Locke is a generalized platform that enables protocol-facilitated token distribution.
By platform, we mean a marketplace made up of numerous two-sided markets—each with a protocol or DAO on one side, and individual market participants on the other.
Locke implements streaming auctions, an efficient and equitable price discovery mechanism that can be viewed as a special case of a TWAMM.
The basic structure of a streaming auction is as follows:
Avoid gas wars:
In capped pools and other first-come-first-served systems, gas wars are common. This privileges users with an infrastructure advantage and results in unnecessarily high transaction fees. Locke is designed to avoid this unhealthy dynamic.
Never commit funds without knowing the price:
Locke allows individuals to express their own unique price preferences. Depositors who no longer find the implied price or implied yield attractive can withdraw the remainder of their deposit at any time.
Avoid retroactive dilution:
Locke does not have retroactive dilution. For example, if there is only one depositor for the first half of the auction, that participant earns all of the tokens allocated to the pool for that first half, even if billions of dollars were to enter the pool in the second half of the auction. The price that the first user receives changes only on a go forward basis.
No need to time the market:
There is no disadvantage to being the first participant in a streaming auction. Unsophisticated users who participate in the auction are guaranteed to receive an average outcome.
Receive a guaranteed allocation:
Because streaming auctions have pro-rata distribution, anyone who wants to participate will have a chance to do so.
The stream creator can use a factory contract to create an auction, specifying the following variables:
In addition to being a great tool for discovering fair exchange rates, the streaming auction mechanism can be used to discover fair implied yields. This is done by issuing receipt tokens, which are redeemable for the underlying deposit token at maturity.
These receipt tokens can be viewed as zero coupon bonds and are powerful tools for composability. Users might choose to sell their receipt tokens, use them as collateral for loans, or provide liquidity to an AMM to earn trading fees.
If you find Locke interesting or want to contribute, please shoot a message to @LockeProtocol on Twitter.