Root: Liquid, On-Chain Markets
Today we announced a $9M raise for Root Protocol with participation from Road Capital, Soma Capital, and Manifest Crypto, among other leading crypto-native investors.
Root is a generalized marketplace protocol that enables arbitrary fully decentralized, oracle-settled on-chain markets with deep liquidity. In practice, Root facilitates the development of prediction, financial, and commerce markets on Beanstalk, an Ethereum-native fiat money issuer, as the starting source of liquidity.
Why Build Markets on Beanstalk
Beanstalk began demonstrating its proof-of-concept as DeFi’s only decentralized credit-based stablecoin protocol, growing from just $100 to over $100M in market cap and nearly $200M in total value locked over a nine-month period since inception. During this time, we observed decreasing peg volatility, increasing liquidity, and an ability to deleverage. These data points are early signs of the efficacy of its market-based incentives and anti-reflexive design.
While Beanstalk does not offer convertibility and therefore does not maintain a perfect peg, Bean holders receive positive-carry in the form of Bean seigniorage in exchange for accepting some price volatility. Historically, blockchain-based businesses have not been able to compete with off-chain businesses because of non-competitive carry costs for low-volatility blockchain-native assets. The transparent distribution of Bean seigniorage to users flips this dynamic on its head, enabling blockchain-based businesses to finally compete with off-chain businesses.
Beanstalk’s positive-carry has displayed early signs of product-market fit for on-chain liquidity providers (LPs). And from an ethos perspective, we view Beanstalk as an economic experiment worth supporting: a vastly more equitable issuer of money for all participants as compared to centralized fiat issuers.
With Root, we expand the utility of Beans beyond providing liquidity by facilitating generalizable, feeless markets that are more competitive for buyers and sellers than traditional counterparts. Herein lies the beginnings of Rent-Free Markets on Beanstalk.
Rent-Free Markets
Root is designed as a rent-free, public good protocol and to support many types of permissionless markets. Rent comes not only in the form of non-zero platform fees, but also in the requirement to use money with negative-carry costs. Instead of rent-based markets, Root creates a new zero-fee, positive-carry market structure and accounts for transactions in Bean-Denominated Value (BDV), which consists of Beans and Bean LP tokens. Below we highlight the core characteristics of Root’s BDV-based markets:
- Feeless: Root does not charge any maker or taker fees on any markets it supports. Compared to rents commanded by existing marketplaces, Root’s novel economic alignment with Beanstalk expands margins and enables previously unviable business models for participants at any scale.
- Beanstalk-native Yield: Participants in Root markets continue to earn Beanstalk seigniorage. For instance, users may agree to take opposing sides of a bet on the winner of the Super Bowl, and in the interim continue to earn interest on their positions before settlement. With Beanstalk-native yield, Root markets can structurally outcompete many traditional markets (for instance, pricing a more competitive line than Vegas).
- Scalable Liquidity: Root attracts liquidity without fees because there is no opportunity cost with regards to Beanstalk seigniorage when making or participating in a market on Root. Thus, liquidity can scale to meet demand.
- Generalizable: Root facilitates markets that are in high demand: including diverse oracle-settled markets, BDV-based derivative markets, and NFT markets (such as secondary marketplace for Fertilizer). Each market creates additional utility for BDV holders.
- Decentralized Gas Efficient Orderbook: Root leverages a high throughput orderbook while maintaining decentralization. By storing orders on alternative, ultra-low cost zkEVM blockchains, Root allows market participants to enjoy censorship-resistant, yet effectively free order creation.
Market types Root will support include:
- Prediction markets like sports betting and political elections; and
- Financial markets such as Bean interest rate swaps (hello fixed yields!) and asset futures; and
- Commerce markets via NFT-represented assets, goods, and services.
Root will introduce markets based on demand from users, starting with the 2022 World Cup. Additionally, both Halborn and Trail of Bits have been contracted to audit Root in the coming months.
Join our community and stay updated:
- Twitter: https://twitter.com/rootmarkets
- Discord: https://discord.gg/rootmarkets
- Website: roottoken.org
