EQUAL, the ultimate FTM play

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Equalizer Exchange

21 min readFeb 18, 2023

Introduction

Before we get into it, just a quick disclaimer, I do not represent either the Equalizer or Fantom project, and everything in this article is solely my opinion.

What is EQUAL

For those unfamiliar, Equalizer is a DEX on Fantom derived from the initial concepts of Andre Cronje. Equalizer aims to become the base liquidity hub for the Fantom network by utilizing the Solidly model with some tweaks.

Andre even gave a recent shoutout to EQUAL with this retweet:

In summary, the Solidly model solves for the problem of LP incentives and protocol revenue accrual in DEXs. Currently, LPs receive fees from the pool transactions; however, for new projects launching, these fees are typically not large enough to incentivize liquidity providers. So many projects have taken to “Liquidity Mining” programs with native token emissions to incentivize LP pools. However, this has proven can be a net negative as the emissions over time hurt prices. Further, DEXs like Uniswap have an issue with revenue accrual to the governance token holders because any trade fees that are redirected will result in lower yields to LPs, who can take their capital elsewhere.

Instead, Equalizer directs all trade fees to veEQUAL voters, and incentivizes liquidity providers with EQUAL emissions. The model supports these EQUAL emissions through the revenues received from transactions. This fee structure ensures that the utility and reward for holding and locking the token are high enough to support the required liquidity.

In addition, projects looking to incentivize liquidity for their token can bribe EQUAL voters directly to receive a portion of the emissions. This is a second income source for EQUAL lockers and allows for efficient liquidity sourcing for projects without high emissions of their native tokens.

For more information on the original Solidly model, I have linked good reading material at the end of this article.

The Solidly fork narrative is gaining serious momentum; at the risk of being early, I am going to declare Solidly fork season officially open.

TVL for Solidly forks has grown from ~$100M at the start of the year to now $500M as of February 17, 2022. It’s clear the model is effective at attracting liquidity, but let’s dive deeper into why I believe EQUAL is my pick of the bunch.

Flywheel

The EQUAL flywheel is hyper-effective at attracting liquidity:

We know that there is no such thing as a perpetual motion machine… that would be against the laws of the universe. There is, however, an interesting counter-cyclical effect that should sustain the model even during times of EQUAL price declines.

If EQUAL price goes down, then APYs for locked EQUAL go up. Meaning it becomes a more attractive investment for new buyers that should step in to sustain demand. Eg. 100% APY at $10 EQUAL is 200% APY at $5 EQUAL because the yields are denominated in USD and not correlated to the price of EQUAL. Over time an equilibrium will be established, where the yield of buying EQUAL will help protect the price from a downward price spiral. The idea is that there will always be a buyer at the right price.

How is it different than other Solidly forks?

Equalizer has made several changes to the model, optimizing for equalized incentives across the board. This is done to ensure the model is sustainable over time.

26 week maximum lock

Straying from the standard 4 year lock, Equalizer has decided to opt for a 26 week duration instead (6 months).

The 26-week lock is a lot more palatable to investors than 4 years and should encourage EQUAL holders to lock more tokens than a 4 year model.

But wouldn’t reducing the lock time lead to unlocks of EQUAL and increased circulating supply / sell pressure? No, I will explain this further.

veNFTs

Locked EQUAL tokens form a veNFT, which is fully transferable and tradeable. This allows locked EQUAL to be “semi-liquid” and creates a few advantages to EQUAL lockers.

Currently, veNFTs trade at a ~10% discount to EQUAL on PaintSwap.

Because owners of veNFT can sell at any time for a small discount, it does not make any sense to wait for a veNFT unlock. At current yields (106% APY), a veNFT owner would miss out on ~50% yields while waiting for his veNFT to decay over 26 weeks instead of taking a 10% haircut selling on PaintSwap.

In this way, veNFT positions are both liquid, and the incentives are such that locked EQUAL should remain locked long-term, removing sell pressure.

veNFTs as an atomic unit also have an added advantage over liquid wrappers such as CVX (Curve) or Monolith (Solidly v2). They remain liquid while minimizing risks of peg value, market making (liquidity cost), and governance of the L2 layer.

Further, with projects like OATHs Reaper Farm creating vaults for managed veNFTs (make it happen Bebis!), all of the advantages of an L2 liquid wrapper can be realized without any of the downsides.

To facilitate ease of use and transactions of the veNFTs, the Equalizer team, in collaboration with Paintswap, has been innovating the NFTfi space. As just one example, recently, the team added very useful metadata and filtering, helping improve the use of veNFTs as financial instruments:

The success of the veNFTs has been evident with EQUAL as the #1 collection on the PaintSwap marketplace:

Rebasing

Going against the grain, there is no rebasing for EQUAL veNFT holders. While at first look, this might appear to be a negative to lockers, I assure you this is required to maintain the incentives equilibrium over the long term.

Over time, rebasing has the effect of concentrating voting power to the largest and earliest stakers of a project. While this initially benefits the early investors, over time, this ruins the economics of locking to new investors and therefore demand for the emission token. Because demand for the emission token is what drives liquidity incentives, the whole flywheel is broken.

To use Solidly v2 as an example, they have a 100% rebase rate for lockers. In effect, what this has done is ballooned the number of veSOLID to huge values while generating no demand for SOLID. With now 72,478,879 veSOLID (and increasing every week), it is virtually impossible for a new investor to get any reasonable share of the fees at this stage.

With last week's revenues at ~$40,000 annualized return to veSOLID stakers at a SOLID price of $2.51 is 1.26% APY. I acknowledge that last week was an abnormally low week, so let’s run a different comparison.

EQUAL circulating market cap at the time of writing is comparable to the circulating market cap of SOLID ($5.2M vs. $6.4M, respectively). Assuming SOLID did the same weekly revenue as EQUAL of $200k, then veSOLID APY would be 6.28% vs. veEQUAL at 105.83%.

For a new investor looking to buy either SOLID or EQUAL, the obvious choice is EQUAL, even with almost the same metrics (circulating market cap and revenues). While early investors may have secured a large share of the revenues protected by rebasing, new investors have no opportunity to get in on a fair share of the revenues.

To sustain the Solidly model, the flywheel relies on utility and revenue demand for the native token. Rebasing creates an environment where existing stakers get richer on paper while not adding sustained value to the project, and new investors who do are disentivized to purchase.

SOLID v2, in particular, even running a 2-for-1 promotion to match SOLID locking, failed to receive any demand for new locks. moSOLID was trading at a 1:10 peg at some point. Drama aside, this tells me that veSOLID has no demand, even at a 90% discount. This is a structural issue for the project because, without the demand for veSOLID, the LPs are not sustainable.

Even though early veSOLID lockers get rich on paper with their ever-increasing number of ve tokens, the real APYs just get lower, and they can’t exit their positions anywhere near peg. So this is a loss for all parties.

This is not a hit piece on SOLID v2; it’s just a relevant example, as they have 100% rebasing. THE and VELO also have rebasing to a smaller degree (30%), so they will face similar challenges as time goes on.

Another example of how rebasing can be toxic is project-owned veEQUAL. A common strategy that will be covered further is for projects to acquire their own veEQUAL to direct emissions to their LP long-term effectively.

With rebasing, a project can acquire a certain % of veEQUAL and continue voting for its own LP in perpetuity, even if that pool is not economically viable (generating fees). The effect of this is sort of akin to the batman/superman problem. It exploits the incentive structure of EQUAL because no revenues are coming in, but emissions are going out solely to the benefit of the project.

With no rebasing, a project can still acquire veEQUAL to direct emissions; however, over time, their emission share will decrease, and if they want to keep incentivizing an underperforming LP, they need to get more veEQUAL or bribe. Adding value to the system instead of just taking.

If their LP is performing well and generating fees, then others will vote for that pool for a share of the fees, and the pool is self-sustaining and an economic net positive to EQUAL. This is the equilibrium economics that sustains the project long-term. With rebasing, projects can free-load and exploit EQUAL for their benefit.

Ok, so we see that rebasing is not always positive, but won’t veEQUAL voters get diluted from their share of revenues over time?

The short answer is yes, the idea being that that investors will get a smaller piece of a bigger pie, and new investors can get a fair share of revenues by buying EQUAL at any time in the future. To elaborate, if your share of revenues is diluted by 30%, but revenues are up 100% during the same time, you are still up on how much $ you are receiving. But this means EQUAL will always be in demand, and LPs will always be properly incentivized.

In this way, the flywheel is sustainable across time.

However, for investors that are concerned about dilution, the answer is they should compound their returns and continue to lock EQUAL. This way, market share can be maintained while making it fair for all participants in regards to acquiring EQUAL off the market and sustaining the flywheel.

Because the EQUAL emissions are decreasing by 0.5% per week, and compounding increases share every week, over time, you will gain market share by compounding; some math on this is below:

This is a calculation of the % share of revenue on 10,000 EQUAL compounded weekly at 106% APY. As you can see, the % share of revenues stabilizes around week 17 as emissions reduce and then grows from there.

Now keep in mind although % of the revenue share is maintained, the total revenue this whole time should be growing. So a long-term investor compounding is maintaining their share on growing revenue. And this way, EQUAL price is protected for long-term growth.

It’s also ok not to always own the same percentage share of a platform. We don’t see bitcoin holders upset that they don’t own the same percentage every year. This is the nature of decentralization. The only real things that matter to an investor are price appreciation and percent yield. Which are both optimized with no rebasing.

Rebasing or “anti-dilution” is nothing more than a marketing buzzword. There is no real value created through rebasing, and you cannot gimmick your way out of economics. You can see this reflected in the analysis section, EQUAL with no rebasing is consistently beating it’s rebasing competitors in just about every metric.

Team

I did not initially plan to cover the team in this article. But after spending considerable time in discord, at AMAs, and in discussions with team members, I am confident in their ability to fulfill the potential of EQUAL and wanted to mention that briefly.

The team has truly embodied the ethos of “equality” in everything they have done to date, and I believe they’ve set the project up for massive success. Everything from the fair launch, airdrop, and organic growth, to sustainable and balanced tokenomics.

They also work 24/7 to push partnerships, ship UI updates, update NFTs, update contracts, etc. For a small team, they are hyperproductive, and now that the team has room to grow, I am looking forward to what they accomplish next.

One of my big convictions in Gains Network was Seb and his work rate. I see the same in Hoops at Equalizer. His business acumen is evident in his hyper-focus, partnerships, and work rate.

I won’t drag this section out, but do not fade a bullish team.

Current Metrics

As a brief overview, the current metrics of EQUAL are outstanding across the board, and even at current revenues, EQUAL is severely undervalued. Considering the future growth opportunity outlined in the following sections, in my opinion, EQUAL is a unique investment opportunity at this time.

EQUAL has been consistently hitting ATH numbers week after week in almost every metric.

TVL:

TVL in FTM terms looks even stronger:

Trade Volume:

Holders:

Fees:

Price:

Although the price has run up, it is very much supported by fundamentals. I believe it is still lagging behind the insane metric's growth.

Analysis and Comparison:

Unfortunately, there is no aggregated data for fees and bribes yet; a dashboard is still being worked on.

However, we know that total revenues for the last EPOCH (week) were ~$200,000. Annualized, this amounts to $10,400,000.

Currently, there is 905,538 EQUAL locked, roughly 70% of the total supply. Of those, there were 755,355 votes cast last EPOCH.

At a current price of $13.04, that is $9,827,168 veEQUAL receiving $10,400,000 in annual fees at ~106% APY.

P/E ratio = 0.94x

For this comparison, I will use the front-leading projects SOLID V2 (Ethereum), VELO (Optimism), and THE (BSC). It’s important to note these projects are not necessarily in competition with each other. The nature of these projects is they are ecosystem-based, and all of them can win in their respective space; more on this later. But because they operate on similar mechanics, they are good to compare metrics to.

We can see that of the bunch, EQUAL has the least TVL, but when we do some leveling, we can see it is the most undervalued across several metrics:

EQUAL has the lowest P/E ratio, the highest lock APY, and the highest revenue / TVL.

P/E Ratio:

The lower the P/E ratio, the better from a cash-on-cash return perspective.

Typically, new high-growth companies are valued at high P/E ratios (sometimes into the 100s) that, over time, come down as speculated revenues are realized. What’s interesting about EQUAL is that the P/E ratio is near 1, meaning the market has not priced in any future growth. Based on the current growth trajectory and future catalysts (covered later), this is a huge opportunity to capitalize on.

THE and VELO, at 2.27x and 2.56x P/E ratios, respectively, are also quite undervalued, in my opinion, specifically compared to my benchmark of Curve at 8.95x.

SOLID is a big outlier here with a P/E ratio up to 80, again, mainly because there is such a high concentration of existing veSOLID that will continue to grow with the rebasing.

I think there is room for VELO, THE, and EQUAL to grow on a P/E basis.

And of the bunch, EQUAL is the lowest by over 100%.

Voter APY:

As the P/E ratio goes up, the APY comes down as they are inversely correlated based on the price of the token.

EQUAL has the highest voter APY at a whopping 106%, more than double its peers.

A key reason I believe that EQUAL APY is much higher than the other projects is because veEQUAL has no rebasing. In the other projects, each epoch, there is an additional large percentage of veTOKENS entering the supply each week to existing holders. In effect, this decreases APYs (more locked tokens = lower revenues per token). Although these projects like to count the rebase as “APY”, share issuance / dilution is not real earnings.

Revenue / TVL (Capital Efficiency):

This metric was the most interesting to me. Essentially it measures the capital efficiency of the DEX’s liquidity.

Because the business model of this DEX model is to “rent” liquidity through emissions and, in return, receive their revenues, this is an important metric to consider how much revenue you are receiving from your TVL.

Although EQUAL had the lowest TVL, comparatively, on a dollar-for-dollar basis, it is generating the most income (roughly double the competitors). Meaning the capital efficiency is greater and more sustainable (you don’t want to pay a bunch of idle TVL that is not generating you income).

I am not sure how this metric will evolve in the future, but I thought this was interesting to highlight.

To summarize this section, the metrics are outstanding, with record growth week after week. Even at current revenues, EQUAL is undervalued compared to its peers, and EQUAL is the highest TVL-efficient DEX. Plus, the whole category of Solidly DEXs is likely undervalued, I am expecting we will have a strong Solidly DEX narrative coming up.

EQUAL as an Ecosystem Play

I mentioned the ecosystem as a key factor in the last section, and I want to zoom in on this point because it is important.

These DEXs are only as strong as the ecosystem they are in. The more projects that utilize EQUAL, the more bribes are received, and the more revenues are generated from the liquidity.

Currently, EQUAL is the only Solidly fork on the Fantom network and has a green field opportunity to entrench itself as the leading liquidity hub. Partnered with almost all of the major projects on Fantom already, with new cross-chain projects now coming in (ANKR, UNIDEX last week), it’s fair to say EQUAL has found a great product market fit. It currently accounts for 20% — 30% of trade volume on the Fantom network.

Although SpookySwap is still the prominent DEX on Fantom, I do not believe they are as entrenched as Uniswap is on ETH. EQUAL has a very real opportunity to disrupt SpookySwap as the #1 DEX. And because EQUAL yields are much higher, it will be a lot stickier to liquidity providers.

Now, as the ecosystem and partner projects grow, their liquidity will grow, their trade volume will grow, and their bribe value will grow. Because fees and bribes are largely denominated in project tokens, increasing prices mean increased revenues to EQUAL.

Further, projects looking for a long-term solution to liquidity are highly incentivized to acquire veEQUAL to direct emissions to their own pools. This adds more buy pressure to EQUAL to keep the flywheel spinning.

Earlier this week, OneRing announced that they acquired 2,106 veEQUAL. Since this post, they have acquired another 894 veEQUAL. I’m expecting demand for EQUAL to heat up from project DAOs as they are recognizing EQUAL to be the most efficient way to incentivize their LPs.

The game theory around projects acquiring veEQUAL is solid:

Projects diversify their treasury
Projects earn revenue through their veEQUAL holdings
Projects incentivize liquidity in a non-dilutive way

This added EQUAL demand helps sustain the flywheel. And because there is no rebasing (hopefully I have convinced you on this point), projects will have to accumulate more veEQUAL over time as their project grows and liquidity demand increases.

For all of these reasons, EQUAL is a leveraged play on FTM and the FTM ecosystem. And for this same reason, it is not in competition with other DEXs on other chains. VELO is a play on the optimism ecosystem, and THENA is a play on the BSC ecosystem. Although EQUAL may go cross-chain in the future, it is currently hyper-focused on winning over the Fantom market as there is a lot of land up for grabs.

The reason EQUAL is my bet amongst the other Solidly forks is not only because it has the best APY yields but also because I am more bullish on the Fantom ecosystem than I am on Optimism or BSC.

I believe the catalyst for Optimism (token airdrop, project incentives, etc.) has already played out and moving forward; it will be just another L2 with fierce competition from Arbitrum, Metis, Polygon, ZkSync, etc. As just one example, transaction metrics since the OP token incentives ran out have not been great:

And although BSC has a strong user base, it is not as technologically exciting or innovative as Fantom. It is highly centralized, and potential regulatory issues for Binance / BUSD could affect BSC in particular. I’m sure Thena will still do great on BSC, but this is one of those times that I am unironically in it for the tech.

Fantom

Now, this is where I see a huge opportunity unique to EQUAL. There has been a lot of attention on the Fantom network lately with the return of Andre Crojne, the “father of DeFi.” FTM price is up 324% over the last 90 days, and it’s hopefully just a taste of what’s to come.

Fantom was particularly popular during 2021 DeFi because of its fast transaction finality, low gas fees, and innovative projects. According to Nansen, Fantom is still one of the top chains ranked in terms of active addresses:

However, the total TVL has been at rock bottom since the latter part of 2022. This presents a great opportunity to get in on the ground floor with a novel project that will capture a lot of new TVL flowing back in.

With Andre Crojne back at the helm and their coffers full with over $100,000,000 in funding (30 years of runway) Fantom is in a position to make a huge comeback. https://andrecronje.medium.com/fantom-an-inside-financial-peak-at-being-a-crypto-company-323d29fb5e81

At Quantum Miami, the Fantom Virtual Machine was announced for release by the end of 2023, with preliminary testing showing transactions were 8.1x faster and blocks using 98% less storage. https://fantom.foundation/blog/fantom-virtual-machine-storage-the-roadmap/

Amongst other things on the roadmap are account abstraction, gas subsidies, and gas fee sharing to projects in Q2 / Q3 2023.

Account abstraction will allow wallets to be owned by normal web2 methods (username / password, facial recognition, etc.), which allow for the smooth onboarding of the next generation of on-chain users. https://fantom.foundation/blog/account-abstraction-on-fantom/

Gas subsidies will allow DeFi projects to onboard users without them needing FTM tokens for gas. https://docs.fantom.foundation/funding/gas-monetization

Both of these things are a huge barrier that will help currently “trapped” CEX users branch out to on-chain markets, benefiting DeFi projects foremost. EQUAL will be the first stop for new users on Fantom to acquire project tokens and potentially get involved in farming through an LP. The Equalizer team is investing heavily in UI/UX to make sure new users have a positive experience and that EQUAL capitalizes on this opportunity. Part of this focus is a “mobile first” approach because this is how most of the world interacts with the internet.

We can see that ever since the initial boom in DeFi Summer of 2020, DEXs have not gained any significant market share over CEX over the last 3 years, consistently hovering between 5% and 15% of total traded volume.

As a DeFi maxi, this is a sad graph to look at. Despite all of the cool projects and advancements DeFi has made over the last 3 years, L1 UX has severely limited adoption. It’s easy to be caught up in the DeFi echo chamber, but zooming out, adoption simply isn’t happening at the rate it should be. What Fantom is doing with account abstraction and gas subsidies is vital in the next step of DeFi adoption.

Gas fee sharing will also be interesting; this would give a nice revenue boost unique to EQUAL, as the number of users interacting with the DEX is exceptionally high (swaps, LPs, reward claims, voting, veNFTs management, locking, bribing, etc). As soon as ready, EQUAL will be front of the line to explore this option. When on-chain activity pick up and gas fees are higher, this can add up to significant revenue to EQUAL.

Over the last 30 days alone, Uniswap transactions burned 8,293ETH or $15,807,266 ($189,687,192 annualized). Wouldn’t it be nice to capture part of that as revenue?

On January 19, 2023, Fantom announced the “Ecosystem Vault,” where 10% of all transaction fees on FTM will go to funding new projects building on Fantom. https://fantom.foundation/blog/ecosystem-vault-now-live/

This ecosystem vault will help projects secure funding to build new innovative dApps on Fantom. Combined with all of the L1 upgrades, I believe Fantom will attract top-tier builders.

EQUAL stands to benefit greatly from this initiative because these new projects will need a place to launch and generate liquidity. With EQUAL as the go-to ecosystem player, I expect many of these new projects to be bribing and accumulating EQUAL to direct emissions. I’m excited about a revival of innovative DeFi on Fantom.

And I saved the best for last: fUSD v2

fUSD v2 is a revolutionary product unique to the Fantom ecosystem; as an L1 native stablecoin, it will allow users to use it as a fee system on-chain. This opens the door for many new institutional products and ecosystem growth.

A key feature of fUSD is it can be minted using both wFTM and sFTM. The reason this is SUPER important is that there is 1,400,976,447 FTM ($770,537,045 at today's price of $0.55 / FTM) currently staked. That is $770M of idle assets that, at a collateralization ratio of 300%, can be used to mint $256,845,681 fUSD. As FTM price increases, this amount will grow. At ATH prices, this is up to $1B in potential fUSD.

So, what happens when we unlock $250M+ of stablecoins? Those fUSD are going to be put in use all around the FTM ecosystem. And again, EQUAL stands to benefit in pretty much every way.

fUSD used to buy project tokens? EQUAL facilitates the trade, earns a fee, and benefits from the rising price of ecosystem projects.
fUSD used to LP farm? They are going to EQUAL for the highest yields. Maybe they use a vault like Beefy or Reaper, which will route to EQUAL.
fUSD used on dApps throughout the ecosystem? EQUAL will benefit from the the growth of its partner projects.
fUSD used to lend? Borrows are going to use them on either 1, 2, or 3. Perhaps they leverage LP on Tarot.

You can quickly see why EQUAL will be the ecosystem player to capitalize on FTM growth across the board.

Summary of why Fantom is bullish:

Andre Cronje is back
30-year runway
FVM
Gas subsidies / Account abstraction
Ecosystem vault
fUSD v2

Summary:

FTM gud chain

EQUAL gud coin

It is my opinion that EQUAL is likely undervalued today by ~5x. And with all of the catalysts ahead for Fantom, I can see a bullish scenario in which EQUAL price exceeds $1,000. Bull runs always overshoot, so who knows the actual potential?

As an investor, EQUAL is a gem at current prices. Being able to buy a hyper-growth project at a P/E of 1 and get exposure on the ground floor of an entire ecosystem is a unique value proposition.

The yield is also an important part of the value proposition. You can buy EQUAL today and get 106% APY (real yield) while the project grows. If you compound rewards weekly, you get 285% APY. Even if the price does not go up AT ALL in the next year or declines, the worst-case scenario is you’ve got your principal back (yields are not denominated in EQUAL, so falling prices will not diminish them).

I also want to point out that if you acquire veNFT from Paintswap at a 10% discount *hint hint*, the value is just that much better.

Thanks for reading; please share this article on Twitter and follow me https://twitter.com/levysaur. I may be doing more in-depth write-ups in the future, depending on how this is received. As always, DYOR.