A Tokemak Thesis

Liquidity mining via Pool2 incentives has been the go-to method of accumulating liquidity for DeFi projects post launch. Unfortunately incentivizing project liquidity via pool2 mining has various downsides:

  • Mercenary liquidity stops mining once pool2 incentives are not attractive enough, as this liquidity is not interested in the project long term.
  • Mercenary liquidity dumps the mined token as emitted, causing an uneven sell pressure from an early stage of the project.
  • The tokenomics have to be designed in such an inflated way to accommodate the liquidity mining and make it attractive enough for Liquidity Providers to mine the token.
  • Even LPers that believe in the project long term and LP on major AMM stand to not profit due to high Impermanent Loss
  • Liquidity in crypto is also highly fragmented across various markets and AMMs.

It's been general consensus that pool2 mining is a deterrent to token appreciation, but with few widely accepted solutions. Tokemak changes this.

To put it simply, Tokemak tokenizes project liquidity using their native token TOKE, that helps protocols to obtain sustainable and long term liquidity. Tokemak essentially contains liquidity pools of protocols with native token $XYZ, called Reactors that are made up of XYZ:TOKE liquidity which is deployed across various platforms. Stakers of XYZ are called Liquidity Providers and stakers of TOKE are called Liquidity Directors. Tokemak also accepts ETH/USDC staking by LPs which are used to provide the double sided pools.

The Reactors are chosen and initiated via a Collateralization of Reactors Event, or CoRE which forms the basis of Tokemak governance. LDs get to vote towards which projects are selected for Reactors

Rewards for staking to both LPs and LDs are paid out in TOKE while Tokemak absorbs the yield generated in XYZ asset, thus creating a larger pool of Protocol Controlled Asset (PCA). Once Tokemak has accumulated enough PCA via yield and partnerships, external staking of XYZ token will no longer be required, an event called The Singularity.

Once Singularity is achieved, TOKE rewards will be stopped, with no more supply inflation. Each TOKE then will be backed by a certain amount of PCA giving the token intrinsic value, and utility in the form of director of the hot ball of liquidity.

Most protocol treasuries/PCA contain mostly their native token, and so once price starts falling, so does treasury value. As Tokemak's PCA consists largely of non-TOKE assets, TOKE also performs as an ad-hoc index of tokens help by the protocol.

Tokemak provides multipe layers of seccurity to LPs in case of IL from black swan events.

  • the XYZ reserve from the token swap above
  • the staked TOKE that voted to direct liquidity to the XYZ token
  • the protocol controlled assets (including Tokemak’s ETH and USDC reserves)

Points 2 and 3 should rarely be needed as Tokemak's active LP management and XYZ token reserves should be enough to offset any such losses. But their existence also adds accountability for LDs, as uf they choose to direct liquidity poorly then their stake can be slashed.

Although TOKE supply is also inflationary at almost 4% per week, this is one of the supply inflations with a need/target, since supply is inflated to attain Singularity beyond which no more supply inflation will take place.

The team already has intensive and credible DeFi market making experience from Fractal, and the seed investors include Framework, Coinbase Ventures, ConsenSys among others.

Tokemak's fully subscribed launch event called DeGenesis valued each TOKE at $8, a circulating market cap of $40mil, and an FDV of $800mil. Team and Investors tokens were locked up with a 12 month cliff that starts from Nov/Dec 2021, with linear vesting after. The investors are largely not dumpers as per precedent, and a CB Ventures investment is always a good sign.

Tokemak presently has a market cap of $423mil, with a TVL of $800mil that consists of

  • $400mil ETH
  • $225mil USDC
  • $72mil FXS
  • $44mil ALCX
  • $20mil SUSHI
  • $5mil OHM
  • $8mil APW
  • $5mil FOX

The above list doesn't count the TOKE/TOKE LP TVL in the protocol.

3 more reactors are yet to be active, adding up to 10 assets in the protocol. With more additions of reactors, TOKE would see price appreciation as protocols/users of protocols gather TOKE to win liquidity for their project, and getting closer to Singularity where the protocol would be sustainable with no more supply inflation. Tokemak has already established itself as a key lego in the DeFi ecosystem, and is on its way to satisfy the Lindy Effect.

PSA tho: Not financial advice, and as of now with no active liquidity deployment, Tokemak is as good as any other farm. The fundamentals exponentially improve as soon as liquidity deployment begins. Even then, there remains a substantial risk during heavy drawdowns of bear markets, since PCA can also significantly lose value. In a super cycle, or assuming you hold through the bear, Tokemak definitely is a project with intrinsic value.

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