Visor Finance
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Visor Finance

The next generation of liquidity mining will be the introduction of NFT Smart Vaults to Decentralized Finance

Visor.Finance is developing NFT smart vaults for liquidity mining

NFT Smart Vaults will solve the four main issues within the existing landscape of liquidity mining. However, before we talk about the solution being non-fungible tokens, we need to define the problem(s) they solve. What we are about to define are all major characteristics of network effects and signaling theory. Namely discoverability, reputation, programmability, and security. Therefore, it is simple to understand the issues as it pertains to liquidity by adding ‘liquidity’ before each of those words and explaining them separately.

1. Liquidity Discovery

Liquidity discovery necessarily takes place because there are two key participants searching to match in the ‘Liquidity Network’. We can define participant one as the Liquidity Seeker (LS) and participant two as the Liquidity Provider (LP). Most of the time these two network participants match based on incentives that the LS provides to the LP. This incentive program usually goes by the name “Liquidity Mining” and is presented as a program that incentives the deposit and locking of assets which in turn rewards the participant for doing so.

However, in order for these two participants to match, a considerable amount of effort has to be exerted. The LS has to loosely target the community of LP’s but through very rudimentary Web 2.0 methods. In practicality this means heavily leveraging social communication channels to signal to those who may have capital and are paying attention to such messaging.

2. Liquidity Reputation

Let’s say the discovery issue has been solved and suddenly the LS has all the liquidity it needs. Well, there is still no great way to know the reputation of the person/entity who is providing that liquidity. One method that has been tried recently is whitelisting addresses whom the Liquidity Seeker believes fits a desired profile. For example, Float Protocol, and UMA limited their whitelist to addresses that have a history of voting in governance proposals. This attempt at profiling the desired Liquidity Provider will have diminishing returns as soon as future participants figure out how to get on these whitelists, thus terminating that desired profile altogether.

3. Liquidity Programability

If you could come up with the most obvious variables surrounding liquidity and it’s provision what would you come up with? Time? Depth? Source? ROI? These are all extremely important variables that the Liquidity Seeker would be at an advantage to control. But unfortunately there is mostly a one size fits all approach to liquidity and the incentivization of it in DeFi. There is one variable which usually and understandably so takes priority, which is, measured as Annual Percent Yield (APY). But what if there was a whole suite of variables that could be carefully programmed to control the length of the liquidity provision, the depth of the liquidity pool and the source of the liquidity?

4. Liquidity Security

Anyone who has been participating long enough as an LP within DeFi has unfortunate stories of depositing funds into various liquidity seeking projects and ultimately never being able to withdraw those funds. This familiar story has happened for many reasons. Two prominent methods worth noting are the project owners whom receives your ‘good faith’ liquidity deposit keeps it (known as a ‘rug pull’). Or there is a vulnerability with the smart contract that allows someone else to lock or keep your funds. No matter what the reason the result is the same. But the good news is that a solution is arriving.

So how do NFT’s solve these issues in DeFi?

We and many others are utilizing the ERC-721 contract interface to provide both Liquidity Seekers and NFT Smart Vault owners the tools needed to:

  • Signal liquidity availability to achieve near instant discoverability
  • Provide rich history and accurate profiling of individual liquidity sources
  • Selectability of many different variables, rewarding based on length, source, depth, etc
  • Retain custody and sovereignty of assets in a Smart Vault so that funds are never put at risk
  • Simultaneous liquidity mining on multiple protocols with simultaneous rewards
  • and many more exciting features

We will break down the solutions in another post. Stay tuned…

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Visor Finance

Visor Finance

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The DeFi protocol for Active Liquidity Management. Building on 🦄 v3.