Tokemak V2 will integrate LP and DAO into an efficient and symbiotic system.

Written by: Karen, Foresight News

In the second half of 2021, the DeFi protocol Tokemak, which is regarded as a "sacred place for liquidity competition", has become one of the hottest liquidity protocols at that time with its liquidity guidance, novel design for liquidity providers, liquidity guides, and DAO , its lock-up amount rapidly rose to more than 1 billion US dollars within a few months.

However, due to Tokemak’s disadvantages in terms of periodic guidance and operation, unknown liquidity depth, lagging response to changes in liquidity demand, and the cooling of the overall DeFi market, both popularity and TVL have declined, currently only less than 40 million US dollars.

In this regard, Tokemak began to seek optimization from the perspective of audience DAO and ordinary users, providing DAO with greater flexibility and deterministic control over liquidity, while optimizing and simplifying the complexity of LP liquidity provision.

Tokemak disclosed the details of the upcoming V2 mechanism this week. To put it simply, Tokemak V2 will introduce the concept of dynamic liquidity management pool (LMP). The new system includes two independent products. The first one is Autopilot, a dynamic pool allocator for ordinary users, which can optimize the LP of different pools and DEXs. yield; the second is a liquidity market for DAOs, enabling DAOs to rent liquidity based on transparent market rates.

Tokemak V2's first available market focuses on ETH Liquidity Staking Token (LSD) liquidity, provides dynamic exposure to ETH for LPs, and provides new liquidity management tools for the LST protocol. Afterwards, Tokemak V2 will expand its product range to include stablecoins, other stable pools, and volatile asset pairs.

How do the two major products of Tokemak V2 work?

Tokemak V2's first product, Autopilot, can automatically rebalance the liquidity between different assets, pools and DEXs within a given liquidity management pool (LMP), and then optimize and automatically compound LP returns, which can greatly reduce tediousness and reduce Gas cost.

Specifically, as shown in the figure below, after users supply assets (such as ETH) to LMP, they will provide exposure to different assets (such as stETH, rETH or cbETH and other LSTs), and Autopilot will allocate assets according to its pool allocation logic. For conversion and deployment, the specific considerations include yield rate, transaction costs, conversion rate, incentives, and the ability to withdraw from a given liquidity, etc. Additionally, the pool allocator logic validates on-chain LST support and considers the corresponding premium or discount when rebalancing liquidity optimization.

Of course, as mentioned earlier, users do not need to manually claim the rewards, these rewards will be automatically exchanged for the underlying assets and added to the balance. Notably, LMP will adopt the ERC-4626 standard, enabling seamless integration and composability without the need to develop custom adapters.

The second product, DAO Liquidity Market, allows DAOs to rent liquidity in real time according to a transparent liquidity rate, that is to say, DAOs will be able to skip the indirect incentive mechanism and obtain liquidity from LMPs in real time. Therefore, the liquidity market can be regarded as a system through which buyers can bid for liquidity with the current liquidity ratio, and the higher the product demand, the higher the liquidity ratio. The floor price of the liquid market is equal to the liquidity ratio.

When using this system, the LST protocol is able to choose the deployment destination in different DEXs, choose the desired depth, and deposit incentives to obtain liquidity in real time at Tokemak's interest rate. In this way, liquidity is predictable, and buyers only pay for the liquidity allocated to them.

Summary

In addition, Tokemak V2 will also update token economics, enabling users to use TOKE as collateral for LMP according to their personal risk preferences. In return, stakers will receive LMP-specific performance fees against potential slashing exposure. Tokemak will also support more asset classes and deployment destinations on V2 (Balancer, Curve, and Maverick at launch), and will expand to multiple L2 (Arbitrum, Optimism, and zkSync) and its native DEX later.

In general, Autopilot optimizes LP income and obtains liquidity, and the DAO liquidity market can access liquidity at a known ratio. These two products can form a synergy effect, discover the liquidity ratio of the DeFi market, and at the same time make LP and DAO simultaneously Benefit, integrate LP and DAO into an efficient and symbiotic system.