GM, this is your Daily Bolt briefing
In this edition, we’ll be giving you some insight into Drift Protocol, a Solana based perps trading platform rapidly gaining in TVL.
We’ve also included some excerpts from our notes on Balancer’s Twitter Space with Raft and Spark Protocol where the teams discuss the R/DAI pool, sDAI strategies, and more.
Over and out ⬇
1/ Lightspeed - Can Drift Compete With Binance?
Preview: Garrett and Mert host Cindy and Chris to discuss Drift on Solana, perpetual swaps, liquidity, future vision, and more! Click here to listen to the full episode (75 mins).
Read our Note (7 mins) and save 34 mins.
Cindy explains that Drift is a perpetual swaps exchange on Solana, offering leverage on-chain while trading futuristic products. She talks about the markets available and highlights the low fees and speed provided by Solana. Drift was founded in 2021 and recently launched its V2. She states the goal of becoming the largest DEX and plans to build bridges to attract users from centralized exchanges to DeFi.
Garrett asks about Drift's three different sources of liquidity.
Cindy explains Drift's approach to liquidity by mentioning three sources: a virtual AMM backed by liquidity provider positions; an on-chain order book; and a "just in time" auction. She explains the various functions and benefits of these sources, creating diverse liquidity options.
Chris describes a virtual AMM as a perp AMM, highlighting that it allows for synthetic positions, making it easier to bootstrap. He mentions that fees paid by users are reinvested into the protocol to enhance liquidity and improve the user experience.
Cindy credits Drift's success to its user-friendly design, accommodating various levels of sophistication, from novice to expert. She highlights that the platform is made to be as accessible and easy to use as possible.
Chris adds that Drift's hybrid approach caters to both hardcore DeFi enthusiasts and users seeking a simple interface. He highlights the strong focus on both user experience and underlying DeFi principles, explaining why users like the Drift protocol.
Garrett asks about the process of attracting liquidity in DEXs and how the liquidity sourcing layers (RFQ, order book, AMM) work.
Chris explains that the liquidity sourcing process is not linear, but instead competitive, with different sources competing to provide users with the best price.
Mert asks about the vision for Drift over the next five years.
Cindy says that the dream for Drift is to build a scalable and robust ecosystem that can elevate DeFi to the next level, allowing for on-chain trading and aiming to reach millions of users.
Chris explains Drift as a living entity that the original builders and community members are trying to sustain. He highlights the desire to create a sustainable ecosystem without single points of failure that can continue to thrive in the future.
2/ Balancer Twitter Spaces with Raft and Spark Protocol
Preview: solarcurve is joined by David and Sam to discuss Raft, Spark, Dai Savings Rate (DSR), and $sDAI integrations with DeFi. Click here to listen to the full episode (38 mins).
Read our Note (10 mins) and save 28 mins.
PayPal's Stablecoin on Ethereum: $PYUSD
David says that Raft is a protocol that allows users to lock their liquid staking tokens, such as stETH and rETH, and then mint stablecoins at a fixed fee. Raft has a large R/DAI pool on Balancer which is the fourth largest pool and has $32 million of liquidity.
David says that the most important thing for any protocol that relies on stablecoin liquidity is the cost of capital. In Raft’s case, since most of the liquidity is paired with $DAI, Raft has to subsidize both sides of the AMM the same way. Raft has to give incentives for users to keep that liquidity in there to make sure that the stablecoin is tradable and has good liquidity around a dollar and everything else.
He adds that some protocols that are similar to Raft pair their own stablecoins with other stablecoins. He gives GHO as an example of such protocols. They've relied heavily on partnerships with other protocols in which Aave incentivizes liquidity in pools paired with GHO.
David says that Raft decided to pair with $DAI because of its strong peg, well-established nature, and good level of decentralization. He says that the cost of doing so is higher because MakerDAO is a huge DAO at this point, getting funding to incentivize such sort of liquidity 50-50 between $DAI and R is not feasible for an early-stage protocol. The other option for Raft is to look for incentives elsewhere.
David says that integrating sDAI with R/sDAI pool provides an indirect subsidy from Maker in this liquidity pool so Raft doesn’t have to incentivize this pool with as much liquidity.
He believes that this approach will probably become the standard overall since the Dai Savings Rate (DSR) doesn't pose any sort of additional risk compared to holding.
Sam says that the DSR was included in the multi-collateral $DAI's launch back in November 2019. The rate was actually activated shortly after and rose as high as about 8% in March 2020. There were too many borrowers of $DAI and not enough people were holding it, so Maker was trying to incentivize that to change.
He adds that in Spark, sDAI was enabled as collateral. Users can leverage idle liquidity. Raft is another perfect example of where users can use this to get yield on their otherwise idle liquidity.
Sam says that Spark Protocol is a newly launched lending market that has D3M connection to Maker. Maker directly injects $DAI liquidity into the market such that users can get the best borrow rates for $DAI against their crypto collateral.
If you read these 2 Notes on Revelo Intel you would have saved: 1 hour and 2 mins!