Solidly DEX Season
In this episode, Clay Kilgo is joined by Satin Exchange, Thena, Velodrome, Equalizer and fierydev to discuss building a Solidly DEX, accelerating a liquidity flywheel, changes in the code, and more.
Read our notes below to learn more.
Why build a Solidly DEX?
The core value proposition that Andre Cronje laid out with Solidly was a next-generation AMM combined with some of the best elements of Curve, Convex and Uniswap v2 into a single streamlined AMM with a bunch of underlying upgrades.
The team that incubated Velodrome did so very close to the launch of Solidly and were able to observe it up close.
Most of the weaknesses to the technology side were things that are fixable.
Fantom was very saturated at that time with DEXs.
The fees were probably not quite working together so it would have needed a lot of bribes to supplement it and the tokenomics front-loaded heavily and disincentivized a few things.
Equalizer knew that if they could teach people about Solidly and the economic model, they knew they could get a huge amount of traction.
Liquidity Flywheel
In the early days of liquidity mining, they started using tokens to incentivize the right behaviors to have optimal outcomes for different kinds of protocols.
The Solidly model is way better in terms of giving only token incentives to LPs and 100% of the trading fees to those who vote for the pools to distribute emissions.
The valuation of the tokens depends solely on the revenue that it can capture.
Bribes are very important in this ecosystem because they help to kick start or accelerate the whole flywheel.
When people bribe, it gives ve holders a massive incentive to have that ve token.
For those who don’t have a large liquidity position, the bribes allow for ve holders to still get fantastic returns with just the ve position itself.
When Satin launches, they’ll be launching a yield bearing stablecoin integrated into the DEX so that auto-bribes from the yields of that stablecoin can constantly flow into the pairs.
The bribes are the most important thing for a protocol as far as bringing value to the token itself because it allows people to have huge incentives to take those tokens off the market for you.
Fierydev and $fBOMB
They are genesis Fantom validators and their community was very involved when Andre Cronje initially released the original Solidly.
They were investors in veDAO.
They were participating in LP farming for Solidly and they were experiencing issues that Solidly had.
As Velodrome was nearing launch, they increased their investment in Velodrome so they could have an earlier seat in ve wars.
The first wrapper $fBOMB was made by their very own developer Max.
They realized early that if they bribe a decent or large amount in the early stages, it would give them an advantage and they can keep compounding that advantage.
Velodrome proved to be the best proving ground for their strategy and they quickly established dominance as the #1 protocol with the largest ve value position which also paved ways for future protocols.
Thena had the best management in the sense that it got the best partners to sustain a flywheel which did not incentivize bribe incentives on top.
They have moved to 6 chains and they are capturing all the Solidly forks on all of those chains.
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Biggest changes to original Solidly code
Andre Cronje imagined this system that would be completely decentralized and that would require literally zero human intervention.
What’s critical with the Solidly model is that you need to get the protocols engaged from the start and to make them realize how spending resources towards scaling is actually beneficial for their community and for them.
The model in general and all these iterations have a major improvement over a more traditional model of DEXs for a protocol.
Having partnerships in conjunction with education really is a huge deal.
The initial emissions were front-loaded and created a gold rush for those initial emissions but then dropped off incredibly quickly making it very difficult to sustain liquidity.
Each of the protocols has adopted a more sustaining and predictable emission schedule.
Solidly initially just distributed 100% of protocol ownership to the top protocols on Fantom and because of the way that rebases work, those protocols were never diluted.
All of them have decided that 100% dilution protection was a major mistake.
There was a problem with whitelisting because the system was abused, fake tokens were created and people used their voting power to direct emissions entirely to those fake pairs.
Building in a bear market
Reaching new people to explain you’ve got this fantastic system can be very difficult in a bear market but it does give you time to focus and get things right.
Having the time to show people that there’s a protocol that can actually be very successful when crypto is in its darkest corner stands to really show people that if they’re looking at this type of product now, they imagine what will happen when the bull run comes and volumes are 10x.
Building in a bear market is way calmer.
Protocols end up helping and supporting each other.
Taking on Curve and Uniswap
Solidly has taken the best bits of existing DEXs and put it all together.
There’s always going to be a role for diversity of models and AMMs.
Education and marketing side of things are very critical to success and that’s where the Solidly model and Thena can really succeed.
There’s people who are focused on looking at concentrated liquidity and there are people who just want to come in, place a pair of LPs then walk away and come back to collect rewards.
Will all 4 protocols work together?
All of them are keeping lines of communication open.
It’s much better if they’re all working together for the collective.
They can learn from each other.
Roadmap Updates
There’s a trade-off with Uni v3 which is it’s super complicated to provide liquidity for the average user and you can also suffer a lot of impermanent loss.
For Thena, they will be looking to implement meta stable pools and Uni v3 pools that have a strategizer on top that manages the LP.
For Satin, their LP locking governance model is very different that allows you to be a ve holder and an LP provider at the same time.
Satin is launching with veNFTs but they’re doing expiring NFTs so it will be given out to the protocols who agree to support the ecosystem in the form of liquidity or bribes and these NFTs will expire after 4 weeks at which point the NFT holder’s base of the relationship can be re-evaluated to see if it’s worth renewing.
For Velodrome, their v2 is currently going through an audit and they are planning on launching it next month.
Velodrome completely rebuilt their UI from scratch.
They will be rolling out the Velodrome relay which allows you to delegate your veNFT voting power in such a way that it can be optimized without needing to take action.
They are adding a lot of things like custom pair support, the ability to add concentrated liquidity which they’ll do in the coming months, NFT splitting, zapping and the Velo fed which is the ability that once the protocol hits the tail emissions, veNFT voters will be able to vote for small increases or decreases in the overall emissions.
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