What is POL, PCV and LaaS
After a long period of stagnation, Defi once again appeared in the main narrative of the encryption field. We saw a mess of things on Twitter time, and everyone was asking questions about their favorite OlympusDAO fork projects. What is more, the [3,3] has become something of superstition.
Liquidity mining is the soul of Defi summer in the past. It has recently ceased to be popular. The Defi protocol is working hard to deal with the consequences of hiring capital providers to extract value from their systems. The liquidity mining model provides short-term incentives for liquidity providers and incurs permanent expenses on the protocol’s balance sheet.
Therefore, the project realized that they needed a better system to ensure sustainable liquidity while adjusting long-term incentives for investors. As this issue became more and more known, the project began to focus on POL, PCV, by which the protocols can buy their liquidity directly from the market. Another, the LAAS rents the liquidity from other protocols which are the external providers aiming to provide the highest quality and cheapest liquidity.
Solving these capital speculative problems is an important part of the next wave of Defi growth; it has recently been dubbed the name Defi 2.0. These new agreements have become more prominent in Defi. They can use the scale and network effects of the underlying Defi protocol to solve liquidity problems and obtain higher market efficiency.
Rather than spending massively to attract the users to add the liquidity, the projects can spend money directly to buy liquidity or rent from other projects to the cheapest and highest quality liquidity.
The first route we call the Protocol Owned liquidity(POL) as ACY protocol designs, or Protocol Controlled Value(PCV), for example, Fei protocol, OlympusDAO, and Frax are all driven by PCV; therefore, they have extremely high TVL per project token.
The second route of leasing liquidity is called “LaaS” (Liquidity as a Service). When Fei or Tokemak specializes in this service, the capital efficiency of Laas can be very high.
Olympus Pro
Olympus DAO is the first project to use the novel Bonding mechanism to create an alternative to the “liquid mining” model. By issuing its native token OHM at a discounted price, Olympus can purchase LP positions from the market to create “Protocol-Owned Liquidity” (POL). But the money resource is not coming from the business, is from the project token sales. The recent launch of the Olympus Pro service (that is, by introducing the Olympus Bonding model into the wider Defi ecosystem) marked the birth of DeFi’s first LaaS product. Olympus Pro provides projects with a customized implementation of the Olympus Bonding mechanism, while also introducing new demand channels for its native tokens. Purchasing their liquidity projects will earn income from transaction fees, but will also bear the impermanent loss (IL) associated with price changes. This method may be most suitable for large projects with small token price fluctuations to minimize IL.
Tokemak
Unlike Olympus, Tokemak is a protocol designed for liquidity supply. Generally speaking, Tokemak will act as a decentralized market maker. Tokemak’s native token TOKE represents the liquidity of tokenization and is used to influence the direction of liquidity of the entire DeFi. The protocol receives TOKE rewards for “seeding” liquidity into the Tokemak ecosystem, and can influence the direction of liquidity by staking their TOKE. Since the liquidity is ultimately controlled by Tokemak, Tokemak retains the transaction costs related to the controlled assets but also bears the impermanent loss. From the perspective of the agreement, this method is very similar to liquid mining; the protocol still “rents” liquidity, but no transaction revenue is obtained, and it is not affected by IL. However, the protocol is rewarded by native TOKE due to liquidity participation, rather than introducing permanent costs to maintain liquidity.
Fei Agreement x Ondo Finance Partnership
In addition to revamping its core stablecoin protocol, Fei Protocol recently announced a plan to cooperate with Ondo Finance to provide DeFi with a cheap, short-term LaaS option. The agreement will be able to deposit their native tokens into the Ondo liquidity vault within a specific period of time, and the newly minted FEI will be paired with the deposit, and then this token pair will be sent to AMM for liquidity supply. The design of Fei x Ondo is very attractive for projects that want to generate on-demand liquidity without upfront costs to obtain liquidity on the other end. Due to the provision of the other half of the liquid position, Fei will charge a small fixed fee when the treasury expires. As the project itself acts as a liquidity provider, they have the right to charge transaction fees, but they also face potential impermanence losses. At the end of the period, Ondo will return the provided token liquidity after deducting the transaction fee (positive number) and IL (negative number). This strategy provides a new way for the agreement to provide liquidity at a very low cost in a short period of time.
ACY Finance
ACY’s POL is generated by itself and comes from its business running revenue, not directly building on other protocols or external buyers, which provides meaningful innovation by introducing a license-free interest pool structure.
Different from LaaS providers introducing methods to create sustainable liquidity for agreements at a lower cost, ACY buys the liquidity with its own protocol revenue without any extra cost. What is more, every renting has its period limit and someday it will reach to the time limit, and another new cost will be spent.
For the permanent liquidity, buying with protocol’s money is somehow better than buying with the users’ money, while the TVL in terms of the POL will be smaller in the beginning.
Although each resolution has its advantages and disadvantages, it is becoming increasingly clear that the current system must get rid of its dependence on liquid mining, and POL, PCV, and LaaS are just in the early stages of this process.
Without a public chain knowledge, one cannot understand the depth of a single transaction and multi-path at the protocol layer; without a quantitative trading basis, one cannot understand the difficulty of automatic arbitrage with a globally optimal solution; without a Defi basis, one cannot understand that Flash Arbitrage directly acts on the AMM curve bringing the benefit of ultra-low slippage. This is the moat of technological innovation that we design ACY Flash Arbitrage, and once the liquidity becomes deeper in the future, ACY is enough to open up a new track and era in Defi.
In the future, ACY Finance may consider opening its Flash Arbitrage technology to external projects, just like Olympus Pro, introducing the ACY Flash Arbitrage into the wider Defi ecosystem. ACY can do what In general, time stands with ACY, which means that the POL will finally become a huge protocol treasury.
