Announcing xToken 2.0
Since we published this post, we’ve decided to double down on our upcoming Terminal platform, making it the sole focus of the project for the foreseeable future.
Since we launched xKNC in July 2020, thousands of DeFi users have interacted with xToken products and many thousands more have participated in the xToken community. We’ve processed $300 million in primary volume through our native staking and liquidity strategies, while providing real utility and income to investors.
Building in this space is incredibly rewarding but also incredibly challenging, and we’ve undoubtedly run into some obstacles in our 18 months of existence. During that time, we’ve learned quite a bit about our users, our strategies and the DeFi space at large. We’ve built up expertise in a number of protocols while gaining a deeper understanding of the needs of DeFi users and projects.
With that in mind, we’re excited to announce xToken 2.0 — a strategic shift in our product emphasis and alignment. This transition is already well underway and should be completed around the end of Q1 2022.
At a high level, xToken 2.0 will emphasize scalable and permissionless products, platforms and protocols — a contrast to the customized, management-heavy fund strategies that we currently offer.
When the transition is complete, xToken will look more like a DeFi product studio and less like an asset management platform.
Going forward, xToken will build on two platforms, each supporting an underlying suite of apps.
- xToken Terminal: our permissionless capital markets platform
- xToken Market: our retail-facing multi-DeFi platform
But before we dive into the specifics of xToken 2.0, we should discuss what parts of the protocol we’re leaving behind and why.
We’re Sunsetting All Native Staking Strategies
We started xToken to build native staking strategies like xKNC, xSNX, xAAVE, xBNT and xINCH. These funds have helped investors save gas, compound returns and automate the tedious process of managing a staked position.
These funds also come with a number of challenges that have made maintaining them difficult and time-intensive. Maintaining integrations with dynamic, nimble protocols like Synthetix, Bancor or Aave requires constant attention. Managing key parameters and maintaining redemption liquidity for each individual fund demands substantial bandwidth from the team. Finally, the process of building custom smart contracts for each token strategy, getting the individual contracts audited (and paying for it!) and then marketing to each project’s community is slow and expensive, in both time and money.
Put simply, we think we would be more productive if we focused on management-lite protocols over maintenance-heavy products.
As for the unwinding process, holders of xAssets don’t need to do anything right now. Your capital is still earning yield. We’ll make an announcement about redemptions in the coming weeks.
So now that we’ve discussed what 2.0 won’t be, let’s talk about what it will be.
xToken Terminal
xToken Terminal is our soon-to-launch, permissionless capital markets platform. At the very least, Terminal will be deployed on any chain where you can find Uniswap V3 (currently: Ethereum, Arbitrum, Optimism, Polygon).
DeFi projects have come to rely on a number of primitives to bootstrap liquidity, diversify their treasury and distribute tokens to their community. Despite the ubiquity of these primitives, many DeFi projects are still unnecessarily rolling their own smart contracts and user interfaces, sometimes at the expense of UX or security.
We’re building Terminal to be a one-stop-shop for projects to permissionlessly offer these services to their communities. With Terminal, you can be your own CFO and your own investment banker.
We’re planning to launch three “apps” — or mini-protocols — on Terminal in the first half of 2022:
- Mining
- Bonding
- Origination
Mining
This is our Uniswap V3 liquidity mining feature. For a small fee, any project will be able to deploy an incentivized staking rewards pool — for any Uni V3 pair — with any concentrated price range, using any rewards token(s) for any duration and any vesting period. All in a few clicks. We handle the contract architecture and the frontend experience.
Liquidity mining on Uniswap V3 is notoriously difficult, especially relative to LM on Uniswap V2 or Sushiswap. Terminal will make it easy for both the pool sponsor and the LP.
We’re excited to work with CitaDAO as our first launch partner and are actively engaged in conversations with other projects. The Mining contracts are about to enter a second audit and we’re targeting a February launch.
Bonding
Olympus brought the “bonding” primitive into the mainstream this year and it looks like it will be an essential component of the DeFi toolkit going forward. Bonding is a more expensive but more sustainable alternative to liquidity mining, where projects bootstrap liquidity in a pool by buying it with their native token at a premium to market value, instead of renting it (liquidity mining). xToken may pay $110 in XTK — vested over two weeks — in exchange for $100 in XTK-WETH Uniswap V3 liquidity today.
We’re working on an Olympus Pro-style bonding architecture that will allow any project to set up a bonding program permissionlessly — again, in a few easy clicks. The Bonding app is set to go live on Terminal in Q1/Q2.
Origination
The Origination app will allow any DeFi project to be their own investment bankers — again, in a few easy clicks. Token offerings come in many different flavors these days and Origination is an effort to make this process simpler, more transparent and more accessible.
Projects will be able to launch an offering with a set price, input token, offering amount, cliff and vesting period. Users will be able to invest in projects they find compelling and track and claim their positions.
Projects can also easily experiment with deal structures. For example, Project XYZ may run several offerings simultaneously with different prices and vesting periods.
We’re working on launching the Origination app on Terminal in Q1/Q2.
xToken Market
Our xToken Market UI is being fully revamped. We’ll be launching with a fresh interface but also with a fresh approach to our product offering. Much like Terminal, Market will be a platform that supports a number of underlying consumer-facing apps. Market will also house internal apps like our XTK staking module.
In terms of our multi-chain strategy, we’ll be focusing on Arbitrum for now, while keeping our eyes peeled for opportunities to extend our infrastructure and product offering to other chains.
We’ll be looking to launch the following apps on new Market in Q1/Q2. Unlike Terminal, most of the apps on the new Market already exist in some form today.
- Lend
- Earn
- Leverage
Lend
Our early December soft launch of xToken Lending on Arbitrum has been successful and we’re coordinating with Chainlink to list a second wave of assets. On the UI front, we’re preparing a cleaner user experience for Market.
While xLend will continue to be an important consumer-facing app for us, we’re just as excited about how our lending protocol can serve as a foundation for other xToken products, as will become more clear in the following sections.
Earn
We’ve earned LPs strong returns on their stables via our xU3LP funds (Uniswap V3 LP). In fact, for several months, we were the largest provider of managed Uniswap V3 liquidity strategies by AUM, peaking around $25 million.
However, we’ve found that the product line can be confusing or intimidating to some users. In general, people just want solid, safe and consistent returns on their stablecoins.
As such, we’re in the process of simplifying our liquidity strategies into the Earn app. Our current plan is to divide Earn into two strategies: Low-to-Medium risk and Medium-to-High risk. Users will simply deposit their stables into either pool and the protocol will route the assets to the highest performing xToken strategy, including Uniswap V3 liquidity pools and a number of other sources of yield. Earn — or xEarn — can be thought of as our internal yield aggregator.
It gets better, though. With our own lending protocol in tow, Earn can become something resembling an internal hedge fund. If our Futureswap LP strategy, for example, is returning 18% and the current interest rate on xLend is 8%, we can list our FSTLP token on xLend and lever up our exposure. More broadly, in any case where the APR on a strategy exceeds the cost of capital (xLend interest rate), we have a massive opportunity to amplify yield for our investors.
Of course, the above is not without risks. We’ll be emphasizing strong risk management and will only deploy capital to audited, reputable contracts. However, the opportunity is clear, and we look forward to discussing Earn with the community more in 2022.
Leverage
In another example of the benefits of having an internal lending protocol, we’ve begun offering composable leverage tokens like xETH3x and xBTC3x on xToken Market. Index Coop has demonstrated the market demand for this sort of product, and — because we own the whole stack (i.e., lending + leverage token) — we believe we can offer our own version at higher leverage in a safer way on a wider variety of assets. Look out for a second wave of 2x/3x tokens early in 2022! We’ll be sponsoring the Up-Only Trading Contest where community members will be able to show their trading skills. The only caveat: you can only be levered long.
Odds & Ends
Tokenomics
xToken 2.0 will also provide a major benefit to XTK tokenomics. Our 1.0 model was highly reliant on XTK incentives paid out to promote liquidity on our xAssets. As we move away from native staking strategies and individual liquidity strategies, XTK emissions are set to decline by 80% or more.
Governance
Over the course of 2022, we will make a significant investment in our decentralized governance architecture. While we will engage our community on the specifics when the time comes, we’re moving towards a bicameral structure with two key councils: a Community Council and a Core Contributors Council. The Community Council will have purview over key system parameters like the unstake penalty on our XTK staking module and the XTK fee share on xToken Lending interest payments. On the other end, the Core Contributors Council will have purview over the day-to-day management functions of system smart contracts and the deployments of new products and strategies.
Multi-Chain Strategy
We’d like to further explore deployments on alternative chains in 2022, to the extent that it doesn’t stretch team resources or protocol liquidity. xToken Terminal, for example, is well-positioned to live on multiple chains. xToken Lending, for example, is difficult to maintain on multiple chains as liquidity would be quickly fragmented.
Final Thoughts
xToken 2.0 is a new beginning for us, but we‘ll have the benefit of many lessons learned during the first phase of our project. We deeply appreciate our community’s support along the way and we’re excited to build together in 2022. As always, join us in Discord and follow us on Twitter.
