In this article, we will go over the concepts of liquidity layer and explore what differentiates Elixir.
Price discovery in liquidity pools
Decentralized exchanges use an automated market maker (AMM) model to facilitate trades. Instead of relying on order books, users trade against liquidity pools that contain reserves of various tokens. These pools are automated by smart contracts, adjusting token prices based on supply and demand.
For pools with low liquidity, this can be problematic since a large trade can affect the supply and demand metric of that specific pool, while the price of that token remains stable on the overall market. This phenomenon is known as “slippage”. Slippage occurs when a trade is executed for a larger size than the liquidity available in the pool. In such cases, the price of the token can deviate from the market price as the trade absorbs the available liquidity in the pool. So a token price can vary from a pool to another and it creates arbitrage opportunities. Traders monitor different pool and can buy low on a platform and sell high on another, which will stabilize the price across the platforms.
Prevention mechanisms
Decentralized exchanges such as Uniswap implement a constant product market maker mechanism. This ensures that the tokens pair quantities in a liquidity pool stays consistent. Consequently, when the price of one token rises from increased demand, its pool quantity decreases while the other token’s quantity rises. This regulates the price automatically. Other mechanisms include offering incentives for providing liquidity, multiple pools for the same pairs and advanced trading features like limit orders.
While these methods assist in reducing the impact of slippage to a certain degree, decentralized exchanges still face some challenges in offering liquidity and price stability compared to centralized exchanges. Traders and liquidity providers must assess these aspects before engaging in trading and providing liquidity on DEXes.
Aggregation Platforms
Various platforms like 1inch consolidate liquidity from multiple DEXes and liquidity pools, enabling traders to tap into increased liquidity and potentially reduce slippage by dividing orders among various providers.
While these platforms helps users automatically find the best prices the basic problem remains low liquidity.
Elixir liquidity layer
Elixir is a DeFi protocol that specializes in offering an infrastructure for liquidity provision and management. What differentiates Elixir from other liquidity layers such as Uniswap is its dynamic liquidity provision model. Elixir focuses on efficiency and optimization. The protocol dynamically adjusts rewards based on market conditions and liquidity needs, incentivizing liquidity provision where it’s most needed. By dynamically adjusting rewards and liquidity allocations, the protocol aims to maximize liquidity utilization and improve overall market efficiency. Elixir is natively integrated with many leading decentralized exchanges and orderbook exchanges.
Currently, Elixir have an airdrop program where you earn potions for providing liquidity. You can provide liquidity on ethereum mainnet or on arbitrum/SUI by using their native integration with dexes.
Here’s the documentation, make sure to understand all the risks included in supplying liquidity as many layers of smart contracts are involved.
The first generation of defi applications allows users to swap various tokens without the need for traditional intermediaries like exchanges. It enables users to trade tokens directly from their cryptocurrency wallets through smart contracts. Users can become liquidity providers by depositing pairs of tokens into liquidity pools. In return, they earn fees from trades.
This is an efficient way for users to earn a yield on assets they already own, however there’s the risk of impermanent loss. If a token price drops significantly , the liquidity provider ends up holding the asset with the least value. Most of the defi protocols now lets the users specify the price ranges they are comfortable with. If these prices are exceeded, the user exits the pool automatically. While this helps protect from impermanent loss, it takes more management and monitoring. When a users exits the pool automatically, he stops earning yields. The users have a choice to enter managed pools where a 3rd party would rebalance and manage the pool for a small fee.
Pool managing tools
New tools like Aperture helps users to manage pools from different providers. It offers an “intent” infrastructure where users declare their goals and the platform executes them. It offers automatic rebalancing strategies, automatic fee compounding and much more. There is an airdrop campaign ongoing where you can earn points while interacting with the protocol. We recommend doing an extensive research before using the platform. You need to understand the smart contract risks associated and understand how the “position permit” signatures work. Here’s an example of a rebalancing.
Most DEFI platforms incentivize user for locking their assets. Most DEFI protocols allow users to borrow against their collateral, however borrowing APY can be very high and if a user lends a stable coin versus a variable asset, he’s at risk of liquidation risk, so he has to constantly check the health factor. This concept encourages users to lock their assets and discourages micro transactions.
Fluidity aims to solve this problem by allowing users to convert their assets to their “fluid” counterpart. Fluidity protocol automatically invests the native assets in DEFI apps like Compound or Solend. Assets can also be used in in yield generating strategies. When a fluid asset is converted back to the native asset, the latter is removed from the defi protocols.
To encourage transactions, fluidity distributes the rewards when a user uses fluid assets. A random factor in calculating the reward is added to incentivize users while protection mechanisms are in place to prevent transaction spamming.
Project outlook
The basic concept is good, however it might be too abstract for the average user. We can see the layers of smart contract risks is piling up since fluidity uses other protocols for yield generation. There’s also a risk of loss in defi investing strategies which might depeg the ratio of 1:1 of fluid assets. A full review of how the native assets are lent out should be done if you plan to convert a sizeable amount. You can review the full documentation.
The project is audited and for now, there’s still a lot of centralization. The centralization is mostly at the level of the defi protocol configuration, large rewards are reviewed before distribution. So the project is still very dependent on the team. This helps to stabilize the project as it moves towards decentralization.
Airdrop potential
The governance token of fluidity FLY is already issued. It is mostly used as a governance token, but it is planned to be used as a utility token. For now it can be staked and used in vaults. The FLY token was dropped in 2 “waves” and a 3rd “wave” is currently ongoing.
You can earn “loot bottles” convertible to FLY token for the next 74 days by staking FLY and you can earn a multiplier by transacting FLY and FUSDC on selected platforms like jumper.exchange
You can check their airdrop campaign and don’t forget to do your own research before jumping on board.
Layer3 offers unique interactive experiences that help users discover new blockchain protocols and earn via perpetual incentives. By completing quests, users get the chance to interact with new token less protocols and get the chance to be eligible for future airdrops while building their online identities.
For new projects, Layer3 offers an engaging platform where they can build their communities, drive adoption and network growth. Layer3 has many solid competitors, however it distinguishes itself with smaller easy to complete quests.
Layer3 and Mercle both have hinted that they are aiming for a decentralized model that is user owned. This means that a potential airdrop is possible. For layer3, to be eligible, you will have to complete at least 100 quests that offer a CUBE NFT. Each cube costs around 0.25$ excluding network fees. To complete each quest, you will have to complete some tasks on different platforms, provide liquidity, do some bridging, some swapping, etc…
Each quest will have a cost and a small capital will be needed. On average, you should expect to burn between 100 to 200$, so you will have to do your own research and see if it’s worth it to embark on this journey. As of today, there’s 18 days left for season 1. It’s important to note that the first 100 cube will get you eligible for season 1, so you will have to expect more seasons to follow. Once the 100 cubes are collected, you will get the following message:
Comparison
What would a future token be worth? It’s impossible to predict, but let’s compare with Galxe which already have a token:
Users: 17M users for Galxe versus 1.1M for Layer3
Layer3 has over 49M quest completion, while Galxe has over 73k campaigns launched by 5k different brands.
We can see that Galxe is more advanced than layer3 and it offers more products such as a galxe passport for sybil protection.
Presently Galxe’s token is worth 4.32$. It is up from the 1$ range during the bear market. It has 200M total supply with 50% of the tokens already in circulation. The market cap is around 0.5b with a diluted market cap of 0.86b.
While it is not clear what is the net revenue of Layer3 or Galxe, so the token price is based solely on speculation. However GAL token is used for the following:
Governance token
Paying for application module fee
Paying for Galxe oracle engine and credential API
Curating Digital credentials
We can see that the GAL token is not simply a governance token, but is also a utility token used to pay for Galxe core services. This could drive the price up when Galxe services are in high demand. So the platform adoption is directly correlated with the token price.
Most of the protocol fee will go to credential curators and the rest goes to All the protocol fees go to the Galxe Community treasury. It would be interesting if a portion of the fees goes to the GAL token holders.
By comparing Layer3 to Galxe, Layer3 will have a smaller market cap and the value of its potential future token will depend on the utility it will have within the ecosystem and what benefits it will have for token holders.
ZetaChain is the first “omnichain” layer1 blockchain. Applications deployed on ZetaChain can access most of crypto chains. Instead of deploying an application on every chain, developers can now deploy on ZetaChain and target any blockchain. This simplifies the interoperability and messaging between chains. This also helps the development of smart contracts on a blockchain that does not support them natively, like dogecoin.
In short, ZetaChain is a full blockchain that can tap into any blockchain, bridge and transfer assets between blockchains.
Zeta coin
Unlike other emerging layer 2 solutions for Ethereum, Zetachain has its own utility token. Zeta token is used to pay for transaction fees. This keeps gas fees relatively cheap on Zetachain and removes any dependance on Ethereum.
However, if an interaction with another chain has to be done, that part of the interaction has to be be paid in the native token. More information about the fees could be found on that page.
To facilitate the payment of transaction in the native tokens, ZetaChain uses core liquidiy pools. Anyone can contribute to the pools and earn fees.
How it works
ZetaChain is a Proof-of-Stake blockchain built on the Cosmos SDK and Tendermint Consensus. In order for ZetaChain to be able to interact with many blockchains, it needs to have an account on each chain. ZetaChain smart contract layer orchestrates the logic and if an interaction with an external blockchain has to be done, it will be done through this privileged account. This account can custody assets on that chain, mint tokens, burn and NFT to transfer it, etc… The concept is simple, however this has to be done in a decentralized manner without a single point of failure. For example, if any validator has access to the private keys of this account, it has full access to the assets and can compromise them.
To counter this, ZetaChain uses a multi-party threshold signature. In short, the private key is generated without a dealer and it is distributed in all the validators. So no validator can reconstitute the full private key and use it independently. So the generation of the key and the signing procedures are done by Multi-Party Computation (MPC) and no secrets are revealed to any participating node.
Risks
ZetaChain is a new blockchain that is still not battle tested. An extensive research should be done before investing in the platform.
Airdrop
ZetaChain is conducting a second round of its token airdrop. To participate, in the airdrop, you can complete simple tasks on ZetaHub and earn experience points that could make you eligible.
Where to get ZETA
Many centralized exchange offer ZETA coin. The token is available on MEXC. As of today, the cost of withdrawing ZETA from MEXC is 0.1 ZETA, which is reasonable. If you need to transfer the token on chain to experiment with the blockchain, make sure you withdraw on the ZETA network and that your offline wallet supports the ZETA chain. Only withdraw the ERC20 ZETA on the Ethereum network if you need it on that chain for some, however, this could be costly.
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