different protocols, so they're going to know which way they want to go. And if they can get a $10,000 bribe and ABC token to go a different way, it probably won't deter those people.
On the other hand, you have a lot of people with TOKE votes that might be earning from liquidity directing on the other tab or in the other part of the site, and they might not have a strong opinion. Maybe none of them are ones where they particularly know a lot about or care about the projects. And so it's an interesting way to get sort of more participation in the space.
Now, I know the Redacted crew very well, and Sami, and I think the nice thing was they were very transparent when they went through the sort of acquisition…reached out to me, asked if I could help advise chatting every week or two…on these things. So the nice thing is: it makes sure…that it's a win-win for both sides. So if we understand both myself – and then more importantly the Tokemak protocol – how their mechanics work, then we can make sure that it is useful for Tokemak, and also make sure that we understand the signals coming from their protocol so that we can work it in.
What I mean by that is: there's a world where that could be used potentially down the road beyond just for C.o.R.E., just to basically be a way where projects could add additional incentives on top of the TOKE incentives for providing liquidity or directing liquidity. And so again, just having some sort of a line of communication…understanding how that works so that we can see and build that into…our all-in economics equations which might optimize for emissions. Like it assumes that players will be greedy, and it sort of wants players to be greedy, because the system is the most balanced if people go after the highest rewards and the system operates most efficiently. So long as we understand any of these sort of external incentives built in…that we can make sure that Tokemak still functions efficiently.
So that's maybe longer-winded. But I think on the whole, it's a natural part of…the evolution of DeFi, where you sort of can't limit Legos. And I think ultimately, especially for C.o.R.E 3, it's sort of a nice thing to get people interested in it, and maybe take actions if they didn't have an opinion otherwise.
Right? Yeah, that makes sense. I know. I'm very interested in seeing how bribes play a role in C.o.R.E 3.
Another question I had is about tAssets. I know with GMI, I'm very interested in figuring out a way to get tAssets in there. Can you maybe talk about kind of…what, explained to everyone…what tAssets are and how you think they can increase the capital efficiency of DeFi? And what are your plans to maybe integrate them into different protocols?
Yeah, great question.
So tAssets, for any of you that aren't super familiar with Tokemak…so, these are basically the IOU that you get back – the token you get back when you deposit a token. So if you put in an ABC when you deposit tokens as a liquidity provider…if you put ABC tokens in, you get back at tABC 1-for-1. Likewise, you burn those; you redeem them when you pull back out your principal that you have lent.
So the interesting thing about this is: if groups can start building things around tAssets…or taking this even further, if protocols begin saying: hey, you need to stake a tAsset…instead of just having: stake ABC here, and you get a governance vote and can participate in governance…if instead they say stake tABC, well, then that means that their underlying ABC is being used as useful liquidity bandwidth. Again, out of the ecosystem makes it easier for people to buy and sell, trade in and out of the tokens, and access the protocol, really. And then they can still do something. They can basically assign those governance rights up at the tABC level. So I think it’s really interesting…as the space expands. The goal would be to get as much liquidity being provided out there, and instead use this synthetic or derivative whatever you want to call it, this tAsset…as a placeholder that other protocols build around.
Because if you want your users to have their tokens sort of staked into governance, well, why not have it be used as useful liquidity and then sign the governance up to the asset? So a lot of interesting things coming from there, too.
I'll also just maybe make an interesting sort of nod that there is a future series of tokens planned. This is a little piece of the stuff that I was mentioning that are going to be really exciting with Tokemak, so that it won't just be tAssets. But there's going to be another asset that's going to have even more, basically. Another option for liquidity providers, with even more interesting economics, that supports the protocol even more. So that's going to be coming out over the next several weeks. We'll be sharing more with that.
But coming back to your point: yes, I think building around those are really helpful, again, because then you can sort of overload the functionality. A lot of tokens are sort of sidelined right now in DeFi, being locked in place. Sure, it's removing some sell pressure, but you're not really using the underlying liquidity someplace that it could be put to work doing something useful.
Yeah. I'm very excited to see what these new assets to complement tAssets look like. Another question I had about tAssets: are there plans to create…liquid secondary markets for tAssets on, say, an exchange like Curve?
Absolutely. Very good question. So we've been pretty quiet. This may be too strong a word, but…we haven't shouted from the top of the mountain this too much. But there are actually Curve pools already deployed for, I believe…all of our token reactor sides, so the governance token…so there is a tACLX pool as an example on Curve, so that you can move back and forth without being beholden to Tokemak cycles. You could get out of tAssets if you want by trading back into ALCX. On the way in, it makes much more sense just to go directly into Tokemak because you can get it 1-for-1, and kind of instantly. But on the way out, that's a way that people can sort of get out of them earlier. So yes, you're going in completely the right direction with that.
By the way, we're really interested and excited about a lot of stuff going on with the Curve and Convex ecosystem. So along those lines: not only have we deployed those, but we're also discussing and cooperating with Convex and Curve both. And the goal is to establish a long-term relationship that can benefit all partners – all parties – between Tokemak, Convex, and Curve.
So more stuff will be coming on that soon, and some really interesting composability to come.
Awesome. Yeah, the Curve and Convex ecosystem…I feel like Curve runs my life these days.
Yeah, it's fascinating.
Yeah. I had a few questions now about the liquidity direction process. Uhm, so I guess right now you guys had said you're deploying liquidity to the different exchanges, kind of. How? How does that work under the hood?
So…effectively what happens is…and if any of you haven't been on Tokemak in a little while, or if you haven't sort of delved deep into the site in the last couple of months, it's definitely worth revisiting and sort of scrolling down to the second group.
So if you go to the site, the top group is the pair reactors. So these are the stablecoins and the ETH. The second group are the token reactors. So to your question: once you have staked TOKE – any amount of TOKE – to one of the TOKE reactors…right now on the site, there's FXS, ALCX, Sushi, TCR, Fox, APY, Gamma, and SNX. Once you stake your TOKE there, there's been a little toggle that's called pro mode, where…if you click that, it opens up and shows you the different exchanges – the different venues where you can direct liquidity.
So I'm just going to use ALCX as an example here. So right now within that there's votes. You can vote to Curve and Uniswap V2. At the moment, you can vote to Curve, Uniswap V2, Sushiswap, and Balancer V2. Liquidity deployments are now going out to Uniswap and Sushiswap.
Sushiswap…it's select ones and limited right now, but each week now we're scaling it up. But if you look at ALCX based on the votes, you have about 42-and-a-half million notional worth of ALCX. Or, I should say, a dollar's worth of ALCX. About 30 million is being directed to Curve. That pool is actually the tALCX pool that I mentioned, where we have these tAsset pools deployed on Curve. About 23 million is being directed to an ALCX ETH pool on Sushiswap. It's not all deployed yet, but we're going to be inching that up each week now. And then a small amount is being directed to Uniswap V2, and even a small amount to Balancer V2.
So the process by which all this happens is: all of the users can exercise those votes. If any users don't exercise the vote, it’s deferred, basically, to the other voters each cycle. Then…right now we're in week-long cycles. So each cycle…on Wednesday it rolls over. We take the new marching orders from all the different votes. However, those different votes are allocated across the different venues, and then the liquidity is deployed from the manager contracts, basically from the inventory down into usable liquidity.
It pulls the equivalent amount that it needs if you're deploying, say, $10 million of ALCX, onto a venue that requires the other side. So on Curve, you can just deploy right into the pool without needing the other side. But if it's something like a Uniswap or Sushiswap or Balancer pool, whether it's a 50/50, 80/20, or whatever, it pulls the right amount of ETH or stable coins from the reactors that are at the top of the page on Tokemak. The pair reactors then deploy those. So that's effectively how it works. And then each week it rebalances the…global liquidity deployments, based on the updated votes.
Awesome. Yeah, that's really interesting to hear kind of how it works under the hood. I'm looking forward to directing some liquidity to these different exchanges.
Do you think that there will eventually be, sort of…I don't even know if this really makes sense…like a Yearn for Tokemak? Like, maybe, a vault built on top of it where it will automatically allocate your TOKE to the reactor with the highest yield. Is that something that makes sense or would be possible to do?
I think it can be like…you're in, like, I think there will be multiple in fact. I've even heard of some that are either thinking about building this, if not already starting to write code. So yes, because obviously the sort of implied APRs are moving around in real time. But what matters is the deployment as you roll over. So groups can sort of try to optimize and figure out: OK, wherever is there not enough TOKE (or really TOKE votes) allocated going into a cycle rollover, and then move those around. And that will be a net gain for Tokemak, because that makes the system run most efficiently. You have the correct amount of TOKE backing each reactor if you approach perfect sort of alignment, and the critical mass of votes wherever they're needed as well, to deploy things.
So yes, definitely. I think there'll be a number of different groups that probably use different approaches to do that sort of higher-level control or operation where it's like, OK, put your TOKE and then…rather than you for a hands-off person, right….if they might just put it in the ETH reactor or something, not check it week to week, and that's OK. But there might be weeks where they're earning with their votes 42%, and they could have earned 44% or something if they rearrange them. So I think there'll be interesting groups that try to address that for more passive users that aren't coming back…and for ones that are trying to maximize their APR game versus really caring about specific projects, where they want to stake the votes there to then exercise their liquidity direction.
Yeah. That all sounds really interesting. It's going to be really interesting to see what projects build on Tokemak, and all the different ways people can put their TOKE to work to earn the highest possible yield.
Now, I guess we have about ten or eleven minutes left if you want to…maybe we hear some of those alpha leaks?
Yeah, let's save that for a few minutes later. I want to get into how you think about Tokenomics, and how you think of the tokens of the kind of DeFi 1.0 protocols that are maybe kind of similar to a paperweight. How do you think those are going to trend, and do you think they're going to adopt adding additional utility to their tokens? Yeah. How do you see that playing out?
Yeah, very good question.
I'll zoom back even one level from DeFi 1.0/DeFi 2.0 and those, and even just go more broadly in crypto, right, because even before DeFi 1.0 you had tokens that were literally paperweights. Or maybe that's too negative. You could still move them around on a chain, at least in most cases. But other than maybe being a transportable store of value, they might not have done too much.
I think pre- the current macro backdrop, such as over the last month or two here, as we were in sort of a crypto localized market instead of something that's now currently looking at world events…you could watch, and there started to be a decoupling of these things. So if you think about people outside of DeFi, right…when they come into crypto, they still just think of it all sort of as crypto, and they don't necessarily – a lot of them – don't know the utility. So they stare at Coin Market Cap or CoinGecko, and they scroll through the first 20, and it used to be like…if I rewind a year and a half or two ago, you could look at the top 20 and it was like: damn. There's a lot of tokens that are sort of useless here.
That really started kind of in the…mid-2021, somewhere in that time frame. When I would scroll through, I always kind of did that as an interesting one, because I just know some of which…from doing deep dives…just from kind of knowing the different teams, and gut, and playing around…some left bell curve, some right bell curve, if you would…analysis that I've done on groups. I just kind of know which things have inherent value and which don't. And I was really kind of pleasantly surprised in mid- to late 2021, that I was seeing that the top 20 list was getting better…things that actually did, or even the top 50 list. You could look at things that actually did…things had utility, and so that made me happy. So I think that – more broadly than just DeFi 1.0 to DeFi 2.0 – I think you are slowly getting sort of this trickle out to the broader market.
It's still a long way to go because, again, you still have just outsiders of crypto getting in that just look and they look at a three-letter ticker, and where it isn't the thing, and they think they're all the same. But I think you're starting to get more people ask the question to start understanding that…wow, these protocols can actually have fundamental business models that generate real revenue, real cash flow, and have value.
And then there's other things that have no roadmap, no team anymore…any of these things. So that's sort of broader than even just DeFi. Within DeFi, I think there's definitely some. So it's interesting. I think you have a number of protocols that have built a very cool product, but that didn't embed the token as something that's useful, sometimes even to something as sort of simple as governance or…table stakes. Sometimes there's basically no utilization. Then you have others that have sort of entry-level utility or utilization of the token.
But I do think there's a massive opportunity for a lot of groups that have solid usable protocols, but didn't really think about the token enough the first time through. Hopefully they can sort of re-fit tokeconomics into it in an interesting way. And I think there's been, I'll call…maybe a surface-deep or scratch-the-surface move towards that, as people explore the ve-model. The ve-model is interesting for a number of reasons, but it works best for things that are stablecoins or exchanges.
Not giving too much alpha…there's going to be a very interesting solution that Tokemak can provide to this in the not-too-distant future that is much more usable for every single project, even if they don't fall into the sort of niche use case that makes the ve-model super powerful. So interesting things are coming along that front.
Yeah. Interesting to hear your thoughts there. I'll close up with a few housekeeping items before we turn it over to you.
To tease the roadmap: I shared two tweets at the top of the space here. One of them is the typeform to collect the Coop for this GMI series of DeFridays. We have a coop for each one of the underlying protocols. If you collect them all, you will be rewarded. Additionally, if you like tokens with utility, we have got a hoodie with utility for you. We dropped a GMI hoodie with a collaboration with a firm called IYK, that's digital-physical merch. If you purchase this hoodie, which you can only get by coming to DeFridays right now, you click an NFT that comes with the hoodie that is tagged to the hoodie. They are proof of proximity technology. You also get an AirDrop of one GMI token with your hoodie, and you will get free drinks at the Permissionless conference. I'm starting to do the event planning there. We're lining up some musical guests. So if you're into that, the link is there.
All right. This is my housekeeping for today. Collect the POAP. Come back every Friday. We will have another protocol featured next week until we feature every one of the tokens in GMI.
Thank you so much, Carson, for coming on. I'll hand it over to you now…roll out the red carpet for you. What can we expect to see from Tokemak later on this year? What's on the roadmap?
Awesome. Yeah. And again, I really appreciate you all having me on. This has been great. And you sold me on drinks at Permissionless, so that's good.
So coming back to you: I'll hit a bunch of different stuff, and this is a little bit scattershot because we have a lot of stuff going on. So I'll start with…core Tokemak, and then I'll go into some things that are in the periphery, or adjacent to the sort of mainline Tokemak.
First: liquidity deployment has been scaling up nicely. I think of the 1.1-ish million in TVL on Tokemak…1.1/1.2million. We have around 350 million deployed…and again, the Sushiswap and Uniswap deployment started this week, and those will be scaling up. So you can look to see a lot more liquidity from Tokemak over the coming weeks as we continue to march that bar up, as we're watching to make sure everything is functioning as we expect.
C.o.R.E. 3: I already hit on this, but be looking forward to that…over the next month. More details to come soon on that.
We'll have some info on L2 in the near future. So that's definitely something that we haven't forgotten about, and that we're excited about. We know that there's been a lot of shrimps who we love that are on the platform, are still dealing with Ethereum L2 with us, and we appreciate it…and we will get to L2, which will be great for them, and just for people in general.
Tokenomics: some really exciting stuff coming soon on tokenomics within the next several weeks. Again, I sort of hinted to this other class of tokens and use cases that can help groups sort of evolve their tokenomics in a sense. So a lot more to come that is very interesting, and I think it's going to probably blow everyone's mind if their mind was blown by Tokemak before…any piece of it. This will probably do it again. It's very interesting.
And then I mentioned we're super excited about Curve and Convex and excited to work with both of them more closely going forward. We're just getting started with that. More to share on that soon.
And then I think…just jumping over to sort of the periphery here and some other really exciting things that are maybe separate from core Tokemak operations.
So one of them actually is…I'm going to start with the one that's probably most opaque to everyone. So MAK, which is…we've had a couple of very nebulous mentions of this in the past. This is a token that's going to be instrumental in the pricer network.
So I mentioned before there are liquidity directors, liquidity providers, and pricers involved with Tokemak. The pricers have not been turned on yet, because we're starting with the Uniswap/Sushiswap/Balancer/Curves of the world. But when we go to places that need a market maker to price – so someone to go into bids and offers, price RFQs, et cetera – that's where we need a price or network. And MAK is basically going to be used in order to allow market makers to access that. But there will be some interesting use cases for that for the broader community. So more on that coming in the future.
Another one is Exaverse. This is probably new to a bunch of people on the call, unless they're, again…frequenters of the Leaky Reactor establishment. Exaverse is essentially…this is a big nod to the pilots in our community. And it's going to have really interesting…basically, I'll call it NFT GameFi connectivity…and support to the main Tokemak ecosystem. But it's going to be something people can access and have a lot of fun, I think, on…even if they aren't part of the Tokemak ecosystem. But it will support and reinforce the liquidity of Tokemak in interesting ways. So these things are going to support each other. There's going to be an EXA token associated with that, and some other goodies as well. But I don't want to steal the thunder from some people on the team that are going to be sharing a lot more info on that soon.
And then last I'll say WenBRANE, because I know people are asking that a lot. So Membrane, the sort of sister project here that's focused on OTC trading and bespoke lending, is in a great spot, and is looking to sort of roll out over the next several months. And there will be…in addition to the membrane protocol, the token's name is BRANE. And that also should be coming by summer, by whatever summer of 2022 ends up being called within this crazy ecosystem. So a lot of exciting stuff coming…across the board here.
Excellent. Thanks for coming on, Carson. And thanks for being a great steward of the ecosystem. We are so happy to have the TOKE token inside of our GMI index, and helping folks get exposure to all the innovation going on here.
Thank you so much for having us. Always great to chat with you guys. And we're super happy to be part of GMI, and happy to come back anytime.
Awesome. All right, guys, that is it. I will drop the link to the GMI hoodie on the end of a thread announcing that we are live on the space. That link will be live for one more hour for folks to collect the GMI hoodie if you are a Tokemak friend of GMI…and other than that we will see you guys in the Metaverse one week from now for another edition of DeFridays, and then in Permissionless if you join us in May. All right.
All right. Thanks everyone! Have a good weekend.