Designing for Liquidity in DeFi
Liquorice Gen — a Liquidity Generator Designed by Linum Labs during ETHGlobal’s HackMoney (2020).
Liquorice Gen V1.0 is a liquidity generator that uses a bonding curve to bootstrap and collect liquidity, allowing the user to launch a Uniswap market for a freshly funded token. This first version was a great design project to take on because it attends to the need for liquidity in DeFi. The main idea also aligns with Linum Labs core principles — to add to the infrastructure of Web 3.0 tech for the decentralised future.
Introduction
This project started with myself and Veronica Coutts hacking during the ETHGlobal HackMoney hackathon 2020. Besides the tech architecture and design for this project, my role was not only about determining how to best present this idea through the User Interface but also to design a solution for its potentially densely, technical User Experience.
Context
This project began by looking into the context of liquidity in DeFi. This required looking up what the needs/problems are, and so this quote from this article caught my attention:
“Bootstrapping liquidity is the classic chicken and egg problem. Market makers need flow from products and users i.e. takers to pursue profitable strategies.”
Going into this idea further, I found that it’s not that liquidity cannot be made, it’s just that it’s made in the wrong places:
“Products and users need market makers to provide liquidity.”
What I distilled from this was the main core insight into what is needed to solve liquidity problems: The market needs to be made around the product itself as a tool or service, and not limited to just the exchanges.
Research
The easy part about this project is its great use case. Liquorice Gen is a great tool for anyone who has a token and wants to raise money without using the conventional investor capital fundraise method. However, taking this into account, and the fact that it was based on proven tech (like the bonding curve playground simulator by Benjamin Scholtz and Linum Labs ), I wanted to gain greater insights into DeFi while looking for concept validation for the problem of liquidity.
Therefore the research for this project then continued into defining what the problems are for DeFi expansion and the industry in general.
This article lists some of the problems in DeFi as:
- long term volatility
- lack of services in DeFi
- slow oracles
At the same time, there are great opportunities as well:
- high interconnections built from smart contracts for strong network effects
- increasing chances to get users to “switch” from CeFi
- a varied number of tools that could add to hedging against risk.
However, the highlight for opportunities was the most unkept secret in DeFi — sustainable liquidity. Here I gained the concept validation that creating services/tools around sustainable liquidity (and other related problem areas) is a key to the expansion of DeFi, and as I could see from Veronica’s point of view, especially bootstrapping liquidity.
Competitor Analysis
What were other companies in the space doing about liquidity?
Here I found that there is an advantage to bootstrapping liquidity because most other direct competitors to the idea were mainly:
- Aggregating liquidity
- Making it easier to trade and create liquidity more directly from wallet to wallet:
- Creating small scale service widgets that makes both of these actions easier to do
However, none of these competitors directly generated liquidity through utilising the potential collateral there already is in a token sale. Therefore I could see the gap in the market and a basic product-market fit. So now was the time to look into those users in the market.
User Research
Based on my target users (Defi Creators/Founders), I adapted the Immersion Method for observational user research during the HackMoney Pool Together Workshop (an intro to the company hosted by the founders) to observe how people would create their own successful DeFi product. Gaining insights like these were vital because our tool would need to fit into the user’s journey at this same point in their career. This research method proved very useful to use to empathise with the user and create a “say-feel-think-do” empathy graph.
The next piece of user research I bootstrapped was joining a panel discussion for what DeFi experts thought about the future of the industry. They were taking questions directly from the audience (my target users), and I found this was almost exactly like a user interview because it was a Q&A, giving me all the ingredients I needed for a perfect contextual inquiry.
User Persona Creation
With the combination of these two adapted methods, plus a small qualitative survey with some key questions, I was then able to conclude my research with the creation of a persona card.
Brand Creative:
I decided to spend time on the brand of the tool because one of the 7 elements of UX I like to focus on the most is Desirability, best achieved with a bespoke brand and logo. I first decided to go for branding that would have the broadest appeal. Stemming from this, I know people like giving developer tools quirky names, even ones based on sweets and candy, like “Truffle” and “Ganache”, for example.
Then, in a brainstorm with my teammate, we came up with the name
Liquorice Gen because;
- Liquorice (based on candy) sounds like “liquid-rich”
- The suffix Gen for “generator” (brings in the industrial feel and the functionality of the tool)
- Including the attached with the byline — “become liquid-rich”
I found with all these ideas combined made the brand/tool sound like developers would have fun using it!
Creating the rest of the creative attributes was then about striking a perfect balance between liquorice and metal. Here, a smooth, matte black aesthetic emerged with a striking emphasis orange colour to contrast the shiny metal aspects, bringing this industrial-velvet look altogether.
Wire-framing
Combining the two steps of paper and low-fi wire-framing together sparked quick, productive conversations between my teammate and me about what the crucial user tasks would be. One thing that stood out, in particular, was what the user’s basic level of understanding should be.
Through this wire-framing, we were happy with the content we laid out. However, what started to become challenging was the amount of work it would entail to implement a good amount of educational content, along with composing the UX of the technical inputs so that the user could understand what to do with the bonding curve parameters.
This is what led to the most interesting part of the design process for me: what to do with bonding curve graphs?
Why would I pose such a question? To find out you can read more about the troubles with users reading bonding curve graphs.
This time around, I decided to try out something new. I wanted to try visualising a “line-less” graph, in other words, a bonding curve without the line graph.
I pitched this idea to the mentors at the hack and based on their approval we had the go-ahead. Just like that, all of the complications that revolve around educating the user on how to read/use bonding curve graphs and the complicated graph itself disappeared. Subsequently, this led to an easily manageable coded prototype (made using Webflow) and developed POC.
(Not built for mobile in its current form! However, you can see it in action in our demo video below.)
End of the Hackathon
When it came to the judging day for all the submissions in the hack, it was amazing to see that 118 projects were submitted and that 40 projects were submitted using the same sponsors’ technology as we did. However, what we did not know is that we would win our track and come 1st place for using the Uniswap integration. So as far as the hack went, we won!
In terms of the “line-less” graph manifesto, the verdict on its success had not come in yet. At the time it seemed to serve its purpose for this POC because it made the UI/UX easier to understand, and the main user benefit was able to shine through:
This POC proved that liquidity could be bootstrapped through a bonding curve in order to launch a token in a Uniswap pair.
It did this as a certain number of tokens had been sold (and thus there is a certain amount of collateral in the curve), utilising the accumulated collateral as liquidity to bring the user token onto the open market
This is what we like to call an IBCO, an Initial Bonding Curve Offer. The idea of an IBCO to provide liquidity to a token on the open market is what caught the judges’ attention and won us the prize.
Conclusion
Version 2.0 of Liquorice Gen is now being taken into the Gitcoin KERNAL incubator headed by Veronica Coutts in July-August 2020. Version 1.0 of Liquorice Gen taught us a great deal about the innovative uses of bonding curves and how far we can take BC tech in token economics. We will continue building out aspects of this, especially continuing to work on how graphics can best be understood by users through good UI and UX, along with the underlying tech for the decentralised web in the future.
Want to see more on our work at Linum Labs? Go to our use case page on linumlabs.com/use-cases for more.
