What is Protocol owned liquidity? A Primer on the model developed by Olympus DAO
An introduction to a new method of providing liquidity to tokens on decentralised exchanges
Decentralised finance — known as DeFi — has seen explosive growth since 2020, bringing with it the potential to disrupt traditional finance.
In particular, the rise of decentralised exchanges (DEXs) — most notably Uniswap — introduced key innovations that allowed trading to be facilitated without a centralised intermediary, utilising an Automated Market Maker (AMM), liquidity pools and liquidity providers.
However, these innovations are not without their drawbacks. Namely, the mercenary liquidity problem plagues protocols, who often need to incentivise liquidity providers with substantial rewards to provide liquidity to enable trading of their token.
In this backdrop, a new form of providing liquidity to tokens on DEXs emerged in the form of protocol owned liquidity. This model developed by Olympus DAO, promises not only to resolve the mercenary liquidity problem, but also to create a reserve currency in the process.
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