Currently, the most popular trading pairs on Solana are SOL and staked SOL trading pairs. However, since CEX trading activity for SOL pairs other than SOL-USDC is not yet robust, Lifinity must build custom infrastructure to be able to create pools that can support these pairs.
With this in mind, and since it will take time to build out the programs needed to enable bribing, we are implementing non-algorithmic means of incentivizing liquidity provision on our DEX and the creation of custom infrastructure.
Market Making as a Service
Our first offering is market making as a service (MMaaS). In this option, projects provide the assets that Lifinity will use to market make and Lifinity keeps all trading fees while projects retain any market making profit (MMP). This option is relatively straightforward as it is the project that takes on the price risk of the assets; Lifinity simply builds and provides the custom infrastructure needed to market make.
Projects normally require sizeable LM rewards to incentivize LPs since SOL-STABLE pairs can expect to experience a decent amount of IL. Since our pools significantly reduce or even reverse IL, the benefit of this option is that projects can provide liquidity without worrying about the drag that IL would cause for their assets. In addition, the unmatched capital efficiency enabled by Lifinity’s high levels of concentration means projects will not need to provide nearly as much liquidity compared to if they were to provide liquidity on another DEX.
However, not all projects have SOL and stablecoins to spare and instead have large treasuries of their native token. For such projects, we provide an alternative option.
Liquidity as a Service
Our second offering is liquidity as a service (LaaS). In this option, Lifinity provides the assets used for market making and takes on their price risk. In exchange, projects compensate Lifinity with whatever asset of their choosing (we assume their native tokens will be the most common choice).
The compensation amount will be based on the volume that Lifinity generates for the trading pair. In essence, projects will only pay for the “realized utility” of the liquidity that Lifinity provides. This is to ensure that incentives are aligned.
- Projects want liquidity for their asset. Liquidity is only useful if it is facilitating trades. Volume is the proof that the liquidity is being used.
- Lifinity is incentivized to provide better pricing, which makes the project’s asset more useful. Volume is the proof that competitive pricing is being provided.
The USD value of the volume will be calculated by adding up each trade’s execution price (i.e. price at the time of the trade) multiplied by the size of the trade. Projects will transfer a certain percentage of the total USD value of the volume to Lifinity at the end of a pre-selected period of time through which Lifinity provides liquidity.
The exact percentage will vary by project. While it would be simple and convenient to charge all projects the same rate, this is not reasonable since each project presents a unique risk profile based on the price risk of holding their assets and the IL risk of market making for their trading pair (which is heavily dependent on volume). We will provide each project with a percentage of volume that we will charge, which projects can choose to accept or decline.
Lifinity will be able to provide a liquidity solution that is more efficient and stable compared to liquidity mining on CPMMs and CLMMs. Since we are able to achieve high concentration while minimizing IL through the use of an oracle, we will likely do better in terms of both trading fees and profit and loss from market making. These profitability improvements can be passed on to projects in the form of less incentives required to sustain liquidity. Nevertheless, we will generally provide greater liquidity than the same pools on other DEXs (assuming the same TVL) since the oracle enables us to use higher concentration. Further, since Lifinity provides the liquidity, its level will not fluctuate as it does when it is reliant on LPs.
Target Projects
With these services, we are mainly targeting two categories of tokens: stablecoins (PAI, UXD, USDH, etc.) to be paired with SOL and staked SOL tokens (mSOL, stSOL, scnSOL, etc.) to be paired with USDC or SOL.
Most stablecoins are not yet supported by Pyth and thus require us to create our own custom oracle for them using their largest stable pools on Solana. Pairing stablecoins with SOL provides it not only with a direct route to SOL but with additional routes for trades between it and other stablecoins as well, increasing the stablecoin’s utility.
Staked SOL tokens already have ample organic volume on DEXs. This is not the case on CEXs, however, since trading volume is highly concentrated in SOL pairs. Therefore, their price feeds on Pyth do not provide much of an advantage over prices on DEXs in their current state. For this reason, creating pools for them requires us to create a custom oracle that takes Pyth’s SOL price feed as a starting point and adds staking rewards to it to determine the “true” price of staked SOL tokens. Indeed, this unique architecture should help keep their market value close to what they would be if staking rewards were accumulated continuously rather than all at once at the end of each epoch.
The token rewards provided to Lifinity by the projects will be distributed pro-rata to veLFNTY holders. These services will therefore have the effect of expanding the holder base of a project’s token to Lifinity’s thousands of veLFNTY holders.
We believe our MMaaS and LaaS create win-win situations between Lifinity and staked SOL/stablecoin projects. We look forward to enhancing liquidity for those who are interested!
