With our second edition of the xLetter we will cover protocol updates, deliver a little alpha, deliberate on futarchy and DeFi 2.0, and, finally, pass around some very good vibes. If you make it to the end, you won’t be disappointed.
Arbitrum Launch: Lending, Liquidity Strategies & Leverage Tokens
We’ve been discussing xToken Lending with our community for a while, as a way for our users to access loans against their yield-generating xAssets. We believe that holders of AAVE or 1INCH, for example, would prefer to earn full staking returns while borrowing against their investment. In contrast, depositors of these tokens on alternative lending platforms are earning nearly zero.
However, with the sustainably elevated gas prices in recent months, we were concerned that the switching costs to migrate liquidity to our platform might not justify the incremental yield. We recognize that the process of 1) unwinding from a competing lending protocol, 2) minting and 3) depositing an xAsset, and finally 4) taking out a new loan, could be daunting.
While we’ve been planning an L2 presence for some time, we’re excited to announce a broad-based investment in Arbitrum, including the first deployment of our Lending platform!
Beyond xLend, our Arbitrum product offering at launch will include several xU3LP (Uniswap V3-powered income products) strategies, as well as our new composable 2x/3x tokens, where investors can get seamless access to leverage on assets like WETH, WBTC, LINK and SPELL.
That’s not all though. xToken users on Arbitrum who play their cards right will be in good shape to earn our inaugural NFT set, created by BingoBongoPlinkoPlonko. GM’ers will be happy, but so will GA’ers, GN’ers and WAGMI’ers. Some samples of potential generated JPEGs below.
Check our post on the governance forum here, for some greater insight into our reasoning. If you have questions on our reasoning and/or approach, let us know in the forum and/or in our Discord. We always welcome thoughtful feedback and respectful disagreement.
Wen Arbitrum? Wen Lending?
We’re targeting a full Arbitrum launch for the week after Thanksgiving.
What are we thankful for? Easy, #Lendsgiving. Next question.
We recently announced a $2m fundraise round, made up of a group of previous supporters and new backers. Our investors are aligned with our mission of building a vertically integrated, decentralized asset management platform. The funds will help us continue building out xLend, xToken Terminal, leverage strategies, as well as other native staking and liquidity strategies.
To read more about our latest fundraise check out our announcement blog post.
xBNT: $EDEN (an xToken Retrospective)
Many followers of the project are familiar with our Mandated Governance approach to participating in governance of the protocols we build on. xToken Protocol Analyst, Anastasia, provided a thoughtful walk-through of how xBNTa’s governance mandate was applied to a series of recent controversial votes. Check it out!
There are just a few days left to submit your threaaads for the 1 Million XTK Threadoooor Contest.
Here is the thread from xToken Founder, MJC, that launched the contest:
xToken Terminal (coming soon!)
Given the expertise we’ve developed building on Uniswap V3 — including frameworks such as xU3LP and xAssetCLR — as well as the experimentation we’ve done with various incentive structures, we thought it was natural to adapt that work into a generalized liquidity mining framework where anyone will be able to incentivize liquidity within a concentrated price range on Uniswap V3 with a few easy clicks.
Using the upcoming xToken Terminal or just “Terminal”, Pool Admins will be able to easily configure (1) vesting periods, (2) rewards token(s), (3) rewards durations, and of course, (4) concentrated price ranges. Liquidity Providers will be able to easily (1) track their positions, (2) discover new incentive programs and (3) claim/vest rewards, all through the intuitive Terminal interface.
We’ll have a pretty exciting partnership announcement on this front shortly.
We intend to launch xTerminal on L1, Arbitrum, and Optimism in January.
Liquidity Mining (DeFi 1.0) → Protocol Owned Liquidity (DeFi 2.0?)
Liquidity mining (LM) was the catalyst for the rapid proliferation of DeFi protocols on Ethereum in summer 2020. LM allows protocols to effectively rent liquidity and other financial resources from the market to support a protocol’s products and/or their own native token. This was and still is a useful way to attract capital and distribute control over the protocol. However, LM attracts and creates mercenary capital which only stays around for as long as their behavior and/liquidity is subsidized with protocol rewards. LM has been an amazingly effective way to bootstrap protocols from 0 → 1 but much of this capital is not reliable.
Olympus DAO has meme’d DeFi 2.0 into existence by avoiding the leasing of assets (LM) by simply just buying the LP tokens outright. Instead of incentivizing liquidity for an OHM/ETH pool on Uniswap through liquidity mining, Olympus opts to pay the market for their OHM/ETH LP tokens with discounted $OHM.
This has allowed OlympusDAO to pay for the OHM/ETH liquidity upfront and thus own it in perpetuity. They no longer have to fear LPs pulling capital away from liquidity pools. The protocol owns much of the liquidity pool itself; hence, the aptly named protocol owned liquidity (POL). In addition, owning LP tokens in a protocol’s treasury outright creates a situation where the protocol’s token can legitimately claim to be “backed’ by treasury assets. This can help create a higher floor for token valuations backed by a treasury (like OHM). And finally, the protocol earns some yield from swaps routed through the liquidity they own on DEXs like Uniswap and Sushiswap.
After the wild success of this program, Olympus has opened up this mechanism to other protocols like Alchemix, Pendle, and many others who have taken advantage of bonds and protocol-owned liquidity through Olympus Pro. We are exploring a potential program for XTK/WETH liquidity with the Olympus team.
Ralph Merkle (inventor of the Merkle tree) ventured into political theory and political architecture in a 2016 essay “DAO Democracy”. It was updated recently this past March 2021 to include some of the amazing developments that have happened since he wrote his speculative outline five years ago.
We don’t necessarily endorse or denounce his particular set of solutions, among which include a unique application of futarchy. The essay is, at the very least, an interesting attempt by an accomplished technologist to re-architect our governance systems in “meat-space” using the new tools that are available to us now and those which may become available to us in the not too distant future.
Many of the phenomena in DegenFi and NFTopia are indeed symptomatic of gambling, speculation, and absurdity — but while conceding this point — we’d argue that these behaviors are most visible at the surface, while the rest of the metaverse ice-berg is being looked to and looked at by some of the worlds’ greatest technologists as possible tools or inspiration for improving governance systems in our social lives. And Mr. Merkle isn’t the only one. There are many such cases.
There is no immediate “alpha” in Merkle’s long speculation but it’s at least interesting for the intrepid governance nerd and might gesture at something that is yet to come.