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Andre Cronje’s new plan mainly improves the situation where no one is willing to provide Pool 2 liquidity in traditional liquidity mining, so as to reduce currency price fluctuations and impermanent losses.
Original title: “Andre Cronje’s new account talks about the new design of liquidity mining, and proposes two smart contract tools”
Written by: Elponcho
Yearn’s founder Andre Cronje conducted a low-key project Eminence (EMN). After being hacked, the Twitter account that often uttered was silent for a while. However, last night, Andre Cronje published two new blogs in a row, which are closely related to the pain points of DeFi liquidity mining. The Twitter community discovered that his new project seems to be called Liquidity Income (LBI).
Unwilling to be lonely Andre Cronje
After the EMN hacking incident, Andre Cronje sent out a series of tweets reviewing the EMN incident. There has been no new voice since September 29, and the original hot account @AndreCronjeTech has also been so quiet. Perhaps because of too many concerns and doubts, Andre Cronje finally spoke on October 10th:
“I’m still there, and I’m still developing. Nothing has changed. Leave me all the other voices. I just don’t want to tweet and post on social networking sites anymore.”
However, after Andre Cronje’s new project was discovered, he seemed to slap himself severely. In fact, he created a new Twitter account @andrecronjedev in October. The first post started on October 5th, and new plans and ideas are also revealed here. After the new account was discovered, he was quite surprised, and said that the account was only used for development notes and talk.
New design to solve the dilemma of liquid mining?
In the past, liquid mining platforms usually have two pools, Pool 1 and Pool 2. Pool 1 is used to add liquidity and obtain liquidity reward tokens (minting new reward tokens), while Pool 2 is used To provide the liquidity of reward tokens (let the reward tokens have a place to buy and sell).
Take SushiSwap as an example. The ETH/DAI liquidity pool is Pool 1. People can invest in ETH/DAI liquidity to obtain the liquidity reward token SUSHI, while SUSHI/ETH is Pool 2, where people can sell SUSHI.
Since Pool 2 is the main pillar supporting the value of liquidity reward tokens, in order to attract people to enter the market and provide liquidity, it usually provides the highest liquidity rewards. Since Pool 2 will face a high degree of impermanence losses, most users will choose Pool 1 with lower interest rates and low impermanence losses to obtain liquidity reward tokens. Pool 2 will only be used to sell liquidity reward tokens, and no one wants to add liquidity, which will cause the price of mining reward coins to collapse and make the platform lose its appeal.
In the latest blog, Andre Cronje said that APML, YAM, UNI, and SNX gave him new inspiration. He came up with a liquidity-based inflation token that would allow impermanence to lose (IL, temporary loss) Can be eliminated due to liquidity governance.
He has two main goals, one is to generate as much trading income as possible, and the other is to minimize impermanence losses.
Andre Cronje said that to achieve the first goal, it is necessary to create a platform for arbitrage. There are two pools of mining reward tokens, one exists in Uniswap, which is no different from the traditionally designed Pool 2 (the LBI/ETH trading pair shown in the figure below), and you can freely buy and sell LBI; the other is the pool created by Liquidity Income. It can only invest ETH to buy LBI, but cannot sell LBI, and the invested ETH will be automatically sent to the Uniswap pool, and it will follow a fixed product price curve like the Uniswap pool.
So how do arbitrage opportunities come? When people snapped up the LBI in the Uniswap pool, based on Uniswap’s automatic market-making algorithm, the price of LBI soared due to the decrease in the pool. Since the LBI price has not changed in the Liquidity Income pool, it is relatively cheaper, which will attract arbitrageurs to buy the LBI here and move bricks to the Uniswap pool to sell arbitrage. As a result, as the number of LBIs in the Uniswap pool has increased relatively, the number of LBI/ETH has returned to a certain balance, and the LBI currency price has been restrained from soaring. And because the Liquidity Income pool sends ETH to the Uniswap pool, it adds more liquidity.
Andre Cronje believes that the key to the design is “token volatility”, not currency prices. Liquidity providers will generate more revenue due to the high transaction volume of arbitrage.
Moreover, due to this new design, more people will be attracted to the LBI/ETH pool, which will improve the traditional situation where no one is willing to provide Pool 2 liquidity. At the same time, the currency price will not fluctuate sharply and there will be sufficient funds. It also allows the loss of impermanence to be minimized.
What details have been adjusted?
Andre Cronje said that the overall process has not changed. Users can also join liquidity, add liquidity provider tokens (LP token) to the reward contract, and get rewards over time.
The original design is purely for the benefit of liquidity providers, so everyone tends to participate in Pool 1. So Andre Cronje made some changes. Only 50% of LBI tokens will be obtained by liquidity mining, and the remaining 50% need to be obtained through the aforementioned two liquidity pools.
It is expected that 1% of LBI tokens will be distributed every 25 hours. And 90% of the 1% of tokens will be given to liquidity providers, and 10% will be given to general LBI holders. That is, the liquidity provider will receive 0.9% of the total reward tokens every 25 hours.
The vision behind: to become a liquidity bridge
Andre Cronje believes that these tokens designed by it can become a liquidity bridge for multiple transaction endpoints. Eventually, all liquidity will be integrated, making the transaction depth better, and removing impermanent losses within a certain limit.
Provide two tool-type smart contracts: easy to manage
On the same day that the design was proposed, Andre Cronje released two smart contracts based on the essential requirements of the liquidity mining project: token governance, token liquidity supply, and time lock, allowing developers to make the process of formulating these conditions more efficient:
Special thanks: Li Xuan, co-founder of Blocto, for assisting with smart contract analysis