Fantom is building a new market maker of AMM coins
In the past three weeks, two of the biggest names in DeFi Andre Cronje and Daniele Sestagalli have been hyping up the Twitter for a collaboration project to be launched on Fantom.
The name of the project was finally unveiled as Solid Swap on a recent podcast of Frog Radio, an automated market maker of AMM decentralized exchange.
Cronje and Sestagalli's latest brainchild Solid Swap is built on a new AMM model that its developers are referring to as ve 3,3 This clunky term is derived from a combination of mechanics from two popular DeFi protocols: Curve Finance and Olympus.
The escrow ve mechanic adopted from the stable coin exchange Curve Finance allows CRV token holders to vote on which of the Curve liquidity pools receive the highest future CRV emissions, making that pool more attractive to liquidity providers.
This liquidity gauge mechanic has been in the spotlight lately due to the so-called Curve Wars, where protocols such as Convex and Yearn Finance have commanded a large portion of CRV token, giving them the ability to sell their voting power to protocols that want to draw liquidity to their Curve pools.
He who owns the most CRV token has the power to decide which Curve pools earn higher CRV rewards.
The second 3,3 mechanics that Solid Swap is adopting was first popularized by Olympus DAO, an Ethereum-based reserve currency protocol that is spearheading a new wave of DeFi 2.0 protocols. The 3,3 term is a game-theoretic element that states the mutual benefits for both users and developers to keep their token staked into the protocol, creating a positive-sum game for both parties.
Solid Swap tries to combine both of these mechanics into a new DEX design that would compete with the standard AMM model that Uniswap pioneered.
In a series of Medium blog posts, Cronje details how the ve 3,3 model might work in practice.
Solid Swap's native token ROCK is designed to be emissions-based and will be highly inflationary, with 2 million new tokens weekly for context. CRV has a daily inflation rate of 2 million ROCK holders.
The voting power of ROCK emissions is what decides which liquidity pools ROCK emissions should be directed to.
They get trading fees from only the specific liquidity pools they voted on.
This contrasts with DEX s like Uniswap, where liquidity providers across the board are incentivized with UNI tokens that the treasury has pre-allocated, regardless of which pools they provide liquidity in.
Solid Swap aligns the emissions of its native token with incentives of token holders, rather than with liquidity providers.
Users receive a locked voting token veROCK in return for staking their token. This is where the Olympus 3,3 mechanic comes in. The value of veROCK will be backed by funds in Solid Swap's treasury, and holders of the token will be incentivized to keep staked 3,3 in exchange for farming yields.
veROCK comes in the form of a non-fungible token, which can be traded on secondary markets. This is similar to how lending protocols like Rari Capital unlock liquidity for staked OHM sOHM holders by allowing them to borrow stablecoins against their collateral.
In short, the utility value of ROCK is manifold:
Protocols on Fantom will want to amass ROCK because it makes their liquidity pools more attractive to liquidity providers.
ROCK holders will want to stake because they still retain some liquidity in their locked-up token, because they are backed by the Solid Swap Treasury and earning yields assuming it is over-backed by the token.
This makes Solid Swap more of a B 2 B product than a B 2 C product. This is a subtle point that can be easy to miss.
Solid Swap's concept empowers Fantom protocols directly, because holding ROCK allows them to vote and make their liquidity pools more attractive. It makes it easier for protocols to add incentives to their own liquidity rather than to be subject to mercenary capital.
In an unusual twist, Cronje's blog states that these tokens will be airdropped by TVL rankings to the top twenty Fantom protocols, effectively starting off Fantom's own Curve Wars on more or less equal footing across its strongest protocols:
Each project will have the chance to vote for their initial distribution or to have their communities vote for their initial distribution, as Locked ve 3,3 token will be given to each project in the top 20. It is up to the individual to decide what they will incentivize, be it their own token, stable coin, or other liquidity. The timeline for this will be 2 weeks post protocol launch until distribution starts.
On Fantom, whole DAOs have emerged in a bid to qualify as part of the top twenty protocols. VeDAO is the sixth largest Fantom protocol by TVL $626 million, according to DeFiLlama. Its Medium article plainly states that its native token WeVE:
A team of veteran Fantom developers also formed 0 xDAO TVL $4.2 billion in order to counterbalance the potential of ROCK being concentrated into veDAO.
The race to amass as much ROCK as possible has begun, and protocols like veDAO and 0 xDAO are jockeying to be the Convex-equivalent onEthereum's Curve Wars.