State of the Reactor - August 26th, 2022


Visit the Pilot’s Dashboard on Notion, and add questions for the next State of the Reactor call.

Key Takeaways

  • Tokemak Commander Crocodile Playing Piano has been officially hired by the team to develop metrics and time series analysis dashboards using Python.
  • Tokemak’s thesis is that there will be a huge market for supporting ETH staking derivatives as collateral and trading pairs. Historically the goal of Tokemak has been to deploy tokens alongside stablecoins, but with the issue of impermanent loss, there is more advantage in focusing on supporting ETH staking derivatives due to their utility as yield-generating base pair assets with less IL impact.
  • As a liquidity distributor, Tokemak could be incentivized by staking providers to deploy their native derivative as a base pair asset.
  • A partnership related to ETH staking derivatives should be announced in the next 4-6 weeks.
  • Pricers were put on the back burner due to the popularity of AMMs over order book exchanges.
  • Typically, Liquidity Providers are exposed to both sides of a pool. With Tokemak, single-sided depositors are only exposed to one side and are not impacted by the same directional risks as a market maker. This also applies to the Liquidity Directors, who are not directly exposed to market volatility. This effectively results in the Tokemak DAO becoming the market maker and assuming the cost of impermanent loss.
  • The next evolution of Tokemak will allow for a new type of protocol participant to become the market maker and assume these risks and benefits themselves.
  • The implementation of this mechanic will allow Tokemak to earn predictable revenue by third parties who may pay a fee in order to access Tokemak’s inventory. This will allow the Tokemak DAO to assume less directional risk itself.
  • This new functionality will work with the upcoming ACC mechanics.
  • Pre-Tokemak, market making services through centralized providers were very expensive due to high demand and limited options. The upcoming Tokemak mechanics will allow the market to appropriately price the cost of market making by introducing a more direct, open, and democratic service.
  • Balancer supports 80/20 pools (80% token, 20% pair asset), allowing LPs to bootstrap a market with fewer assets on the pair side. These pools also have attractive impermanent loss behavior where downside impacts are similar to 50/50 pools, but upside is advantageous. The team is modeling out the benefits of Balancer as it has interesting mechanics, but is also aware of the downsides.
  • There is a 4-6 week ETA for experimental Reactors and staking derivative support.
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