Introduction
We’ve built L2PAD upon this innovation of quadratic funding to ensure that the startups leading the way are able to fundraise in an optimal, fair, and balanced manner, free from the traditional trappings of the Venture Capital industry. For details of quadratic funding, please, see the appendix.
On December 7th, 2019, Vitalik Buterin published a highly influential piece on his blog titled: “Quadratic Payments: A Primer”. This article highlighted one of the major pillars that forms the foundation of L2PAD: quadratic funding.
Now bear with us here. We posit that DeFi is finance unbound by open-source code and DLT stack:
Let’s consider the ‘code’ component:
- Key pillars of DeFi and crypto, in general, are open-source and generally represent non-excludable goods (as no one can be prevented from using them).
- Their average production cost is strictly above their marginal production cost. In other words, it takes a lot to produce and much less to reproduce, maintain, fork.
- The two characteristics above render some of the DeFi primitives/products as public goods due to the open-source component.
Now, let’s consider the ‘finance’ component:
- Today we are witnessing the build-up of the new financial system that is set to replace the non-inclusive, monopolized and inefficient TradFi.
- Likewise, the dawn of the NewFi is a set of very short-lived processes shaping the wealth distribution for the decades (if not centuries) to come — those who amassed thousands of bitcoins in the very beginning are the new financial elite today and there’s hardly anything that can be done now to change this distribution. But the ‘ownership’ of DeFi, the beating heart of tomorrow’s finance, is still far from being set in stone.
- Thus, the consequences of not considering the distributional properties of today’s DeFi will have far-reaching implications for mankind’s evolution going forward. Unless well-designed today, it’ll be impossible to alter tomorrow.
So, it appears that on the one hand, DeFi is open-source software that’s known to be among the purest examples of public goods, from another, it is the emerging, fragile, and yet critical industry, an industry where some of the distributional decisions taken today will have non-linear consequences for the wealth distribution tomorrow.
So, as a TL;DR from above: DeFi is a public good that millions of people will use or rely upon and it needs to be funded in a more democratic manner to avoid repeating the mistakes mankind had already made in the buildup of modern capitalism.
Adverse distributional effects that virtually any major innovation or new technology has caused to date is not a feature. It’s a bug, a disease that modern economic thought can cure with the help of DLT stack. Blockchain and all innovations that are borne to reinvent the world cannot have its benefits reaped purely by a collective of the wealthy few.
L2PAD’s deployment of quadratic funding will pave the way for everyone to become invested in the goods that are going to revolutionize and invent many industries over the coming years.
Our Ethos
L2PAD was envisioned and built to rebuff a continuing trend within the cryptocurrency industry: launchpads, and other fundraising vehicles are predominantly applying private goods funding techniques to anything DeFi. We believe that this is shortsightedness that will have massive adverse implications for the wealth distribution in the decentralized financial system of tomorrow. From whale formation and predatory crypto-economics to unsustainable token distributions, launchpads currently fail to understand the pivotal role they play in the early stages of projects’ token distributions. Problems of wealth concentration and predatory tokenomics in the now will bleed over into the next generation of products and further exacerbate the issues years down the line.
We are here to fix this.
Thus, we’ve designed L2PAD with our ethos in mind and a long-term vision that we want the world of web3 to be fair, free, and inclusive, and we’ve designed the foundations accordingly.
The Platform
L2PAD is designed as a fully decentralized platform (the SDKs to be developed for front end decentralization) that allows pool creation with variable pool settings, different types of funding profiles, linear and quadratic, and respective distributional mechanics and auction-based or fixed swap price discovery mechanisms. The IDO pool creation module is augmented with an option for automated creation of a secondary market for a given token. Pool creation carries a fee taken as a percent of the pool size. These fees fuel the key concept behind the L2PAD AlphaPool offering the L2PAD community an automated exposure to all the projects that launch with the platform.
The Features
L2PAD is comprised of several components that form the basis of the platform, it is built on Ethereum’s Optimism and Arbitrum to keep fees at the minimum.
- Primary liquidity pools (PLP) and associated contracts handle IDO mechanics, as well as L2PAD algorithmic tiers that govern IDO access.
- Liquidity lock-up module and associated contracts provide for the vesting of projects’ tokens (similar to how sablier.finance does that) and tokens sold during the IDO. The secondary market liquidity lock-ups are built-in to avoid rug-pulls — basically, upon providing the initial liquidity on the Uniswap pools, the liquidity tokens are locked for an extended time period.
- The DEX module handles the secondary market in which a DEX pool is opened for the IDO’ed token and liquidity is migrated from the PLP.
- L2PAD has a DAO governance contract that handles general platform governance and community project evaluation.
- L2PAD’s AlphaPool contains all of the fees from the various launched projects and continuously grows with every successful launch. When burnt, L2POOL token returns a pro-rata share of all the tokens sitting at L2PAD PPP. L2PAD AlphaPool is a constantly expanding innovation portfolio that exists to continuously reward community members and diversify their crypto holdings with successful IDO tokens.
- The L2PAD token allows for the governance of the entire platform and participation in IDOs.
- The L2PAD core contains the API for developers to quickly build dApps utilizing L2PAD smart contracts as well as the key DeFi primitives utilized within L2PAD.
- Lastly, the DAO discussion dashboard allows for community-based project evaluation and voting.
L2PAD AlphaPool
The AlphaPool is backed by the launch fee, which is paid in the launched projects’ tokens. There’s no cost or censorship to launching an IDO through L2PAD, it’s entirely permissionless, but there’s a fee that goes for the L2PAD community. It amounts to a minimum of 30% of the IDO pool size in project’s tokens, but can be set higher as per the project’s wish. The launch fees are collected into a segregated liquidity pool called L2PAD AlphaPool that cannot be traded against or deposited into in any other way but through originating (and successfully concluding) an IDO on the L2PAD platform.
L2POOL token
The L2POOL tokens represent fractions of the L2PAD AlphaPool and, when burnt, can be exchanged pro-rata for the tokens resting inside it.
As the L2PAD ecosystem grows, the L2POOL will grow in number of tokens sitting inside. Shall the projects’ tokens perform well, so will the L2POOL token. Mind, that this is a probabilistic statement. All the major price movements will be arbitraged away as L2POOL token is expected to have significant secondary market liquidity. By virtue of being fungible and transferable, we expect the major burns of L2POOL to be infrequent.
Assuming the platform longevity, this process will continue ad infinitum and the L2POOL token would eventually be representative of a very large share of tokens within the wider Ethereum ecosystem.
L2POOL is a finite supply token that will be minted over ten years and follow a root function (which is similar to Bitcoin’s halving in that L2POOL token minting decreases significantly over time), supply is capped at 1,000 tokens. Initially, the only way to acquire this token is via the staking of the L2PAD token then following the minting of 20% of the total supply of L2POOL tokens it changes so that both L2PAD token stakers and those who stake L2PAD liquidity tokens receive the newly minted L2POOL token, with the latter receiving the lion’s share, users can choose to stake both types or just one.
L2PAD Token
This token is the governance utility token with a finite supply that governs system parameters as well as tiered IDO access to projects launching on L2PAD. Users stake their L2PAD tokens and become eligible for a tier along with respective allocations and odds of participation. Users can also farm the L2POOL token by staking L2PAD and providing secondary market liquidity for it.
There is also an Anchor Charge which is initiated after the preliminary L2PAD tokens are distributed and it consists of a 5% fee that is paid whenever L2PAD tokens are unstaked from the platform unless migrated to liquidity mining. This fee is split into three equal parts, ⅓ of the fee is burnt, ⅓ is redistributed to remaining stakers, and ⅓ is deposited into the L2PAD AlphaPool. A percentage of one’s overall L2PAD stake is burnt when participating in an IDO and varies with one’s allocation.
Guide to the Epochs
The L2PAD protocol evolves in 4 stages, each called an epoch. We will soon post an expanded article explaining these, but here is the TL;DR:
- The Pareto Epoch embraces the initial distribution of the L2PAD token.
- The Markowitz Epoch is all about the creation of the L2PAD token liquidity pool and initiation of L2POOL minting and farming.
- The Levine Epoch begins following the minting of 20% of the L2POOL tokens; further a part of L2POOL token mint (20%) is still awarded to L2PAD stakers but the majority of it (80%) is distributed across those who stake L2PAD liquidity tokens. The tier system is also enabled and IDOs can begin taking place.
- The Szabo Epoch begins with the activation of the L2PAD DAO, various allocations are distributed. The decentralized rating systems, stake delegation, and community forums are activated. The protocol is a full-fledged DAO.
Conclusion
Further detailed information can be found in the L2PAD deck, manifesto and the FAQ, this article is purely designed to provide a brief overview of the entire L2PAD protocol. Additional articles will be released within the coming days covering different aspects of the project and the ethos that we follow as we continue to build L2PAD. Ethereum 2.0 is on the horizon, Optimism, Arbitrum, and other L2 scaling solutions have been released and we have developed L2PAD to democratize the distributional aspects of DeFi.
Appendix: Quadratic Funding
Quadratic funding: “is a more democratic and scalable form of matching funding for public goods, i.e. any projects valuable to large groups of people and accessible to the general public. Matching funding is a model of funding public goods where a fund from governments or philanthropic institutions matches individual contributions to a project. QF optimizes matching funds by prioritizing projects based on the number of people who contributed”[2]. The math of quadratic funding is deceivingly simple when compared to the philosophical underpinnings of the concept and is shown below:
Quadratic funding works by taking the square root of each contributor’s contribution and adding these values together and then squaring the resulting value. This is best elucidated by Vitalik in his article on quadratic funding: “In any case where there is more than one contributor, the computed payment is greater than the raw sum of contributions; the difference comes out of a central subsidy pool (eg. if ten people each donate $1, then the sum-of-square-roots is $10, and the square of that is $100, so the subsidy is $90). Note that if the subsidy pool is not big enough to make the full required payment to every project, we can just divide the subsidies proportionately by whatever constant makes the totals add up to the subsidy pool’s budget; you can prove that this solves the tragedy-of-the-commons problem as well as you can with that subsidy budget.” The tragedy-of-the-commons problem is a problem in which every individual has an incentive to consume a resource but at the expense of every other individual.
