All roads lead to liquidity - Figue | Paladin

hello everyone how are you doing um maybe first before starting this talk I'd like to thank all the organization because we have a wonderful venue and it's one of the first time I actually noticed that uh they actually read the whole presentations otherwise they wouldn't have put this just after a stable coin presentation as you'll see there's a lot of parallel between this one and the previous one not talking about the same points but kind of building upon them today I want to talk about why all roads Le lead to liquidity why it's one of the most important topics in crypto and why you're hearing 99% of the defi projects telling you they are liquidity in China everyone is doing it so I thought why not explore why and as most of the things in crypto uh I want to look at through the lens are we Reinventing the wheel basically are we just trying to redo what already exist in trfi just for the sake of building it decentralized the answer short is no maybe just before small introduction I'm one of the co-founders of Paladin uh World protocol that's been live for three years and for the past two years so since our V2 we've basically been helping projects grow the liquidity onchain so we spend our time with a lot of people who are thinking about liquidity we're struggling to struggling to get the right parameters and our whole goal is to basically here concentrate all of those smart things we have learned from these guys and give you as much information on liquidity as possible maybe let's start with a definition uh as with a lot of things it's not from my own idea but it comes from a Blog that's called fintech rations is what is liquidity at its heart liquidity is just the ability to convert any asset into cash or vice versa so you have a value and you want to convert it to something uh for this reason the more Niche an asset is the harder it is for it to be liquid right because there's less people with whom you can exchange it and that's actually a problem because when you're going to want to convert something you want it to be able to convert it at the fastest time possible so the more people are ready to actually exchange against it the easier it is crypto is very different because the way we build amm is what we call resilient liquidity we'll get back into it just after but what I want you to focus on right now is that it's important to understand that liquidity is the underlying Oracle of an asset's price it's basically how the market as a whole values the asset now quickly I'd like to look at how it's built in trfi it's very simple it's simple offer and demand the more people want to buy it the higher the value goes the less people want to buy it the less the values goes the problem is when you're not everything is not centralized in one place you have a symmetry of demand so for example in certain countries you can buy an asset at a certain price and sell it for much more expensive in another country that's because without internet if not everything is connected there's this asymmetry which prices uh depending on the geographical location you are in so the Incarnation of this is basically order books it's what we have in traditional centralized markets in the public stocks Etc in crypto it's a bit different why because we have amms this means that liquidity is available 24/7 it's still the same offer and demand cycle but instead of having order books and matching directly people who want to buy and people who want to sell you have an intermediary which is an algorithm the reason why liquidity is so important in crypto much more than traditional Finance at least it's viewed in a different manner is because crypto enables to create digital assets by introducing scarcity online you have a lot of narratives in crypto uh that pushed Bitcoin e and many other assets uh to the adoptions they have now uh but the truth is the initial one is that we're en able to we enable to create digital assets that are scar it means that basically we can actually have a fixed limit and we can guarantee you that there will be no more of these assets so we were only able to create digital value through crypto this is why Bitcoin is so important and everything that comes after has value so the thing is how do you define that any of these assets have value right you need people to buy them or people don't want to sell them and this is how you're able to do it so liquidity is basically the only bridge that enables to create value in crypto without liquidity crypto has no value and that's why everyone is trying to build a liquidity engine because they're aware that all of the value that's going to be built on to of crypto is going to be enabled by liquidity so I hope I've impacted the first term because it's going to give it a bit more complex starting now now now that we know that liquidity is the bridge how is it manifested I've talked about swapping but Li swapping is not the only way you get liquidity basically as I've mentioned just previously liquidity is the way to convert an asset into into cash so any way that enables you to convert any asset Into Cash is liquidity it's not just amm it's not just swapping it can be fundraising so that's what a lot of projects do early on it's much less liquid but it's a way to get the to get cash for a lot of companies for a lot of crypto projects but you also have swapping as I mentioned and lending so all of these combined draw the picture as a whole of liquidity because some projects uh don't sell their assets what they do is they borrow against it so you need to whole picture of who has R how much how much is being lent out how much is being swapped out and that's how you understand how the price pressure and the value of an asset is down and that's what actually happens in traditional markets so liquidity is actually a huge Spectrum when an lending protocol tells you there a liquid layer that's not wrong when an amm or a decentralized exchange tells you this it's not wrong either when a stable coins tell you this but that's also the case for fundraising platform like echo in general what you have to understand is that it's a huge ecosystem that's creating all of this liquidity around and there's never going to be one Central liquidity place there's going to be a major part but depending on the complexity of the asset how Niche they are where their ecosystem are from you're going to have different types of liquidity and you have to watch them as a whole so when you're going to be create a project and you're going to want to have liquidity you have tons of opportunities but you can't hold liquidity by yourself right because you're holding the base asset and you're going to want to create ways for uh for to convert them into cash you can go and see investors that's what you do at the beginning but the more time passes the harder it is uh you can create lending opportunities and you can create new types of Demands for example creating uh bringing incentives for liquidity I'm going to talk about all three of them I'm going to try to focus especially on liquidity in amm because uh it's the most important one today and it's the most efficient one to convert an asset Into Cash when you're in Project you're going to want to do three things either of three things either you want to fight people who are going to hold the liquidity for you so that's market makers that's large LPS uh you're going to want to create demand so just people coming in and buying and selling the asset because the more volume there is the more you're going to get people who are going to participate organically into providing this liquidity or you're going to want to own the liquidity yourself that's something we've done ourselves at pounding something a lot of other projects do it means that you have a lot less risk and that the cost are way down why are the cost down well that's because there's a ton of risk I've mentioned just before I'm going to come back there's three type of profiles who are going to hold the liquidity there are projects usually your own yourself which we call Pro protocol own liquidity um they have an incentive in holding that value because it enables them to have permanent liquidity you have funds these guys are here because they think they can profit from the strategy and gives them hedge to the actual investment that they've done and the last one are the retail investors so it's the usual people uh to be honest uh providing liquidity is kind of complex so doing it by yourself usually means there's going to be a lot of risk implemented unfortunately we kind of sold it as something that everyone could do on an am but you when you look at the results on unisoft for example V3 half of the people are actually losing money when they're providing liquidity and Truth is it's a lot of people who don't do this at full-time job because of how much volatility you have how much impermanent loss and all the other risk that are included it's actually quite hard to make money on it but these are the three profiles of people who can provide liquidity and you should tailor to who is the most active around your project right now I've talked a lot about uh risk I'm going to talk specifically about the risk for liquidity swapping uh there's a ton of them I don't want to get specifically into them but you have of course the smart contracts which are dependent on the protocol you're actually using you have a minor extract cble value which is the just honestly people exploiting the project to to take value out of the swaps uh you have impermanent loss which is something that is getting perfected but we're still working on it it's an inherent flow of amm and then you have what we call loss versus rebalancing which is in the same vein the idea is that today despite the potential incentive that you might have in providing liquidity that I've just mentioned before it's insufficient most of the LPS actually lose money so how do you do to incentivize people to to uh to that money because all the projects don't have enough by themselves to just by default providing protocol on liquidity right well what you do is you mitigate with incentives so the first type of incentives you have is swap fees that's organic and the more demand you have the better it is but a lot of projects don't have a lot of demand initially right they want liquidity to create demand it's kind of a chicken and egg problem so what you do is you can have rebalancing rewards that's also native stuff but it's very low right now and the last and the most popular one is basically additional incentives so it means that you're going to pay an additional part of of rewards in order to incentivize people to provide that liquidity this is what we call liquidity mining I'm going to get to it just after but it's important to understand that this is done because in the current Paradigm of liquidity uh to Kickstart a Project's liquidity pure organic incentives are insufficient so how do you incentivize this liquidity today you have liquidity mining which is the Godfather of all you have vote incentives you have points I know we've already heard about points but we're going to get back to it I'm sorry and then you have something that's very new which is called liquidity matching on which I'm very bullish but there's nothing that's worked yet on it so it's going to be with NFA just under okay so all these four exist and their goal is basically to incentivize people to bring in liquidity right may it be investors professionals or retail first one is liquidity mining so uh this started by compound in 2020 I I don't know if some of you remember if you're traveling and just working around crypto you were probably financed by one of these liquidity mining campaigns at the beginning uh there yam there was a lot of legendary Farms it was very very simple the idea was you deposit incentives they stream to the people who are getting who are getting uh who are providing liquidity and that's it but the more we went into it the more we realized it was a very simple system and that the power of crypto was to create very tailored and adapted systems crypto economic system around the projects so we went more into complexity afterwards and we thought hey instead of just Distributing incentives to whoever is just provide liquidity maybe we can do better and that's where vote incentives happened basically the idea is uh projects control set amount of emissions that is programmatically controlled you don't get rugged there's no liquidity mining system that just stops at some point and the idea is that you enter into a tokenomics game where the more of the token you hold the more you can keep directing liquidity it creates highly align partners of course a lot of cons of lot of problems with this I'm not going to get into them today but the idea is to understand that it creates a more aligned system than liquidity mining does by the way if you're wondering this is the interface of Paladin that's what we do mostly today we enable projects to distribute liquidity incentives through vot incentives on various Marketplace like curve balancer bunny FX protocol which you'll hear about later that's the only plug I'll do about today that's the second one the one you've almost all been participating in is points points is a bit of a special Beast because points is everything and nothing at the same time that's why it works so well because what you're doing with points is you're telling people hey we're going to do leaderboard the more you're a participant to what we do the more we're going to give you points and the next question is what is points we'll see so it gives a lot more leeway for teams to build whatever they want and take a decision however it also has a huge risk because if you underd deliver people are going to Nuke your project you can look at a lot of examples are not going to qu today but if you play the points game and you are disappointing uh it will just instantly kill your project um however as I mentioned gives a lot more leeway so it has the advantage of not having you commit to a toonomic system from the get-go it can uh let the imag imagination of people run much wilder than it would have normally so that's the huge example of points now the last one which is not at all cycle today but they expect to take a lot more space in our ecosystem in the coming few years is what we I call liquidity matching so liquidity matching uh used to be called liquidity Direction with connect Finance or opal they used to do this on they do this on curve Bouncer and the latest one is called liquidity order book built by a protocol called Royo the idea is that it deconstructs from the base everything we just said before which is basically you're paying people to bring in liquidity and instead it's finding LPS doing an order book so basically rebuilding what we've done in trfi but specifically for liquidity not for swapping or anything it's just for people who provide liquidity you want to spend incentives someone else is ready to give liquidity to certain tier of assets and it matches them together I have no idea how how well it will work I'm very hopeful on this one but the idea is that today liquidity is a huge spectrum and I've only talked about amm right only about swapping so just in swapping we have liquidity mining vote incentives points liquidity matching we're seeing the same in lending we're probably going to see the same around specifically stable coins and even potentially about fundraising thought it makes a lot less sense because fundraising is lot more risk on and early into a Project's life what I'm trying to say here is that liquidity is constantly involving and it's really important that you as a project try to project yourself as much as possible and tailor to your needs to how much liquidity you have if you don't need 100 million tvl from the get-go don't do a huge points campaign you can do something very moderate and grow as you need um what we're trying to do today at Palin is basically combining all of these different marketplaces these places to bring uh to get liquidity and creating an allocator on top which is going to help projects just distribute the incentive at the right place in an optimized fashion so if you're interested with this feel free to ping me just after but in the meantime I just want to finish maybe something important is where is liquidity going are we going back to the trif model I mean we've seen it with liquidity matching it's very close right it's important to understand that the way a lot of public companies work is they actually pay a market maker to make the liquidity on centralized exchange right so it's a similar model just with different actors maybe what we could call Modern or algorithm market makers right it's what amm kind of is but it's a bit further than that in the sense that today we have two systems that are kind of In conflict that are getting born out of crypto which I call open finance and de centralized Finance I think Bri gave a talk this morning about this in the sense that today if we want to build that something that's going to be fully decentralized you're going to need to build tools that are entirely autonomous and the truth is that the more we're trying to integrate to mass adopt what's happening in traditional Finance the more we're just going to be traditional Finance on chain the problem is it's not a startup that's founded by 5 1020 million that's going to be able ble to fight de Gates the biggest banks and the biggest fin traditional Finance actors right it's going to take decades and they're probably going to get acquired which is what we saw with syntax so there's two roads one is play for Mass adoption the fastest possible become open finance the second one is decentralized finance try to build the most autonomous technology possible that's going to provide the most resilient liquidity this is the path we're choosing you do you thank you [Applause] spoke 19 minutes was one minute short questions hi uh thanks for the for the great talk um okay so my question is um does the market have to have a certain size to trade for example with nft collections we have seen that they converge towards 10 10,000 and that's probably because you need a certain amount to trade right is there some level for example when you tokenize stocks in a company or something you have to have a certain number of them for liquidity to appear um do you have any thoughts on those sizes well nfts are a bit of a special Beast because by default they can't be fractionalized right unlike traditional rc20 uh I'm not specialized around nft so I'm not going to focus on it but it's a whole question about offer and demand so you basically need to have people that want to buy and that on a sell and that's how you get liquidity as a whole or you need an amm that's going to be able to handle all of this someone to provide liquidity the truth is 10,000 can be too little can be too much it just depends on the actual cycle of swaps that you're going to have I think the 10,000 numbers maybe becomes more from Customs than anything else I agree that the less assets you have and the less fungible they are the harder it is to trade and so the less liquid it is it's the example of real estate right I'm not sure I answered your question perfect any other questions so I'm going to come on and ask it um put it this way guys what a lot to take in a lot to I love I love coming down and sitting here and just immersing myself with these you know conversations and with what's going on in fig you open me up to something there because obviously as the future moves more into the market making aspects of things you know with the rise of a lot of these ecosystems what which way do you see the you know the market trending towards you know you mentioned open F and more centralized Finance what is the middle ground there and how can we really bring you know that liquidity into ecosystems like yours and like others that are obviously making those changes in the space I think open finance is the middle ground so it's between traditional Finance something very compliant that's fully already in shape and decentralized finance something that's much more organic that's much more autonomous and the middle ground is open finance the problem with such a system is that they're basically going to have to become fully compliant maika Came live three days ago that's the stable current regulation so now that this is live they're going to have to comply with all of this it's basically going to have them push entirely towards trfy but on chain so for me open finance is the middle ground uh the problem is there's two type of people in crypto you have the ones who are zealots the people who are here to push in decentralization and you have the people who are here to make money if you want to make make money and build the next good gole you're going to have to do open finance at least in next 10 20 years if you want to build a decentralized and resilient system you should do defi so it's different type of bets not everyone wants to become a billionaire and I don't think that's the most important thing that's can be built in crypto because what has Valu is going to be the things that are going to be built for the next centuries not the next years amazing thanks and there must be a couple other questions out there maybe we've got a I've got about an eight minutes till our next speaker comes in so anybody want to take an opportunity to ask fig a question while we've got them no nobody okay well I can't thank you enough for sharing some time with us today I'm going to hey link up with you backstage amazing so we're going to J big round of applause for f guys huge one come on