Ever since Andre Cronje launched Solidly — an AMM DEX that managed to attract upwards of $2B TVL in the span of a week — there has been a lot of confusion surrounding it. Today we will take you on a quick tour of Solidly so you can familiarize yourself with its basic concepts.
The Old Ways
Oftentimes a DeFi protocol is judged by its TVL, which can be a misleading indicator in terms of how well a protocol is actually doing. So, we must dig deeper and ask: how effective is the protocol at converting available working capital into tangible value?
Let’s have a short look at Uniswap’s 7-day numbers:
According to Dune Analytics, UniswapV3 generated $4.51M in fees over the past 7 days, while the top 30 pairs did $3.56M or 79.03% of those fees. Those top pairs only account for $1.11B or 31.31% of its total TVL. Those numbers become even more astonishing when analyzing for specific pairs with high Fee/TVL ratios. So what are a big part of the other $2.44B or 68.68% of TVL doing? The short answer is: not much.
Those stats aren’t bad by any means, it just serves to demonstrate that we can classify TVL into more efficient and less efficient TVL.
How is Solidly Different?
Solidly is a self-optimizing decentralized exchange. What does it optimize for? Capital-efficient acquisition of healthy TVL.
In contrast to Uniswap or Curve, which return 0% or 50% of fees to UNI or veCRV, respectively, Solidly distributes 100% of the fees to its governance token. In turn, liquidity providers earn 100% of the protocol emissions and LP bribes. Solidly improves upon the best of both worlds: combining Uniswap’s pioneering AMM design with Curve’s vested-escrow and stable-pool innovations, wrapping them into a capital-efficient ve(3,3) rewards incentive system to attract fee-generating liquidity. Solidly’s platform serves to maximize the yield for Solidly’s stakeholders and be an efficient tool for protocols to deepen their liquidity. Another benefit of Solidly is the predictability of income for liquidity providers. The income gets defined as a fixed stream of tokens once per week in terms of emission allocations and LP bribes, no matter the trading volume.
How are Emissions Allocated?
Liquidity providers earn SOLID tokens (ERC-20), which can either be sold or locked into veSOLID NFT positions (ERC-721) — a financial NFT — with locks ranging anywhere from 1 week to 4 years. The longer the lock durations, the higher the voting power, revenue share, and dilution protection. veSOLID can be used to vote for specific pairs, which will then receive SOLID emissions proportionally to their vote capture, in turn, voters will get fees only from the pool(s) they voted on, proportionally to their voting weight per pool. Fees get paid out in the base assets of the pair and the voting process takes place once per week. Voters will vote for pools giving them the most rewards, cumulatively both in bribes and fees, this in turn leads to more incentives for LPs generating the highest amount of yield for voters, leading to deeper liquidity and lower slippages, enabling a better trading experience, thus “self-optimizing”. LPs are incentivized to vest their SOLID rewards because veSOLID enables boosted rewards of up to 2.5x and gives them control to incentivize their own pairs in addition to being able to participate in the future on-chain governance.
Solidly distributes 63% of its total supply through liquidity mining incentives, which get allocated to liquidity providers as described above. Another 25% are assigned to strategic partner protocols who will help Solidly bootstrap initial liquidity. We are considering adding a 2% team allocation in the form of 4-year locked veSOLID to Solidly Labs in order to sustain long-term operations. It should be noted that the entire team has already been funded for several years of operations. The last 10% of the protocol are allocated to a public vote rental contract.
It gets even better, Bribes!
Solidly is not just a platform for users to enjoy low-fee decentralized swaps, it is also a place for protocols looking to increase liquidity of their protocol tokens in a capital efficient manner. Solidly offers 2 types of bribes:
- Bribes to Voters
- Bribes to LPs
Protocols who incentivize liquidity in their tokens have the option to bribe voters into voting for the protocol’s trading pair which then allocates SOLID emissions to their tokens. Protocols can also make use of this mechanism to expand their influence and revenue share by farming with their own treasuries while earning trading fees at the same time.
Another way to incentivize liquidity on the Solidly DEX is by bribing LPs directly. In addition to earning SOLID emissions, LPs also earn bribes in whichever tokens a briber attaches to the LP gauge.
We’re not Stopping there: Anti-Dilution
With other platforms users are almost always diluted. If they want to retain their influence they have to keep spending money indefinitely. Instead, Solidly has implemented a unique feature within the crypto industry; our anti-dilution mechanism which protects users who lock from future inflation. veSOLID positions enjoy 100% anti-dilutive rebases at a lock period of 4 years, scaling down linearly.
Pool Types and Swap Fees
Solidly is an all-in-one platform combining volatile and stable pools. By default the fees are 0.2% for volatile pools and 0.02% for stable pools. The fees can be adjusted in either direction depending on market conditions, which increases the efficiency and competitiveness of Solidly. Individual pools can also be adjusted by governance, while not affecting any other pools. In addition to the already deployed pool types, our focus for the near future will be to introduce capital-efficient pools for different use-cases, such as closely correlated assets like major FX pairs. Additionally we’re also exploring leveraged trading on top of Solidly pools, which is made possible by Solidly’s built-in oracle solution.
Solidly History
As you may already know, Solidly was not originally headed or developed by our team, while Andre Cronje did merge a few pull requests from our dev team (for which they received bug bounties), they didn’t have any involvement otherwise. Solidly was officially launched as alpha stage software and deployed in an immutable configuration, therefore, any and all bugs no matter how grave or small, are impossible to fix. As it turned out, Solidly as it was deployed had its share of vulnerabilities as we have demonstrated last month.
We have decided to take ownership of Solidly’s situation and have refactored Solidly to the fullest extent while improving core aspects of it. Part of the team has already developed on top of Solidly and have had prior collaborations with the original developers. As such, we feel that we are uniquely qualified to take on this challenge.
On September 1st 2022, we opened the burn migration window and closed it on October 10th 2022. It was a resounding success, as we managed to achieve a tremendous migration rate of 92.91%, meaning the community is unequivocally trusting us to take the lead of the protocol.
Unlike the many other forks of the Solidly v1 code-base, our team has decided to continue where the project was left, and fix it. In that sense, all people who lost their hard-earned money on Solidly will not be abandoned. They will be able to use Solidly as they had intended and imagined to, without any effect to their holdings. There is an exception for the top 25 protocols who got their veSOLID for free, where we have decided to do a redistribution to properly align partner protocol incentives with Solidly’s goals.
Governance
Unlike the originally deployed protocol on Fantom, Solidly on Ethereum will receive strong guidance and control by the team. This is done to ensure a smooth launch and initial growth phase, and if any issues should arise, they would be resolvable without a hurdle. After we feel comfortable enough and have implemented all desired features, we will move Solidly to be more immutable, permissionless and censorship-resistant over time, which follows the idea of the original developers and which we think is a noble and sound long-term strategy.
Team
Our team is small and compact with backgrounds in traditional finance, DeFi/crypto, engineering, and corporate software development with one of our lead developers having previously worked as a core developer at Yearn Finance. The collaboration within the team has been efficient, productive and motivating. We are looking forward to the next chapter!
The initial funding for the team came from early visionaries and long-term supporters of the protocol. They want to see Solidly unfold to its full potential, going as far as funding it out of pocket without receiving any SOLID or veSOLID allocations for doing so.
What’s Next?
This article serves to give you a brief overview and give you an idea what Solidly is about, in our next articles we will dive deeper into the differences between the originally deployed Solidly and our upgraded version of it, followed by an explanation of Solidly’s unique flywheel mechanism using some conservative projections and valuation models.
Stay tuned for more!
The best way to keep in touch with us is on our Discord channel.
Resources:
Website: https://solidly.com/
Twitter: https://twitter.com/SolidlyETH
Discord: https://discord.gg/Solidly
