The current bull market is indeed different from previous ones. Gone are the days of seemingly endless funds within the market and the frequent rotation of sectors. The market is no longer unified in its direction; the only consensus appears to be “no one taking over from anyone else.” After enduring a prolonged bear market, the crypto market’s liquidity was already scarce. Just when the bull market finally arrived, instead of a flood of liquidity, it was met with even more fragmented liquidity.

As a crucial component of the crypto market, the DeFi sector is naturally not immune to this liquidity challenge. Various protocols face dispersed liquidity, and decentralized exchanges struggle to provide users with the most comprehensive trading experience due to a lack of liquidity.

In response to the liquidity crisis in DeFi, the decentralized market-making protocol Elixir steps into the spotlight.

Elixir aims to enhance liquidity in the DeFi space through decentralization by integrating various DeFi protocols to consolidate liquidity, thereby providing users with an efficient, secure, and transparent trading environment.

Currently, Elixir has partnered with over 30 DeFi protocols and plans to launch its mainnet in the second half of the year, along with its decentralized stablecoin, deUSD.

This article will provide an in-depth look at Elixir, detailing how it uses innovative mechanisms and technologies to collaborate with multiple DeFi protocols to address liquidity issues and discuss the mechanics, advantages, and prospects of Elixir’s decentralized stablecoin, deUSD.

DeFi Factions: It’s Not Just a Personal Struggle

As the hub for value exchange in the DeFi world, the demand for decentralized exchanges (DEXs) is increasingly robust. From the early days of “simple and functional” to the current emphasis on both “speed and user experience,” DEXs are increasingly engaged in a competitive race to retain existing customers and attract new ones.

Decentralized order books, as one of the solutions, offer users a smooth and low-slippage trading experience due to their excellent liquidity supply structures. With the growing focus on on-chain trading experiences, decentralized order book exchanges are becoming ever more significant in the market.

However, as market attention becomes fragmented and DeFi projects operate independently, valuable liquidity in the market is increasingly divided. Relying solely on market makers to provide liquidity seems inadequate for meeting the demand for substantial and low-slippage trading. Integrating this fragmented liquidity effectively is also a challenging task.

For many native DeFi users, using decentralized exchanges is not just about trading; the extra income beyond value exchange is the essence of DeFi. While order books are beneficial, the rewards from providing liquidity often go to invited market makers. Users watch as the market for decentralized order book exchanges grows but find themselves unable to get a slice of the pie, leading to frustration.

Elixir has recognized the natural alignment between the need for protocols to raise funds and the desire for users to have more sources of income. It has found its niche by directing user funds to various DeFi protocols.

Elixir: The Pinnacle of On-Chain Liquidity

How is Elixir addressing market demand?

As a modular DPoS network, Elixir utilizes its unique network architecture and liquidity management algorithms to remove the invisible barriers between on-chain users and decentralized exchanges (DEXs). It enables users to provide liquidity to multiple order book DEXs directly, while also offering new opportunities for on-chain users to increase their capital earnings. This setup allows each user to experience the role of a market maker, achieving a win-win situation for both protocols and users.

Elixir’s original goals and vision were promising, and its real-world performance has indeed been impressive. Since its launch, Elixir has consistently demonstrated high-level development, showcasing significant data performance across various dimensions.

Since its inception, the Elixir protocol has seen nearly $200 million deposited into the protocol, handling over 261 million transactions.

Team Background and Funding

With a keen sense of market opportunities and excellent execution capabilities, the birth of Elixir is inevitably supported by a team of dedicated and elite professionals:

Founder: Philip Forte
Formerly a partner at BlockVenture, Philip Forte also served as an advisor for Solana, Moonbeam, Flow Network, and Magic.

Partner: Cole Petersen
A DeFi author for Forbes and an investor in 3AC, Neuralink, and over 20 other startups.

CTO: Chris Gilbert
Former Chief Engineer at Tokensoft and IDEXX.

COO: Tim Wang
Tim Wang previously led crypto venture investments at Hudson River Trading. He has over 10 years of traditional finance experience, including investment banking at J.P. Morgan, private equity at Lightyear Capital, and venture capital at Eniac Ventures. He has angel-invested in over 30 crypto projects.

Additionally, Elixir’s potential to improve the DeFi sector has been recognized in the primary market.

In March 2024, Elixir announced a $8 million funding round led by Maelstrom Capital and Mysten Labs, with follow-on investments from institutions and individuals such as GSR and AmberGroup. Combined with previous disclosed rounds, the total funding amount has reached $17.6 million.

Widespread Recognition: Elixir’s Robust Collaboration Network

Currently, Elixir has partnered with over 30 leading DEXs, including Vertex, RabbitX, Bluefin, Apex, and Orderly, among others. Through Elixir, users can provide liquidity to order book DEX trading pairs. Liquidity providers can earn diversified staking rewards through Elixir’s LP incentive programs or cooperative agreements.

In the future, Elixir plans to integrate with a range of well-known DeFi protocols, such as Pancakeswap, Paradex, and Synfutures. The expanding ecosystem of Elixir promises to deliver even more opportunities and growth.

The number of partnerships has not affected the quality of Elixir’s liquidity supply.

Through exceptional liquidity integration and ecosystem collaboration, Elixir has supplied over $1.25 billion in liquidity to various order book exchanges, even providing close to or exceeding 50% of liquidity to popular decentralized order book exchanges like Bluefin, RabbitX, Orderly Network, and Vertex.

Elixir’s performance to date demonstrates that its vision of enhancing DeFi liquidity is not merely aspirational. Such impressive data is supported by Elixir’s unique technological architecture.

Elixir’s Technical Edge in Liquidity Management

Efficient liquidity integration relies on Elixir’s unique and complex network architecture, which consists of both off-chain and on-chain systems.

Off-Chain System First, the exchange data sources are responsible for retrieving market data from various exchanges. These data sources hold read-only credentials and subscribe to an update stream to receive real-time market data from the exchanges. This data is then broadcasted to data aggregators.

Data aggregators collect data from multiple exchange sources and combine it into a deterministic data framework. The aggregated data is then encrypted and signed to ensure its integrity and immutability. Finally, the signed data is broadcasted to validators and auditing nodes.

The validator network operates using a Delegated Proof of Stake (DPoS) mechanism. Validators verify the accuracy of the data and need to achieve a 66% consensus to confirm its validity. End users delegate their state to validators, with the validators holding the most stake receiving the largest reward share and participating in consensus. The validator network ensures decentralization and security of the system.

Relay infrastructure uses secure isolated technology (and will eventually use Multi-Party Computation (MPC) infrastructure) to handle keys with exchanges. Relay nodes check if encrypted order proposals have achieved 2/3 consensus, then use the keys to sign these orders and send the signed orders to the exchanges. The relay infrastructure serves as the bridge between the off-chain and on-chain systems, ensuring all transactions are verified and signed.

On-Chain System Auditing nodes receive data frameworks and order proposals from data aggregators and relay nodes. These nodes execute policies to verify if the order proposals are correct. If a malicious order proposal is detected, auditing nodes invoke on-chain functions in the controller to address the issue. Auditing nodes ensure the correctness of data and transactions.

The controller is a smart contract responsible for managing stake, rewards, and penalties. In case of disputes, the controller checks the 2/3 consensus among active validators and penalizes malicious validators. The controller executes on-chain operations through smart contracts, ensuring fairness and security in the system.

Elixir’s network architecture ensures efficient data processing and secure transaction validation through the tight integration of off-chain and on-chain systems. The validator network achieves decentralization and consensus through DPoS, relay infrastructure maintains data and transaction integrity and immutability, while auditing nodes and the controller provide additional security and fairness. This multi-layered architecture allows Elixir to deliver efficient, secure, and reliable services in a decentralized environment.

Figure: Elixir Network Architecture Workflow

Elixir employs advanced algorithmic market-making techniques to manage and optimize liquidity supply. One key strategy is a variant of the infinite Avellaneda-Stoikov algorithm, which determines quoting times through random walk methods. This creates an experience almost akin to that of centralized exchanges (CEXs) for traders and provides an optimal LP experience for liquidity providers.

To prevent market manipulation and gamification, Elixir incorporates random elements into its algorithms and uses SGX secure enclave technology to generate random numbers. These random numbers are synchronized among validators using a verifiable random function.

With its unique network architecture and dual approach to liquidity management through algorithms, Elixir offers an innovative liquidity provision model. It ensures both the efficiency and security of fund flows while serving as a bridge between different DeFi projects, enhancing interoperability and liquidity.

Elixir plans to launch a collateralized synthetic asset, the decentralized USD (deUSD), to further improve liquidity conditions for its partners and increase returns for liquidity contributors.

Stable Prices and Varied Returns: Why deUSD Matters

As DeFi becomes a vital hub for on-chain prosperity, the importance of synthetic assets is also becoming increasingly apparent. In the on-chain world, synthetic assets directly anchor the value of other assets, saving users from many complex intermediary steps and reducing transaction fees and slippage. Synthetic assets have become a fundamental use case in the crypto world, with their market value continuously growing and being widely recognized within the crypto ecosystem. Various on-chain protocols are also incorporating synthetic assets as an essential source of liquidity.

Synthetic USD assets can better unify liquidity management and address the issue of insufficient interactions between protocols. Despite the differences among DeFi protocols, synthetic USDs, as crypto tokens anchored 1:1 to the value of the USD, are universally accepted.

Elixir recognizes the potential of synthetic assets in DeFi liquidity management and is about to launch a fully-collateralized synthetic USD, deUSD.

deUSD: Maintaining Stability Amid Market Fluctuations

Currently, deUSD is collateralized by stETH, with plans to support a variety of collateral assets in the future. The standout feature of the deUSD design mechanism is its use of Delta-neutral strategies and dynamic asset rebalancing to mitigate risks associated with collateral asset price fluctuations.

How does the Delta-neutral strategy work?

First, anyone can mint deUSD by staking stETH. Each stETH used for minting deUSD will be employed to short an equivalent amount of ETH in the market, capturing positive market rates and generating additional returns for deUSD.

When the funding rate is negative, deUSD dynamically adjusts its asset composition ratio based on the balance of the Open Collateral Fund (OCF), which supports the value of deUSD, to maintain price stability.

Specifically:

• In a negative funding rate environment, market borrowing increases, causing the OCF balance to decline gradually.
• As the OCF balance decreases, the asset composition of deUSD will be adjusted, reducing the proportion of long-term base yield assets and increasing the proportion of sDAI/other yield-stable assets.

For example:

• When the OCF reaches a high watermark of 100%, the asset composition of deUSD is “80% long-term strategy portfolio + 20% sDAI/other yield-stable assets.”
• When the OCF reaches a high watermark of 75%, the asset composition of deUSD is dynamically adjusted to “70% long-term strategy portfolio + 30% sDAI/other yield-stable assets.”

Unlike the widely recognized “stablecoins,” deUSD was designed from the outset with a unique stability mechanism to provide a better ecosystem experience for users and partners. Users can add liquidity with greater peace of mind, knowing that the stability of their investment is maintained regardless of market fluctuations. Similarly, protocols partnering with Elixir benefit from stable liquidity without concerns over price instability.

With Elixir’s support, deUSD is Truly Decentralized

The robust validator network is at the core of the Elixir protocol. The Elixir validator network consists of over 13,000 independent nodes distributed globally, with each node participating in transaction verification and consensus mechanisms. This decentralized validator network lacks a single point of control, ensuring that the protocol is free from any centralized intervention and maintains transparency and security.

Thanks to the support of the Elixir validator network, users can mint and redeem deUSD by interacting directly with smart contracts, without any centralized approval processes. Users have full control over their minting rights, ensuring that the entire process remains decentralized.

As a core product of the Elixir protocol, each transaction involving deUSD is backed by the strong support of the Elixir validator network, making it a truly decentralized and stable digital asset.

Figure: Current Global Validator Node Count for Elixir

In addition to its robust validator network, the Elixir protocol has also left ample room for innovation with its core asset, deUSD. Its highly interoperable design allows deUSD to circulate freely across different chain protocols, broadening its application scope and enhancing its value capture capabilities. The protocol’s high scalability ensures that deUSD can evolve with user and market demands, maintaining long-term stability and performance.

Positive Feedback Loop: Elixir with deUSD Just Keeps Going

Offering Diverse and Accessible Yield Options

Leveraging Elixir’s powerful resource integration, deUSD abstracts products and exchanges from various public chains into a single yield asset. This reduces the complexity of managing assets across different blockchains and exchanges, making it easier for more institutions and individuals to become potential liquidity providers. deUSD acts like a universal ticket within the Elixir ecosystem, allowing holders to participate in staking interactions across multiple platforms and chains, thereby fulfilling multi-chain needs through Elixir.

Protocol Favors Stable Collateral

Compared to volatile assets like ETH, deUSD’s stability mechanism makes it more attractive to decentralized exchanges. This “stability” not only benefits the platform itself but also demonstrates a commitment to its users. Several partners already accept deUSD as collateral, and in the future, deUSD is expected to become a major asset for liquidity in decentralized order book exchanges within the ecosystem.

Additionally, Elixir’s long-term plan is to extend this staking mechanism to centralized exchanges that accept deUSD as collateral. This will allow users to leverage deUSD not only on decentralized exchanges but also on some centralized exchanges for trading and lending, providing more opportunities and potential gains.

Elixir’s Vision and How to Get Involved

With its ability to aggregate significant liquidity and its plans for synthetic dollar assets, Elixir is clearly preparing for the future of DeFi. So, how can on-chain users participate in Elixir’s future?

Apothecary

In March of this year, Elixir launched the Apothecary initiative, which rewards users with points (elixirs) to incentivize their contributions to the Elixir liquidity network. With the mainnet launch approaching, it’s not too late to get involved in staking.

Users can participate in Apothecary by completing personal information, providing liquidity, and more. For details, visit the Apothecary introduction page.

Complete Personal Information:

• Go to the Apothecary participation page
• Connect your wallet
• Link your social media accounts to receive welcome points as a reward

Providing Liquidity:

• Visit Elixir’s liquidity page at https://agg.elixir.xyz
• Connect your wallet
• Select a currency pair and provide liquidity

deUSD Staking Rewards (Coming Soon)

When the mainnet officially launches, users will have the option to either withdraw their staked ETH or directly mint deUSD from the staked ETH. Any ETH not withdrawn from the contract will automatically be minted into an equivalent amount of deUSD.

Elixir is also allocating substantial staking rewards for deUSD, increasing Apothecary’s rewards pool from 20 million to 50 million points. Stakers of deUSD will receive 3 times the regular points, while users providing liquidity for deUSD/USDC on Curve will receive 5 times the regular points.

Once deUSD officially launches, an 8-week deUSD Farming program will kick off, offering significant staking rewards within a short timeframe.

New Partners?

In a tweet from April, Elixir teased an intriguing preview image that faintly included the Pendle logo. Importantly, prior to this, Elixir had repeatedly hinted at upcoming partners using similar teaser methods.

It seems that the integration of Elixir with Pendle is a done deal. With the upcoming launch of deUSD, it’s reasonable to speculate that Pendle will accept deUSD as collateral. This means that the TVL performance of deUSD will be worth looking forward to.

Similarly, Elixir recently unveiled a mosaic version of the dYdX logo in its latest tweet. With the forthcoming launch of Elixir’s mainnet, it looks like Elixir is also set to integrate with dYdX. With dYdX joining the mix, we can expect Elixir’s network of partnerships to expand, connecting with more high-quality projects and shaping the future of DeFi.

Conclusion

In this atypical bull market, due to limited market liquidity and scattered attention, there hasn’t been a notable “sector rotation” rally. The once diverse tokens, each with their unique visions, continue to remain subdued.

Although there hasn’t been a significant sector-driven surge in token prices, the world of on-chain finance has never paused since DeFi Summer. However, DeFi no longer occupies the central position it once did during the previous bull market. After enduring time and market scrutiny, DeFi has transitioned from being a highly sought-after gold rush to a vital source of yield for many on-chain players and even whales.

As a critical component of DeFi that has witnessed both its triumphs and tribulations, Elixir has the potential to rejuvenate DeFi in the near future, continuously resetting market expectations.

Moreover, the introduction of deUSD will channel more liquidity, users, and open interest into exchanges and DeFi protocols collaborating with Elixir, ultimately aiming to make DeFi “Great again.”

In the ever-changing crypto world, innovation and improvement are never too late, despite the dangers and opportunities that lie ahead.

Learn More:

• Elixir Official Website
• Elixir Official Twitter
• Elixir Official Telegram Community
• Elixir Official Documentation
• Apothecary Event

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