Tokemak Oil: Greed-onomics, Efficiency, and Ease of Use
A re-release of GH0ST08's dive into the benefits of Tokemak's pair reactors and incentive structure.
If $ETH is the gas in DeFi then $TOKE is to be the oil in this engine. The Tokemak protocol will act as a lubricant in DeFi to maximize performance and efficiency.
Tokemak recently stealth launched their “pair” reactors and shortly after @LiquidityWizard dropped this gem on us explaining these new “pair” reactors.
Ok great… another protocol did a thing… everyone’s doing things. Why does this deserve my already non-existent time and attention?
Hold up anon. Let’s dive a bit deeper. Read through Tokemak’s docs or medium and you’re bound to be overwhelmed. @LiquidityWizard’s giga-brain has more wrinkles than the 2-week-old laundry basket sitting next to me. I’m not ashamed to admit I usually read his articles twice.
Anyway, let’s get into how the single staked positions or reactors are set up and why some are considered “pair” reactors vs token reactors.
Tokemak hosts pools or “reactors” for tokens like $SUSHI, $FXS, $OHM, $TCR, $ALCX, & a few more. Until recently, these were the extent of Tokemak. Protocols/holders staked their native token in its respective reactor and began earning $TOKE rewards. This led to each reactor having an “imbalance” where the $SUSHI reactor was just… holding $SUSHI.
Eventually the next step was enabled where $TOKE holders could stake their $TOKE in the $TOKE reactor and then allocate that staked balance toward a collateralized reactor like $OHM. The allocation of $TOKE is meant to be proportional to the deposited $OHM. The protocol incentivized users to balance the assets in the pool/reactor through higher and lower APR as seen below.
As you can see, $TOKE holders would be drawn more towards a higher APR on the $TCR reactor rather than the $OHM reactor which is exactly what the protocol wants as it needs more $TOKE to balance and optimize the $TCR pool/reactor. While the $OHM pool/reactor has decent APR the better opportunity lies with $FOX or $TCR because the protocol could better optimize those assets against the allocated $TOKE. It sounds nefarious but as Liquidity Wizard said: “Greed is Good”.
Let the Greed-onomics Begin!
So users are incentivized to create and maintain an optimal balance… isn’t balance already an element in yield farming? How is $TOKE differentiating and “lubricating” this engine?
The pair reactors are currently comprised of $ETH, $FRAX, $DAI, $USDC, $FEI, $LUSD, & $UST. As previously discussed, the reactor's APR incentivizes token holders to stake in these pools. Why are these called pair reactors? Well think about it, what does a typical liquidity pool look like? Maybe $SUSHI paired with $ETH?
Yep. Tokemak has brought us full circle with a major upgrade. Previously I might enter a $SUSHI/$ETH pool to earn yield while the reward rate was high. I was “mercenary” capital to the pool while the rewards were good but as the APR dropped, I would exit and move on to the next opportunity.
I also needed to deal with the risk of my $SUSHI/$ETH assets balance of value as either tokens price changed. Tokemak changes this by incentivizing users on both sides of the reactors/pools to create and maintain a balance. $TOKE stakers direct this balance by allocating their $TOKE to either pair or token reactors based on higher reward opportunity and of course the same is true of the pair and token stakers.
Quick note, if you are thinking, “Great, gas fees… how is this removing cost for the $TOKE stakers/pilots?” Once staked you can allocate your $TOKE free of cost as the allocation transaction is actually processed on Polygon. If a pilot wants to move to a new position with better opportunity, it costs nothing whereas the typical Degen mercenary must process and pay transaction fees anytime they adjust or change position. Everyone essentially gets to participate in a much easier and less risky single sided position while the protocol incentivizes these users to counterbalance one another on either side of the pairings. Therefore, with Tokemak we no longer have short term “mercenary capital” but $TOKE Pilots directing liquidity and managing an optimal balance of assets.
Tokemak is removing the friction, the impermanent loss, the need for protocols to continually up their rewards to attract short term capital, and the average Degen’s challenges of managing paired positions while continuously chasing the next best APR. Tokemak hosts various asset pools and incentivizes its pilots to use their staked $TOKE to make and maintain the optimal pairing of assets for these pools.
TL; DR -If you are a protocol looking for liquidity let Tokemak manage it for you. If you are a Degen looking to yield farm why not turn from struggling mercenary to single staked $TOKE pilot. Tokemak is making DeFi easier for protocols and allowing them to focus more on their niche while simultaneously making DeFi easier to manage for individual users. Managing a single asset position is much easier, more cost effective, and perfectly aligned with trying to spread DeFi and make it more accessible for a larger audience.
- On the Tokemak horizon: NFT’s, permissionless reactors/pools, debt-liquidity duality, and likely more Votemak bribes 😉
Thanks for reading😊! All mistakes and inaccuracies are my own.
Originally published December 21st 2021 on GH0ST08's Medium