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Last active Sep 8, 2021
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4RCapital x Tokemak Notes 9/7/21

4RCapital x Liquidity Wizard


  • PHD in Physics
  • Fintech
  • Wealth Management
  • Got into crypto 2018
    • Wanted to solve liquidity issues in the crypto space

General thesis

  • internet of value replacing internet of data
  • value flow is new data flow
  • liquidity plays paramount importantce
  • liquidity is bandwidth
  • “broadband moment” unlocks potential of apps
  • “broadband moment” of liquidity is Tokemak

Thesis Details

  • Partner w/ builders and mm to solve liquidity issues and market making issues
  • started on CEX, moved to DEX
  • Passionate builders and teams were building DeFi protocols, web3, that dont have direct connection to financial industry
  • there needs to be a defi native solution to enable builder to get to market
    • get rid of headache for DAOs and builders

“Liquidity == Servers” compare liquidity to servers, critical infra

  • Tokemak flips the economics
  • Carson: Next evolution of internet
    • effectively, analogy is “each building team is trying to solve bootstrapping liquidity. For each project. Lots of mindshare, exorbitant fees to MMs”
      • Like the 90s where IT had to deploy massive expensive servers
      • now, easy with AWS
      • Expensive to pay market makers or inflation via emissions
      • “Liquidity as a Utility”
      • More capital efficient

“Touch on Sustainability”

  • Carson:
    • Post DeFi-summer, 3-4 yrs worth of dev happened in a few months
    • Why? Liquidity mining, staking, yield farming was good to bootstrapping, but powered by inflation “for a good thing” but not sustainable.
    • How can we move off of inflation?
      • Like pumping oil, limited reserves, need to find sustainable energy source. Same with liquidity. Inflation worked at first, but now we need sustainable liquidity.
    • Get started with emissions (inflationary rewards)
    • SIDEBAR:
      • Participants:
        • LPs provide assets into system
        • LDs: holders of TOKE, direct liquidity wherever needed across defi
        • Balance is supply & demand.
          • Lots of LDs, LPs get more APR
          • Lots of LPs, LDs get more APR
        • At first, LPs are paid via TOKE emissions to bootstrap
      • PHASE 2
        • After paying out TOKE, internalize rewards
          • Fees
          • Spreads (diff between bid and ask)
          • Rewards
          • Protocol takes these assets, PCA grows
          • Argument 3rd party liquidity supply
          • Eventually, protocol (and therefore TOKE holders) own these assets.
          • Can stop paying TOKE emissions, use PCA as liquidity
            • All L1s, L2s, can be supplied by PCA liquidity

“Single Sided Liquidity”

  • As an LP, you are better aligned by providing liquidity / staking on Tokemak
  • Lended tokens can be used to express short position
    • Token-as-liquidity reduce friction of value flow
    • Can only help improve fundamental reach and value of project you are supporting
  • LPs are wired to think pooling equals ASSET:ASSET
    • We break this apart
    • New users can be confused by this complex process
    • Tokemak simplifies this via abstraction
    • Not capital efficient — LPs need both sides
    • Tokemak is single-sided, like a pool 1
      • but has benefits of pool 1&2
    • Also get back tAssets
    • System mitigates IL by advanced surplus mechanic
      • removed IL risk from LPs and routed to other parts of the system
      • remove friction for liquidity flow and users
  • “To summarize, the advantages are”
    • Not needing to worry about IL
    • not needing to track various returns, managed my LPs
    • Carson: “Front page of liquidity”
      • never worry about paring, wallet-efficiency
      • (will be rapidly increasing supported tokens, any token hash)
      • Very attractive rewards
        • Tokemak controls APRs
  • Initial group of
    • Balancer, Uni, Sushi, 0x
    • Quickly expand to other venues
  • “How would you compare to Bancor”
    • Carson:
      • Bancor is innovative because
      • Tokemak is meta-liquidity layer
        • can add Bancor as a venue
      • Uniswap to Coinbase, we are to Jump Trading / Citidal
      • No paring against TOKE, not dominant asset (value doesn’t flow across TOKE)
      • TOKE == tokenized liquidity
      • We don’t trigger market selling/buying
        • we have sidelined reserves for ILP
        • TOKE Curing, TOKE Holders have assets seized to resolve IL
    • “Whats after Exchanges”
      • Expand across exchanges
      • Other dimensions
        • What is supported as liquidity
          • expand beyond ERC20 into ERC721
        • Where is it supported
          • Expand into money making protocols, vaults. e.g. Yearn.
          • Go to different L2s and cross chain to other L1s
          • System is designed to operate on liquidity cycles
          • Evolve into an Any-Any protocol
          • LDs could direct liquidity cross chain regardless of L1

“Who can be a liquidity Director”

  • Relevant LDs
    • Users (active trading, farming)
    • DAOs
    • Investors, VCs
    • Exchanges
    • Market Makers
    • “All DeFi Participants”
    • Mostly power users
    • Inundated with requests from DAOs
      • Working with groups to replace Pool 1 and 2 with tAsset staking
      • Pool 1 exist to remove sell pressure
        • i.e. collateral and governance
          • not much utility or value
      • Pool 2 supports liquidity
        • DAOs carve up pie
          • t1 Pool, instead of ABC is tABC pool
          • Incentive users to stake in tokemak
          • users get paid same amount even with single asset stake
          • liquidity is provided across defi
          • protocol earns TOKE
          • DAOs becomes powerful LDs
        • Exchanges
          • Sushi, Uni
            • Tokemak has $500mm in TVL
            • Exchanges will want to acquire TOKE
            • Instead of directing liquidity for a certain token
            • Exchanges want to route liquidity to their venue
            • Exchanges will fight to control reactors in order to have deeper liquidity and tighter spreads


  • Read Medium Article
  • 34% earmarked for LPs/LDs in system
  • May never need to reach 100mm max cap
  • system dynamically adjusts APR
  • LD/LPs actions affect each other
  • “Play Balance the Reactor”
    • like a real reactor
    • LPs will be on left, LDs on right
      • If overweight on one side, increase APR on other side
      • can max out emissions that occur during peak efficiency
      • more value system provides, more emissions
      • efficiency == more rewards

“Long Tail effect of fee capture”

  • ex. Sushi
    • you earn SUSHI
    • these fees/rewards are internalized into the PCA
    • DeFi-trading weighted portfolio grows via the PCA
      • TOKE changes from being “Tokenized Liquidity”, into being “Your share/claim on the portfolio of PCA”
      • Intrinsic value of TOKE is backed by PCA
      • e.g. Tokemak has 50b of PCA owned free and clear
        • Could vote to redeem/burn TOKE for share of PCA assets
      • “In addition to benefits of LP experience is the benefit of a crowdsourced yield farm pool”
      • Despite paying out TOKE rewards, long term you earn a claim on a yield farm portfolio via PCA


  • “How profound of an event is this”
  • The Singularity is point in time where the system no longer needs 3rd party LPs. Protocol owns enough assets free and clear
  • Thesis that liquidity is bandwidth, want spreads to go to 0
    • If you remove friction, market price should == market price.
    • Protocols can be highly efficient users, 0 spread allows value to move without waste
  • How does Tokemak monetize if there are no spreads?
    • can introduce new decentralized participants
    • post singularity, instead of withdrawing share of PCA, you can intro a decentralized manager e.g. Fund Manager that can do various trading strategies to generate returns on a huge pool of PCA

What’s next on the roadmap?

  • Next big event is the CORE event on September 28th.
    • Collateralization of Reactor Events
    • Community decides which reactors to launch
    • anyone with TOKE can vote to decide which of 25 assets to launch into the first reactor
    • can allocate any amount of votes
    • Week long period
    • A few weeks later, LD goes live.

Gas Optimization

  • Gas sucks right now, how do we optimize?
  • LPs and LPs (assets, or toke holders) only interact with surface contracts
    • manageable expense once in system
    • reallocating votes just requires a signature from wallet
    • handled by Tokemak DAO
    • Should be a nice UX

Dumb Down ILP. Who is picking up the bill?

  • Earnings in early phase, rewards are in TOKE
  • How do we protect the user’s principal
  • sidelines reserve of underlying asset
    • has done lots of modeling under varying circumstances
    • asset (put up by DAO)
    • if this surplus doesn’t cover, local TOKE is pulled from LDs
    • LPs are always made whole 1:1
    • Surplus mitigates most of IL risk
    • LDs then carry remaining risk

“What are you excited about?”

  • Team has been teasing NFTs
  • Can reward active users who have participated in degenesis, CORE
  • Utilize tAssets w/ NFTs

Hop in #the-leaky-reactor!

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