State of the Reactor - January 20, 2023


How DeFi Has Changed

  • As DeFi has evolved over the past few years, Tokemak has observed the needs of users and the impact of market cycles on the protocol performance and liquidity needs of the industry.
  • While DAOs were the primary customer target in 2021-22, a series of crashes pushed many DAOs into a tight spot with limited treasury funds, forcing them to consolidate assets and reduce collaboration for self-preservation.
  • Tokemak is using the knowledge gained from this past cycle to improve the protocol and expand its addressable market beyond DAOs to target average DeFi users.
  • 50/50 AMM pools have proven to be unprofitable during bear markets, so the team is continuing to explore other novel exchange types such as Curve v2 and Balancer asymmetric pools.

Lessons Learned From Tokemak v1 [3:20]

  • Tokemak v1 was an excellent opportunity to experiment with incentive systems and learn what strategies work in various market conditions.
  • The current product works well to attract base-asset liquidity, but during bear markets, it is difficult to attract ETH liquidity due to directional risk.
  • V2 will introduce a liquidity management platform that is not constrained by the limitations of the current model, and which can be used by the average DeFi participant.
  • DAOs became risk-averse during the market downtrend, and focused on preserving their treasury rather than maintaining liquidity.

What’s New With Tokemak v2 [6:45]

  • V2 will expand the addressable market for Tokemak, and be less dependent on the current market regime.
  • There will be increased possibility for reward generation, which will be beneficial for TOKE holders.
  • The team aims to get the protocol fully onchain, which will greatly improve the ability to deploy to L2s.
  • V2 will focus on being a generalized liquidity network with liquidity management capabilities.
  • The terminology for the new generalized liquidity mechanic has yet to be announced, but working names include “liquidity network pools” and “plasma pools.”
  • The updated protocol will offer low-friction liquidity management, including the ability to plug in external supply, rewards, token conversion, and liquidity deployment.
  • The DAO model for two-sided trading market liquidity will be one of the models that can work with the v2 protocol, but additional use cases will also be possible.
  • V2 is focused on sustainability. Emissions will continue to be reduced, with the goal of incentivizing use without requiring emissions.
  • V2 will offer more governance potential for liquidity deployment and pool generation. The new product will benefit from additional AMMs.
  • Expect an update in the next two weeks regarding new TOKE locking mechanics, such as longer locking times.
  • If you are a DAO contributor, please reach out to the team to discuss liquidity management needs!
  • The v1.5 UI is separate from v2 of the protocol.
  • The updated v1.5 UI will be released alongside the initial protocol v2 pieces, but v2 will roll out progressively. The team is aiming for a roadmap that allows for incremental updates and announcements.
  • To gather feedback, the team will soon conduct a public user survey for the UI experience. Participants will receive a commemorative Discord access NFT.
  • The full scope of v2 is being finalized, so there are no firm timelines set at the moment.
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