The Delphi Podcast Host and GP of Delphi Ventures Tom Shaughnessy hosts the Tokemak team (Carson Cook, Paul, Craig and Bruno) to discuss Tokemak, the decentralized liquidity engine for DeFi.

Episode Highlights

The Delphi Podcast Host and GP of Delphi Ventures Tom Shaughnessy, hosts the Tokemak team (Carson Cook, Paul, Craig and Bruno) to discuss Tokemak, the decentralized liquidity engine for DeFi. We discuss why Tokemak may be one of the most important future pieces of crypto infrastructure. This episode was a recording of our clubhouse episode with the group.

As a refresher, our original tweet storm can be viewed here

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Every Delphi Podcast is dropped first as an audio interview for Delphi Digital Subscribers. Our members also have access to full interview transcripts. Join today to get our interviews, first.

Show Notes:

(1:58) – (First Question) Carson’s Background.

(2:45) – Paul’s Background.

(3:15) – Bruno’s Bakcground.

(3:38) – Craig’s Background.

(4:13) – Tokemak’s Elevator Pitch.

(5:57) – The inefficiencies that Tokemak is attempting to solve.

(9:30) – What Tokemak’s Team learned in the market making business.

(13:36) – How Tokemak works

(21:45) – Tokemak’s Token – TOKE.

(24:59) – What the liquidity directors can do

(32:33) – Quick Tokens Allocation / Walkthrough

(37:37) – Thoughts on Dynamic Rewards.

(43:27) – What would make Tokemak a success?

(49:48) – Tokemak’s Biggest Risks.

(52:58) – How do you think about forkability with TOKE?

(57:04) – Do you envision a future where Tokemak goes multi-chain?

(58:40) – Thoughts on why Tokemak is an infrastructure play vs apps level

(01:01:37) – Where to find Tokemak / What’s on the near term horizon for Tokemak?

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Interview Transcript 

Tom (00:00:00):

Everyone, welcome back to the Delphi Podcast. I’m your host, Tom Shaughnessy. I’m a GP at Delphi Ventures. Today, I’m thrilled to have on the Tokemak team, previously known as Fractal and still are, but this subset it’s Tokemak. So, Bruno, Paul, Carson and Craig are on today. We’re going to go through the whole project and everyone’s background here.

Tom (00:00:21):

Just as an obvious disclosure, this is being recorded. All the guests are aware of that and we’re also investors in Tokemak. Carson, let’s start with you. We’ll go around the room and everyone will give their 30 second intros.

Carson (00:00:35):

Yeah, thanks a lot, Tom. I appreciate you having us on. So, Carson Cook, founder of Fractal and now founder of Tokemak. A quick background. My background is technology, did a PhD in Physics, Masters in Electrical Engineering. Got into the digital asset crypto space back in 2016.

Carson (00:00:54):

Following my PhD, I was in the trading space. I joined McKinsey, was in their banking and wealth management FinTech space, and then also got into FX trading world, started to map that over into the crypto trading scene around 2017. And then in beginning of 2018, left to found Fractal. We’ve been running now for a little over three years, and it’s really out of our experiences there as a DeFi market maker that the genesis of Tokemak was born.

Tom (00:01:21):

So awesome, Carson. Paul, why don’t we go with you next?

Paul (00:01:24):

Sure. So Paul Schroeder here, background in design and leading up a lot of the design and marketing community efforts at Tokemak, as well as hopefully serving as, to some extent, translator for Carson on some of his more complex ideas for those of us who are not electrical engineers and super brains.

Tom (00:01:47):

Paul, you’ve done that a few times for me, so glad you’re here.

Paul (00:01:52):

Sounds good.

Tom (00:01:53):

Bruno you’re up next, man.

Bruno (00:01:55):

Yeah, so my background is more in tech. I was at a fortune 500 tech company before. And now currently, working at Tokemak on the tokenomics side, helping carve out Carson’s ideas into tokenomics of it. Yeah. That’s pretty much it.

Tom (00:02:17):

That’s awesome. And, Craig, I know you’re a late addition, but give your background as well.

Craig (00:02:22):

Hey, happy to be here. I didn’t mean to crash. Yeah, my background is in leading business development and marketing for tech start-ups for many, many years. Got into the blockchain space about three years ago, first, on nights and weekends like many of us, and then with a liquidity aggregator about two or three years ago, I made it my day job. Ended up being here a while and thanks for having us today, Tom.

Tom (00:02:52):

Yeah. I’m thrilled to have you guys. And I want to go piece by piece with this, but Carson it was a great idea to just dive in first on just the elevator pitch on what Tokemak is. I’d love to get your quick minute, and then we’ll go piece by piece.

Carson (00:03:06):

Yeah, absolutely. So maybe a couple of observations about the space before I say what this is. The first is, we think that liquidity is the next major infrastructure layer. And so if you think about the evolution of grids over time, from electricity through telecom advancements to the internet, then with the innovations of Bitcoin and Ethereum, the ability to move value around, and then eventually now with liquidity.

Carson (00:03:30):

We think that each of these technologies become infrastructure, when there’s things built on top of it that rely on it and can’t function without it. So just like on this call, if any of us dropped internet access or battery and phones died, et cetera, we’re going to drop, same thing happens with liquidity. If there’s zero liquidity on Uniswap, for example, you can’t do a trade. So DeFi completely depends on liquidity. And that’s really what we’re focused on here.

Carson (00:03:54):

With that said, we’ll go through a number of other analogies I’m sure later in this call on how we think about things, but at its core Tokemak is a decentralized liquidity network. And it’s basically the answer to the following question or thought experiment, if you will. [inaudible 00:04:14].

Carson (00:04:16):

So conceptually, what happens when you disaggregate or pull apart a market maker, sourcing the capital market knowledge and trading expertise from across a network, basically crowdsourcing those things, and that’s what we’re trying to do here with Tokemak. So, put maybe in more elaborate terms, what does a disaggregated or decentralized citadel look like when you pull it apart? And that’s what we’re building here. DEFi primitive and it’s going to be utilized by exchanges, DAOs and for market makers alike as well as DeFi participants in general.

Tom (00:04:50):

That’s awesome, Carson. I mean, can you dive into just the inefficiencies today that you’re attempting to solve? I mean, I know liquidity is king here, right? But what are the most blaring issues that you’re seeing today with projects launching and facing these issues?

Carson (00:05:05):

Yeah, absolutely. So a lot of this came out of, I mentioned before our experiences at Fractal. At Fractal, we started in early 2018 in centralized market making and quickly evolved into the DeFi market making world starting late 2018, before it was a popular space. And we got our foothold in 0x and some of their relayers working on those orderbook models, and then quickly evolved into the AMM space. And of course, with the explosion in 2020 is yield farming and trading volumes and the space took off, it became the hottest area probably in the world.

Carson (00:05:39):

What we learned partnering with both token projects and exchanges and venues out there was, one, a huge amount of the founding teams’ energy is spent on liquidity and market making. So you talk to these different groups, and either they’re budgeting a huge amount of their tokens for SushiSwap or Uniswap LP. So this is the so-called liquidity mining. And that’s effectively an inflationary mechanism, which we’ll probably get to later on this discussion as well.

Carson (00:06:04):

But there are either budgeting tokens that or they’re paying either tokens or capital out to centralized market makers in order to stand up for liquidity for their tokens. And then additionally, it’s just making a huge mindshare of the founders as they focus on solving liquidity. And it’s helpful, I think, to point out here that liquidity in this space is important for all participants.

Carson (00:06:25):

So unlike in traditional markets, where liquidity matters for traders and investors, here, it matters basically, for any piece, any users, any protocols, any applications in the ecosystem that plug into the protocol we’re discussing because the fact that tokens are used here means that this commodity of liquidity affects a much broader range of participants than what happens in TradFi.

Carson (00:06:53):

So going a little deeper on that. What we are hearing when we were seeing time and time again from these founders that they was spending a lot of their time trying to solve liquidity. They’re basically living and dying by whether they properly stand up liquidity. So in addition to building a product, they also had to make sure they set stand up deep liquidity.

Carson (00:07:10):

And this reminded us very much of the ’90s, in the internet boom when companies not only had to build their product, but they also had to stand up armies of IT professionals and run their own server farms. Everyone was doing this in their own silo. And it was a huge redundancy across the board. What happened then was you of course, had Amazon come along with AWS and say, “Now we’ve got cloud-based servers, focus on building your product. Don’t worry about running servers all day.”

Carson (00:07:40):

Very analogously here, you look project to project and each one of them is budgeting. You look at the token distribution pie chart and there’s always that piece of the puzzle, piece of the pie that is set aside for liquidity rewards. And it’s very good to decentralize these protocols, obviously, but those same tokens that are being allocated as inflation for SushiSwap or Uniswap LP could have gone to some higher value add, less commoditized participants out in the community.

Carson (00:08:09):

And so you have so many of these groups budgeting so much inflation that, again, you saw the redundancy and the silos of what happened in the early internet days. And what Tokemak is going to do is basically launch this liquidity as a utility, this liquidity network, which will enable token products when they launch to instead tap into our liquidity network, focus on building their product and not have to spend all day worrying about liquidity.

Tom (00:08:31):

That’s an awesome overview, Carson. I want to get into how this works in practice, right? When you guys are set to launch and how you’re thinking about it. But before I go into that, I want to talk a little bit about, I mean, you guys know what you’re building because you guys ran or run a market making business today.

Tom (00:08:50):

A question for anybody on the panel, can you guys talk a bit about what you guys learn there, how successful you were? And I guess more importantly how you guys decided to disrupt yourselves? Because a lot of legacy companies, projects, they don’t want to reinvent themselves. They want to grind out until their last customer.

Carson (00:09:10):

Yeah, I’ll take a first stab at that and then, Craig, feel free or anyone feel free to jump in if you have more to say. So I think in this space right now, one thing we learned is working as, operating as market makers or really liquidity providers in the space and for anyone on the call if these terms aren’t super, super understandable.

Carson (00:09:28):

The differentiator I say between market makers and liquidity providers is that pricing expertise. So market maker not only has in today’s, before we desegregate things with Tokemak, a market maker today will both provide liquidity and also put pricing, bid, offer price quantity depth into the market.

Carson (00:09:44):

What we learned was the huge amount of, let’s call it the plethora of participants both from the token side as well as the exchange or venue side meant that market makers had the strong hand in those negotiations. So in other words, there’s few market makers to go if you were to have that, both the technological know-how that were plugged into these venues and also the pricing ability. And so they were the scarce asset.

Carson (00:10:17):

What we could have done was stayed with our business model, which was and has been going very successfully, which is partner with these different groups. You figure out what monthly fees are, et cetera. But we realized that, one, liquidity and market making is extremely opaque. And it’s, as I mentioned before, very hard for founders and founding teams to wrap their head around this and figure out who they should engage with and how and what good liquidity looks like.

Carson (00:10:41):

So rather, what we did was say, “Well, what wins longer term?” Because right now, it doesn’t seem to us like market making and liquidity provisioning is done in the same manner as everything else in DeFi. So instead, we started thinking, “How do we disrupt our own business model? And how do we pull apart our own operations into this decentralized network?” And eventually just plug in all participants into that model.

Tom (00:11:06):

That’s awesome. I’ll lob it over to Paul, Bruno or Craig if you want to add anything to Carson’s answer. That was excellent.

Craig (00:11:13):

Just one thing to build on that is, we spend a lot of time with partners, not only helping them understand liquidity, but really trying to be an advisor, as they try and get their own heads around what it means to provide liquidity, what their options are and then nail down the specific framework for what we want to do to establish liquidity for them.

Craig (00:11:42):

And that’s a long process, in addition to Fractal just providing expertise, and I think what we’re focused on now is enabling a lot of this to become much more transparent and solve a lot of the opacity with which Carson referred to. I think in doing that, we bring together the tools and the information for these projects to put themselves in the best position for liquidity around their projects.

Carson (00:12:17):

And one other thing, just building on what Craig said is, we believe that the end state, which is not too far off with the upcoming launch of Tokemak will be that liquidity can turn from a cost line item for token projects and DAOs to a revenue generator. So basically, we can invert the economics versus how these groups have to engage with liquidity, provisioning and market making today.

Tom (00:12:42):

Yeah, no, that’s a good point, Carson. It’s extremely inefficient the way it’s done today. And let’s dive a bit into how Tokemak works, right? I’m not sure how much you guys want to share. I mean, we did share some of our tweetstorm, which probably uses the guiding light here, and I’ll link to it in the podcast show notes.

Tom (00:12:58):

But can you walk us through, I know there’s a bunch of pieces here, so we could go one by one. What does it look from, I guess, the user side of things like those who have idle assets that they want to deposit for yield? Maybe from the side of the Tokemak token providers want to earn a yield and indirect that liquidity. Can you walk us through maybe one side of it, and then we’ll go… Maybe you want to start with the liquidity providers, and then we’ll go over to, I guess, the directors.

Carson (00:13:27):

Sure thing. And to bring this back to what I mentioned at the beginning of the call. Tokemak is really trying to… Again, to answer this question of what does it look if you just say, “We’re going to pull apart a citadel,” for example.

Carson (00:13:41):

So in a market making firm or a prop trading firm, there’s really three things that are centralized with it. To oversimplify things and zoom out, there’s three things that you’re centralizing one of those firms to make it function properly. There’s capital, which also often comes from equity or debt financing or LP, limited partner capital. There’s trading and market expertise, which comes in the form of the executives or directors. Let’s say, these are the asset classes and strategies we will pursue as a firm and these are the exchanges or venues where we will pursue them. That’s the second piece, that market knowledge.

Carson (00:14:15):

And then the third piece is the actual trading expertise themselves. So with the help of technology and algorithms, in the case of a market maker, the traders are setting the bid and offer price quantity and depths into the book. So it’s really those three things that are normally a centralized market maker.

Carson (00:14:31):

As we pull this apart, to route this across the network, the three mappings that you should use here are liquidity providers, liquidity directors and pricers. And these are the three different ways that participants can enter the Tokemak network, as you were saying, Tom.

Carson (00:14:46):

So liquidity providers is how capital flows into the network. Liquidity directors are those with a market view that basically hold our native token called TOKE, which is really tokenized liquidity. A lot of exciting stuff we’ll get into shortly on this. And those participants are able to stand up liquidity for any market and on any venue that they want using their token. We’ll get to some of that later.

Carson (00:15:09):

And then you have the pricers where for any venue that requires a third party pricer. So in other words, not an AMM. The pricers are basically the trading talent that flows into. So these are the three main participants and the one I’m leaving off is the exchange. I should have mention early on that Tokemak is not an exchange. So this thing should be the best friend of exchanges because this really operates at a higher level of liquidity to flow these things into the exchanges.

Carson (00:15:34):

So with that, I think I can go to all core of those pieces, the liquidity providers, liquidity directors, appraisers and exchanges, and talk about how those fit together. Should we start with liquidity providers, as you said, Tom?

Tom (00:15:49):

Yeah, liquidity providers makes a lot of sense.

Carson (00:15:49):

Okay.

Tom (00:15:49):

And just to recap, anybody that has idle assets, Bitcoin, ETH, ERC-20s, new tokens is a liquidity provider, but Carson go on.

Carson (00:15:57):

Correct. Yup, that’s exactly right. So to start with liquidity providers, which is probably the simplest user case to start with. So this can be any user or protocol that has tokens, deposit tokens into Tokemak and earnings yield on them. So for these users, Tokemak actually looks very much like an Aave or a compound, but instead of being for money markets, instead of just lending out the deposited assets, it’s standing up to sided trading market liquidity.

Carson (00:16:25):

So for these users, that’s basically the experience all the way down to the fact that similar to aTokens and cTokens on Aave and compound, in Tokemak, you’ll get back tTokens, if you put in SNX, you’ll get back T, SNX and so on. This is basically how the capital enters the system. And that is actually the capital that is then, or the assets that is then flowed into the exchanges as voted on by the liquidity directors, which we’ll get to in a minute.

Carson (00:16:52):

I won’t go a ton into the yield, yet, we’ll probably get there later. But the yield that these participants are earning actually has to do with the state of the system as a whole and is earned in TOKE, in the native token.

Carson (00:17:06):

Next participant. Any questions on that before we jump to liquidity directors.

Bruno (00:17:10):

I might just add that for the liquidity providers in the Tokemak, they provide one-sided liquidity. So they don’t have to swap anything, they can just provide, for example, Aave or as an X that they have available and ideally, they can just provide the single sided asset.

Tom (00:17:30):

Single sided exposure is good because providing both sides of a pool has always been a burden and a hamper. Yeah, Carson, go on. This is great.

Carson (00:17:40):

Yeah, it’s a great point, Bruno. I was just about to mention this here. So for the liquidity providers, again, this works very much like Aave or compound down to the fact that even though this is an Aave or a compound for two-sided trading market liquidity, you only have to come with a single asset, you can come with as many as you want or one.

Carson (00:17:55):

So rather than myself wanting to be, say, a bond ETH liquidity provider on Uniswap or SushiSwap, where if I go there, and I have a million dollars of bond, I would have to also come with a million dollars of ETH. Now we actually can pull this apart, we can crowdsource each. So if I just come with bond or Aave or SNX, whatever the token is, I can just come with that, deposit in and this handles the rest.

Carson (00:18:18):

We probably won’t go into a ton of detail on this call, but we have other pools that hold, what we call the Genesis pools that hold the ETH and the stable coins. And those are flowed with the other assets into the end venues like SushiSwap, Uniswap, 0x, et cetera.

Tom (00:18:32):

Carson, just to zoom out just for a second, and just to stay on liquidity providers, why would I want to deposit million dollars in Ethereum, $10 million in link? And trust me, I don’t have it, but I’m just wondering what’s the incentive for somebody to deposit their idle assets into Tokemak?

Carson (00:18:50):

Yeah. There are several. So there’s the direct rewards that users earn. So right on the site, they’ll be able to see the current APY for the liquidity, the current liquidity epoch, we call our epoch cycles. So you’ll be able to of course, for an TOKE, which means you actually are earning this tokenized liquidity and we haven’t really gotten into TOKE yet and how it works, but you’ll start to earn our native governance and liquidity token as you deposit.

Carson (00:19:18):

But the other important thing is, versus some of these other things that you could do with their capital, this is actually directly supporting liquidity for your product. So in the case that you said, I think you said LINK or something, if you put a LINK in, you’re actually supporting the liquidity of the LINK out in the markets as voted on by the entire network. So whatever the network thinks that there needs to be deeper liquidity, which again is really bandwidth in this space, right?

Carson (00:19:41):

Liquidity is sort of is bandwidth when data flow, sorry, when value flow is replacing the old data flow of the old internet, liquidity is bandwidth. So you’re basically stepping up and beyond in an on and off ramps into your project that you want to support. And this is something good for your project.

Carson (00:19:58):

If you compare that to what could happen, not always, but could happen in the lending markets, if you’re lending out your LINK, someone’s probably borrowing it to do one of two things. They’re either going to short the market, which of course is going against your position, or their yield farming, you’re sticking with it someplace in which case, you probably should have just gone and discovered that opportunity yourself because the only reason they’re borrowing it is because they’re getting a higher yield somewhere else.

Carson (00:20:21):

So the point is, not only are the monetary incentives, which are going to be very attractive here, interesting or enticing, I think, for individuals to plug in here, but also, it’s supporting the liquidity, which is a critical feature for the success and health of the project that you already have a position in.

Tom (00:20:39):

Got it. So it’s safe to say that someone deposits idle assets. And obviously, they’re adding to liquidity, they’re supporting projects altruistically, but they’re also earning your native governance token. And we’ll get into this a bit later, but it’s not just in a free reward. I mean, the TOKE or token has a crucial role to play within Tokemak itself. And even in these pools within the DAO as a potentially earning fees from the DAO, I’m sure that can be voted in later.

Tom (00:21:10):

But before we go into liquidity directors, can you maybe give some information on your utility token, just so that people are aware of what they’re getting in exchange for providing their idle assets?

Carson (00:21:21):

Yeah, absolutely. So TOKE, which is our governance token is a new type of utility token in a lot of ways. So if you think about how almost all tokens that have really interesting tokenomics, and a lot of value in DeFi that they’re really usually only being used for one of two things and sometimes both. They’re used as collateral or they’re used as a governance token. To oversimplify, it’s often in one of those two buckets.

Carson (00:21:50):

Here, the first thing is, this is still a governance token. So not surprisingly, you get it will be a vote in the forthcoming TOKE marked out for protocol changes, et cetera. But importantly, the new thing that this is is TOKE is really tokenized liquidity. At some level, you can think of it abstractly as a tokenized liquidity future.

Carson (00:22:10):

And what I mean by that is if you hold 1% of the TOKE, or it’s actually even better than that, if you have staked 1% of the stakes TOKE in the network, and acting as a liquidity director, which we’ll get into in a minute, when we switch over to that user type, you’re basically able to both generate and direct, so really control, 1% of the entire TVL that’s in this network.

Carson (00:22:35):

So the more TOKE you hold, the more of the liquidity that you’re able to source and direct within this network. And we’ll get into that shortly how that works. But that’s why fundamentally, it’s very interesting to acquire this token because you can imagine the different token projects will want this to be able to direct liquidity to their own projects, the different exchanges will want this to be able to direct the liquidity on both the other direction to their exchange because the liquidity director is able to do many things.

Carson (00:23:03):

But one example could be, “Oh, I want YFI USDC liquidity on 0x, or I want Aave ETH liquidity on SushiSwap,” for example. And when they vote that, it literally through a feedback mechanism, which we probably won’t go through in a ton of detail on today’s call, we’ll source the liquidity and get new liquidity into those venues. So that’s the fundamental utility and feature of this token.

Carson (00:23:32):

There’s one more feature which I won’t spend a lot of time on this call because this starts getting really deep. But over time, this Tokemak network starts controlling more value. So in addition to the TVL provided by third party liquidity providers, the protocol itself starts sucking in more value. And as that happens, the Tokemak, sorry, the TOKE holders have a larger claim on those assets.

Carson (00:23:58):

So over time, you get a really interesting DeFi trading and reward weighted portfolio that is actually backing TOKE of which those TOKE holders have a claim on. So over time, the fundamental value of TOKE goes from, “What will someone pay per dollar of liquidity?” To, “What will someone pay per dollar of liquidity plus their pro rata share of this DeFi portfolio that’s backing it?”

Tom (00:24:19):

It’s an incredible overview, Carson. And I’ll probably sound repetitive here, but I’m looking at the decks. I want to make sure people understand. So we’re talking a lot about the liquidity providers who are depositing idle assets, they’re earning yield, they’re earning your native governance token. Let’s switch over to the other side on the liquidity directors, these are the people that are staking your native token, TOKE to attract and direct liquidity. Can you go into the other side of this and what the liquidity directors can do?

Carson (00:24:46):

Yeah, absolutely. So once you have TOKE, so once you’ve earned it, there’s going to be great opportunities for DeFi participants to earn TOKE and participate in this and there’ll be a lot more information on that coming soon. Once you have TOKE, this tokenized liquidity, what you do is you come to the Tokemak site and you’ll see basically these reactors.

Carson (00:25:07):

So, the way we have these set up are each asset has a different reactor. So I can see the Aave reactor, I can see the Badger reactor, et cetera. Each reactor has a different APY and it has to do with the state of the reactor and it has to do with which side of the reactor. So one side is the liquidity provider, one side is the liquidity director.

Carson (00:25:26):

So in the case of a Badger reactor, Badger’s on the left side and on the right side are the TOKE stakers acting as liquidity directors. If one is under underwater and one is over water, the APYs are juiced on the side that it is currently in deficit. So that explains how the APY is traded off. But coming back to your question, liquidity directors, they see these APYs that are variable across each of the reactor, they can then make a decision based on either where they would to see liquidity and/or where they see the highest APY and where they want to stake their TOKE.

Carson (00:25:59):

So let’s say they go to the Aave reactor, stake their TOKE there. What that does is through a feedback mechanism on the rewards, as they start staking more and more TOKE there, it’s increasing the APY for more Aave holders to come and deposit as liquidity providers into Tokemak. So effectively, their staking mechanism actually increases the rewards. And it isn’t their TOKE that’s out the door. It has to do with these closed form equations, what governs this, but the active staking increases the rewards for more Aave liquidity to flow into the system.

Carson (00:26:30):

And then once they’ve staked, they then open up a vote. So the fact that they’ve staked to the Aave reactor means they can direct that Aave liquidity into any exchange. And at launch, we’re planning support for 0x, SushiSwap, Uniswap diversify and balancer. So basically, they’ll be able to flow Aave liquidity. If they had 100 votes, they could say, “Oh, I want to use all 100 of my TOKE to flow liquidity into balancer.” Or they could say, “I want to see 40% of my votes, I want to blow that 40% of the liquidity into Uniswap, or at 60% of the liquidity into 0x,” as an example.

Carson (00:27:04):

So that’s effectively what happens is when they stake the TOKE, it creates a feedback mechanism to attract more liquidity into the system. And then it gives them a vote to be able to direct that liquidity to any exchange or venue that they want to direct it to.

Tom (00:27:19):

And, Carson, are the users on both sides of this, those depositing idle assets and those staking TOKE to direct this liquidity to the venue of their choice with a pair of their choice, is the user interface for both these parties the same?

Carson (00:27:32):

Yes, correct. So on a single user interface, they’re going to actually see the reactor and the current state of the reactor. So the game for users, both liquidity providers and liquidity directors, let’s say I show up to the site, and I have TOKE, but I also have six other eBuy assets, I can show up to the site, and the game is to balance the reactors.

Carson (00:27:50):

So any of these reactors that appear unbalanced, and it’s very, a lot of what we’re saying, if we lose you, the site is actually going to be very, very intuitive, where you can see which side needs to be balanced, where more needs to be contributed. And of course, the APYs or the incentives will be set up to encourage that as well. So they can come in and then basically allocate their TOKE and their other DeFi assets in order to play this game of balance the reactor.

Carson (00:28:14):

The game of balancing the reactor really means, make sure that there is efficient liquidity out in the market. Because effectively, it’s making sure that wherever there’s a lot of liquidity directors who are staking their TOKE and asking for liquidity and wants to direct it to exchanges, that there’s plenty of inventory liquidity flowing in in order to follow essentially where they’re voting the liquidity.

Carson (00:28:34):

And then conversely, any place where there’s a lot of inventory or liquidity that’s been provided in from the liquidity providers, make sure that there’s enough liquidity directors that stake in order to collateralize the system, and also to get the network effect of where increased liquidity is needed across the DeFi ecosystem.

Tom (00:28:51):

Makes a lot of sense. I know I’m asking quick questions and I want to give you a chance to breathe. But who are the most or the best examples of liquidity directors in your opinion? I mean, in my opinion as a VC, I might want to own TOKE just to direct liquidity for a new project of my own, or Delphi Ventures that may need liquidity somewhere. But in your opinion, what are the best examples of liquidity directors?

Carson (00:29:17):

Yeah, great question. So, liquidity director is probably the most interesting participant in our system because it’s really anyone with a market knowledge. And market knowledge here, remember we’re in DeFi now. So it’s not exactly the same as in the past where market knowledge meant probably some very specific thing.

Carson (00:29:37):

Here it means, “Where do I think it would be more beneficial for other users and protocols to be able to get access to the token?” So if you’re talking about XYZ token, that’s anyone that’s a stakeholder within the XYZ community that has an opinion that, “Hey, we need to have more XYZ liquidity on SushiSwap,” for example, and that could be for all kinds of reasons.

Carson (00:29:58):

So the interesting thing is we’re going to have and we’ll be able to show some of these things very soon. We will have some highly quantitative results and metrics for how the liquidity is performing. So what trading volume per unit of liquidity that’s directed someplace is performing.

Carson (00:30:16):

But even though there’s all these quantitative ways of looking at liquidity, it’s ultimately a very qualitative, so yeah, quantitative way of tracking all these things. It’s a very qualitative game in terms of where and what’s good liquidity looks like differs by each project. And so ultimately, it’s just these stakeholders need to project that knows those the best. And those are the liquidity directors that we want to actively vote.

Carson (00:30:41):

And I know I’m saying a lot right now, but one deeper piece on that is those that don’t have that intelligence, but still want to earn yield can stake their TOKE to effectively collateralize the system, but they don’t have to vote. So it’s fine for users that don’t have a view on the market to still participate in this, but not go one level deeper into the exchange voting.

Tom (00:31:02):

Thanks a lot, [crosstalk 00:31:03].

Carson (00:31:03):

I think I can say something here real quick. I think we work very hard. One of the more difficult parts of building this was, how do we make this approachable for let’s say, the lower primates like myself in the greater DeFi ecosystem, who do play a very critical role? And if you aren’t that sophisticated of a participant, you can just come and play the APY game. And you can visually figure out where the system needs help and where your assets can help the system perform, and you’ll be compensated for that behavior.

Carson (00:31:39):

I think really, the magic of DeFi is the ability to get people to understand how to use tools and how to help these networks function without necessarily having to understand all of the implications of what they’re doing. And that feel element, which is where this gamification of the UIs, is very useful. And I think we have done that. And we hope that you guys enjoy it, once we get to release it and that it works.

Tom (00:32:08):

Yeah, no, I’ve definitely been able to see what you guys are working on since Delphi Venture’s invested in and I’m loving what I’m seeing, but given this is audio, and Paul may be this question is for you, again, as a follow-up. if I go on to Tokemak site when you guys are live and I see all these pools. I see Aave TOKE, I see SNX TOKE, ETH TOKE, I might get inundated, right? I don’t know what to do as a basic user. Right? And trust me, I’m a basic user, is there an option to just quickly allocate my tokens without potentially doing the next step as Carson described, as in directing that liquidity?

Paul (00:32:44):

Yeah, so the whole site is designed to be, it gets more complicated as you dive deeper. So the surface layer is pretty straightforward. The thing that you’re greeted with and primarily is, APY meters or the sort of function like EQ meters on music production software, where you have these offsetting APYs, and so whatever tokens you have, you’re going to be able to see what APYs you’re eligible for.

Paul (00:33:19):

And for a lot of users, that’s going to be where they stop. They’ll decide, “Hey, this is the best APY that I have available to me, and I’m going to deposit my assets there.” And the beauty of the way that the system works is that the higher the APY, that’s where we need assets. And so in general, being self interested is not negative for the system. It’s positive. And I think that’s the magic of DeFi in general, is that self interested behavior produces community beneficial results on all the good, well functioning DeFi architecture.

Paul (00:33:57):

So we spent a lot of time architecturing these incentives so that they do do that. So you don’t have to be Mother Teresa, you come and you make money for performing maintenance on the system. And that’s very easy and visible for any user who lands on the page.

Bruno (00:34:14):

Yeah, and I might add for liquidity directors specifically, so any TOKE holder that might not have the advanced knowledge they think they might need to make specific choices on allocations. There’s the option of basically a one button like provide TOKE, which will then lead to a pro rata allocation of their TOKE according to what, let’s call them the pro users, what their choices which just reinforce their vote, which will also then for them lead to a blended reward curve.

Tom (00:34:50):

No, that makes sense. The one click staking is perfect. I’m sorry, Carson, I cut you off there.

Carson (00:34:55):

No, all good. I was just going to say, yeah, building on what both Bruno and Paul said. Ultimately, we did a lot in order to dial back the features for basic users because we know liquidity and market making, as we were saying at the beginning, it’s this opaque industry, the barrier to entry or to understanding is high.

Carson (00:35:12):

And we’ve made sure that users that just have assets and want to earn yield on the assets and know nothing more than this works like compound or Aave, but it’s for essentially trading market liquidity instead of money market liquidity, they can just come stake and it’s not intimidating at all.

Carson (00:35:28):

Then as Paul was saying, and I know we don’t have any visual backups here to show everyone live, but as people go into the more advanced users, the site basically starts unfurling. And anyone that goes down and realizes they went one step too far and now all of a sudden, oh wow they’re in over their heads, they can just click the collapse button, and they can just stay back up where they can still play the game, but not go into from basic to intermediate to expert modes.

Carson (00:35:51):

And the reason that this took quite a bit of time to figure out is we really initially built this network with DAOs and token projects and founders in mind because of what we were seeing them struggling with this abstract world of liquidity and market making, and that really good projects were living and dying, based on whether they have figured out this obscure thing called liquidity.

Carson (00:36:12):

And so we started with them, but then we started realizing, “Wow, this is also a tool for other market makers.” It’s also a tool for exchanges because they can now direct liquidity themselves. It’s also a tool for individuals and other protocols. So there’s all these different entrances into the system, which is part of the reason that probably throughout this call, those that are listening probably feel like we’re meanderings.

Carson (00:36:31):

It’s because we’re touching different parts of this really interesting and complex but very elegant once you’re actually using it system. Because it really does work for all those, but we wanted to make sure we wouldn’t scare away just the entry DeFi user that comes, plugs into this and just wants to earn the yield. We also, by the way, have done a lot of things for gas optimization for those users as well, so that we don’t scare away basically the heart and soul of DeFi, which are all the different retail participants that are plugged into this.

Tom (00:36:59):

Yeah, no, I mean, kudos to the entire team here. I mean what I’ve seen looks amazing. I know it’s gone through a couple iterations and I’m really excited for you guys to share that. And, Carson, just to circle back a bit. You stated earlier that users could stake TOKE to basically a reactor. For those new to this, it’s a pool basically an asset and then TOKE its token. You can think SNX, you can think Maker, ETH, you take your pick.

Tom (00:37:25):

How do you handle… A lot of projects in the space just basically rapid fire out rewards and they’re not very surgical, right? There’s obviously, exceptions to that rule. But how do you release your token and rewards in a dynamic way to make sure that the reactors are optimal, and the overall project is functioning effectively?

Carson (00:37:47):

Mm-hmm (affirmative). Great question. So, effectively, you can think of it like this. And by the way, one thing that I haven’t gone into a lot of detail, and we probably weren’t on this call is the pricer.

Carson (00:37:57):

So this would be for any market makers or traders on a call, there’s a really cool way you can plug into to be able to price the liquidity that is flowing through to basically off balance liquidity for you. But the focus on liquidity providers and liquidity directors, let’s just focus on the reward buckets for those two participants for now and how this works.

Carson (00:38:17):

I mentioned before that our epochs are called cycles. So each and they’ll start with a week long cycles. So we call these our liquidity cycles. Each cycle or each week, there are a certain quantity of rewards that are budgeted for liquidity providers and liquidity directors. And just to make things simple, let’s just call it 100,000 for both right now, so 100,000 TOKE available for liquidity providers and 100,000 TOKE for liquidity directors.

Carson (00:38:43):

Essentially, the system is disinflationary or has disinflationary components to it not deflationary, but disinflationary because it only will pay out the maximum amount when the system is operating at peak efficiency, which means all the reactors are balanced and conceptually, I’ll try to explain what that means.

Carson (00:39:03):

You have the liquidity providers, that’s where all the assets are in the system. So the Aave, the SNX, the LINK, et cetera. And then you have the TOKE stakers acting as liquidity directors taking their TOKE and directly around the liquidity. The peak efficiency, let’s say we had three reactors, let’s say there was 10%, 60% and 30% was the breakdown of the TVL on those first three reactors in that order. 10% of the TVL was in the first one, 60% in the second, 30% in the third.

Carson (00:39:32):

The system will pay out peak rewards of the staked TOKE it is also allocated in the exact same amount. So 10%, 60%, 30%. Anytime it’s off from that and that’s this concept of balancing the reactors, getting the percent staked to align with the percent of liquidity provided on reactors. And again, for any of you listening, this is much simpler when you have the screen in front of you and actually show it as opposed to me describe it. Anytime it’s off from, so let’s say the first one where there’s 10% actually had 30% of the TOKE staked as a liquidity director.

Carson (00:40:07):

Well, that means that one is over allocated the TOKE up. And that just means it’s over collateralized and you have not enough liquidity for all of the liquidity directors that want to vote it. And it also means another reactor someplace or reactors have the flip flop problem where they have too much liquidity for the number of liquidity directors trying to vote around liquidity.

Carson (00:40:25):

What happens is the full amount of 100,000 rewards on both sides aren’t paid out. So it might be 95,000. And so what that means is we have a set emission schedule, and there’s going to be very attractive, essentially, yield farming, liquidity, mining, whatever you want to call it, rewards, especially in the early days of this protocol. But this thing, inflates the most so long as it’s operating at peak efficiency. And there’s really interesting reasons for that.

Carson (00:40:52):

But at peak efficiency, it means it’s both providing the best liquidity and it also means that it’s growing its protocol control value or assets the most. So it makes sense to hand out more of, essentially, the golden tickets that are TOKE to more holders. And so the inflation is higher under those. If it’s not providing as solid a liquidity and isn’t growing its internal protocol controlled assets as quickly, then it hands out fewer tickets, fewer TOKE.

Tom (00:41:18):

No, I mean, dynamic rewards are incredible, right? Because it’s like, not to bring it back to you on the project, and obviously not a solicitation to dive into it, but in Filecoin to something kind of of the same line, where they basically make a baseline where the amount of store supplies should be at and if the network isn’t providing that storage each year, they don’t provide all the rewards.

Tom (00:41:39):

But more conceptually, your point, you guys aren’t wasting rewards, right? If network isn’t attracting enough assets. And two, if these individual reactors are off, you’re incentivizing those with the idle assets, free each reactor to supply them in the correct proportion, which makes a ton of sense.

Tom (00:41:56):

And Carson, how long are your rewards slated for, right? Because a lot of projects run low a couple years out or they use their entire supply way too soon and they don’t have any left for incentives.

Carson (00:42:07):

Yeah, great question. So we have a big piece of the pie. I didn’t go in a lot, but this I’m evolving from inflationary liquidity mining into sustainable mining, that it’s really sustainable liquidity, which is what Tokemak will usher in. But we get that started with the good old-fashioned incentives inflation for the community. And we have budgeted, and I think here Bruno can keep me honest, but 18 or 24 months, something like that, of rewards for the community.

Carson (00:42:36):

And the nice thing is we have a reserve as well, where if we need longer or if we need increased rewards to make sure that we’re staging enough TVL so that each TOKE is directing a large amount of liquidity into the exchanges, we will have a nice reserve to be able to do that. So plenty of TOKE available to make sure that we both decentralize this network into the right holders of DeFi participants. And also make sure that we’re bootstrapping all of the right pieces to make sure this thing functions at peak efficiency.

Tom (00:43:10):

That’s awesome. Yeah, no, I love dynamic rewards, especially when they’re allocated the right way between all your pools. That’s incredible. It’s hard to think about how an existing project would do that, right? It’s as if Uniswap provided dynamic rewards based on the amount of assets in each pool. But, yeah, it’s a very complex problem to solve and it’s awesome that you guys are addressing it head on, and Uniswap’s obviously, totally different than this example.

Tom (00:43:35):

But I guess zooming way out, I have a couple questions for you. I mean, if we look at Tokemak six months, 12 months down the road, I guess, how do you judge critical mass for the project, right? What would be success in your mind?

Carson (00:43:54):

So really, there are a lot of different ways I could answer that because there’s a lot of different metrics for success here. But a couple of interesting one that’s probably quite measurable, and one that you can observe from activity out in the space.

Carson (00:44:09):

One of the things that we mentioned where the first group that we had in mind when we built this was token projects who were budgeting huge amounts of their token pool to liquidity mining for SushiSwap, Uniswap, et cetera. This kind of inflationary liquidity, mining rewards that could have been spent for better things out in their community, probably or things are less commoditized.

Carson (00:44:34):

We think one of the indicators that this search would be successful is, we believe a future launch rather than saying, “Okay, this piece of my token allocation pie is for people that stake on Uniswap or SushiSwap.” We think that that will go on parallel to the rewards handed out from Tokemak and the liquidity source there for a while, but eventually we’ll have groups that rather than budgeting that pie, they say, “Actually, instead of budgeting that directly, we’re going to use some of the assets in our DAO treasury, or we’ll use some of our assets to just buy TOKE directly,” which then means we can stake rather than set up this separate reward, we can just stake the TOKE and then enable liquidity to flow in here from anyone in our general pool of token holders, whether that comes from the founding team, investors or DeFi just in general.

Carson (00:45:21):

That’s phase one of how liquidity mining is going to evolve once this is out.

Carson (00:45:25):

The second will be, someone will learn that they could actually borrow TOKE. So the borrowing market for this is going to be really interesting. So they could say, “Actually, we just need to get through our bootstrapping phase.” So we want to borrow sufficient quantity of TOKE, so that again, we can stake to our reactor. So when we launch, we spin up a new reactor for our ABC token we just launched, we stake the TOKE that we borrowed in, liquidity flows through because it bootstrapped the rewards for those that provide the ABC liquidity in its system. And now we’re directing it throughout the DeFi ecosystem to wherever it’s needed on exchanges and they’re off and running.

Carson (00:45:58):

The final phase and this is when we’ve won and everyone else wins with us from a token product perspective is, you want to allow… I mentioned early on where groups in the ’90s, these IT companies that were spinning up their own servers. Eventually, once AWS came along, they could actually just focus on their product, and they didn’t have to worry about running massive groups of IT professionals and spinning up their own server farms.

Carson (00:46:24):

What really wins here is when groups no longer have to worry about their liquidity and market making anymore. So they can go, they can pitch to the DeFi community some vision and show some prototypes of an awesome new protocol or application they’ve built. And rather than them have to worry about liquidity at all, once they’ve sold the vision and they have buy-in, TOKE holders broadly will just go, and similar to on SushiSwap or Uniswap right now, where you throw in a token hash and start up a new pool, someone will throw in the TOKE hash, start up the new reactor and TOKE stakers will just come from the community because they believe so much in what this new product that’s being built and this team that’s building it, that now the liquidity is basically sourced natively for this thing, because everyone just wants to support the liquidity on this thing.

Carson (00:47:03):

That will be the phase that we can claim victory for moving beyond this siloed approach where every token project team is so focused on their liquidity and market making and living and dying on it. So that’s one of the things where we can see some observations out there coming back from elsewhere in the community.

Carson (00:47:21):

Coming back closely to the protocol, we often talk about the different phases of this thing. And at the very beginning, we have third party liquidity providers putting assets in so of course, the system has a liability and the T assets that they hand out, very similar to Aave or compound. But this thing begins to grow rewards.

Carson (00:47:41):

So the APY that we’re paying out is in TOKE. We’re handing out those rewards, we’re handing out those TOKE, but we’re internalizing the reward. So the liquidity rewards, the spread, et cetera. And that’s growing a protocol controlled value over time. Eventually, you get enough assets in that system, where you can start augmenting the assets or the liquidity that’s flowed in from third party liquidity providers, with the protocols own free and clear assets.

Carson (00:48:11):

And eventually, you don’t even need the third party liquidity providers. We call this moment the singularity. And we have some black hole analogies here, maybe reverse blackhole, but at that point, you no longer need to flow more capital into the system. And once you hit the singularity, the economics of this thing fundamentally shift.

Carson (00:48:27):

So spreads can be reduced to near zero under that scenario because now all of a sudden, this thing doesn’t have third party depositors. And there’s other interesting ways that you can monetize this at that point. And the other really interesting thing is then the TOKE has not only the ability to vote around liquidity, so it’s tokenized liquidity, but you also have your share of this big pool of protocol controlled assets. And there’s really interesting things we have planned down the road for that as well, which is probably for a whole nother discussion.

Tom (00:49:00):

This is incredible, Carson. I’m going to have to relisten to your answer because it’s incredible. I mean, there’s also a lot of different avenues you could take with your answer, right? I mean, if projects are going out and buying TOKE, then I mean, those project token holders themselves then potentially have a claim over Tokemak and the network overall, which is interesting and I guess a totally separate discussion here.

Carson (00:49:26):

Yeah.

Paul (00:49:26):

It’s meant to be a utility in that way. I think, on the other side of things like far less complex, maybe an easy metric of success is, are we increasing the amount of or the units of liquidity received for every dollar spent on liquidity? So in the current setup where people are using liquidity money and injecting all this inflation into DeFi, and what is the cost per unit of liquidity? It’s pretty high. And Tokemak is designed to bring that down. And so that’s maybe a very much direct metric that maybe somebody can look at to determine that is the success of the Tokemak.

Carson (00:50:05):

Yup, agreed.

Tom (00:50:08):

It makes a lot of sense. And I guess, what are the biggest risks in your opinion, guys? I mean, when I saw Univ3 come out, I’m like, “Concentrated liquidity is pretty cool.” But, Carson, I know you and I talked on the side. And basically, it’s just more granular knobs that pricers potentially, I’m getting [inaudible 00:50:26], can decide to use within Tokemak. How are you thinking about, I guess, risk to Tokemak? Because it seems very hard to do what you’re doing because this is totally new code.

Carson (00:50:38):

Yeah, a great question. So this is a new DeFi primitive that sits at the meta liquidity layer. So there isn’t a parallel to this one out there at the moment. Think of it as, because we’re not an exchange and I know we didn’t hit on that a ton, but again, we’re always flowing liquidity into these venues.

Carson (00:50:56):

We’re a little bit like if you put the exchanges on one plane, right now you have aggregators that sit below that, where for the takers who might be coming up from the bottom of this diagram, they’re aggregating the flow out to those exchanges. We’re sitting up on the top level, we’re what we often call them meta liquidity layer and sourcing and directing those things and then routing in market makers, which I didn’t focus on very much on this call.

Carson (00:51:19):

But there’s huge opportunities for market makers to plug into this and benefit from this. So this is not an anti market making network by any means. It’s a brand new, agnostic tool that all these different groups can either adapt to and thrive from or be disrupted from. One of the two.

Carson (00:51:36):

Going to your point on Uniswap V3, I think I had 40 people text me about the first two hours after the Uniswap V3 announcement that said, “Wow, this is 100% just exactly what Tokemak ordered.” And the reason that people were saying that are all these new additional features, which now means that coming in, even if you have 50/50 of assets and I have $100,000 of SNX or $100,000 of each, so I could be a liquidity provider for the SNX ETH pool on Uniswap.

Carson (00:52:06):

It used to be that once you had the assets, it was a simple process for a user to deposit, Uniswap V3 you will have all these additional features. So the ability to play around concentrated liquidity, the ability to have these curve price range limits that effectively are stop losses on being a liquidity provider.

Carson (00:52:27):

What all that means is with Tokemak at this meta liquidity layer, liquidity providers can come in here and even better, they can still just come with one-sided liquidity since we source all sides. But they can plug into this, they don’t have to worry about all those bells and whistles. And then we can plug in the liquidity directors who are more knowledgeable and market mechanics to be able to fine-tune all those different parameters and eventually even be able to do some of the real-time adjustments on those Univ3 pools.

Carson (00:52:53):

So really interesting things I think as these AMMs are growing up and starting to recreate features that require a more advanced almost market maker like participant instead of just more entry DeFi participant that just can deposit capital in. This is going to allow those DeFi participants to still be relevant and still play on that stage without being completely lost in that complexities, which we can crowdsource both the capital, the liquidity providers and then that expertise of the liquidity directors through Tokemak.

Tom (00:53:23):

That’s incredible. And a bit of a switch on a question here, Carson, but I think it’s important. And I’ll probably drop some names that we may have invested in already through Delphi Ventures, but having a token that’s unforkable is extremely important, right? I mean, a lot of projects have experimented with basic fee capture and governance and things like that. But new projects are really pushing the bounds here, right? Like Alpha Finance, you can use their token turn fees, but you can also unlock new features among all their products, right?

Tom (00:53:54):

You guys are up this line of, in my opinion, a new type of token because the token itself has a real critical use case within your project, right? I mean, how do you think about forkability with TOKE?

Carson (00:54:09):

Yeah, great question. So I think there’s two pieces of this that makes it at least more challenging to fork than others. One has to do with something that I didn’t go into really any detail on this call, where I just said that, “Hey, there’s this pricer component as well that plugs in here.”

Carson (00:54:25):

So there’s this whole other network that plugs in by running essentially nodes off Ethereum that are going to be staking TOKE in order to inject pricing into the venue. So this will happen for, for example, 0x and diversify or any sort of the [inaudible 00:54:40] RFP venues that require third party pricers. Getting buy-in from those participants, those market maker trading desk pricers, make this a more challenging thing to fork because not only do you have the Ethereum code, you also have this other piece.

Carson (00:54:56):

The second piece that is interesting is essentially the protocol or the DAO balance sheet that we’ll acquire through some interesting mechanics that we’re going to have between now and launch. And there’s going to be really interesting opportunities to get the DeFi community at large plugged into this.

Carson (00:55:11):

So I think at one point, or once or twice on this call, I mentioned protocol controlled assets or protocol control value. And I think this is actively out in the DeFi zeitgeist at the moment, just with the weekend launches, et cetera. But there’s really interesting mechanics that you start getting with, what does the DAO control? And then, what does the protocol controlled assets control?

Carson (00:55:34):

We’re going to actually start with a very large surplus of assets for any of the reactors return on, which means everything will flow much smoother. And let’s put it this way, you can fork code, but it’s hard to fork a large balance sheet that can make everyone know that all of the mechanics that we’ve built and how we deal with where the impermanent loss is pushed, et cetera, in the system, that’s much more challenging without starting with that balance sheet that we’ll help built out.

Carson (00:56:02):

So a lot more we could talk about on that, but there’s going to be some interesting ways, exciting ways, I think that DeFi can plug into this over the next two months, as we gear up for launch to make sure that both the DAO and these protocol controlled assets are bootstrapped and ready to go in time for lunch.

Tom (00:56:20):

And Carson, this might be get a little too deep here, and I’ll link to our tweetstorm as well for people, but can’t the DAO then take its own assets, and then use those to stake within Tokemak itself creating a virtuous cycle.

Carson (00:56:33):

Yes, and it goes down to the protocol controlled assets. So technically, you could do it with both. But what gets really interesting are the protocol controlled assets. Because once you have that, that’s the moment that this thing is a self sustaining ecosystem that exists solely to stand up creating market liquidity out in the ecosystem across the DeFi ecosystem.

Carson (00:56:52):

And so once your protocol controlled assets have grown to the right state, that’s the moment that as you were saying, you can complete the feedback loop or the dragon can bite its tail, where now you can use those assets to provide liquidity and those assets even more so than when you have liquidity, provider assets are solely focused on giving the best liquidity, bid spread out in the market it’s really this liquidity bandwidth to support all of DeFi and it’s not focused on earning its capital from the spread or earning its revenue from the spread.

Tom (00:57:26):

That’s incredible. Yeah, I know it’s getting meta, but it’s incredible to think through. A couple of more questions for you guys. Zooming out again, you guys are positioned above a lot of these centralized exchanges and other parties. Do you envision a future where you guys go multi-chain?

Carson (00:57:43):

Yeah, absolutely. So I mentioned early on that we’re planning either at launch or shortly after to have diversify, as one of the recipients of the liquidity, one of the supported exchanges, that our first, I guess, experimentation with L2s. And we’re also actively looking at other L1s.

Carson (00:58:00):

So you can imagine things. And I’m not saying any of these to try to exclude any others or to guarantee these but things that we could be looking at very closely are LDM, Serum, Solana, Polkadot any of these kinds of things, even potentially things like THORChain, there’s really interesting opportunities where you can have.

Carson (00:58:19):

At first this is going to be on Ethereum L1 where it’s [inaudible 00:58:22] native location is, remains to be seen, whether that’s up on an L2 on Ethereum, or if it’s still down on L1. But initially on L1 and then we can deploy contracts over to any of those others so that you can still have the TOKE stakers, basically routing liquidity here and the novelty of how we set up the liquidity cycles, where the rebalancing of liquidity between venues makes it so that we could flow through any of the gateways basically, over to these other L1s, or the deposit withdraw functions up to L2 becomes quite simple compared to other ways that we could have architected.

Carson (00:58:58):

So we designed this from the beginning thinking about how to plug into those others as well, and how to flow liquidity across the broader DeFi ecosystem, which is looking like it’s becoming broader than just Ethereum.

Tom (00:59:09):

I totally agree with you. And just zooming out, it’s a lot harder to conceptualize investing in infrastructure versus investing in app player, right? Because infrastructure is there, everyone builds on it, app layer, “What’s your URL, I’ll go play around with it,” right? But infrastructure obviously has huge potential because of the ecosystems that are built around it. Can you describe, in closing out, your thoughts here why Tokemak is more infrastructure versus say just another app?

Carson (00:59:40):

Yeah, great question. So I think it comes down to this fact that there’s a lot of different pieces I could highlight for that. I think one of the most fundamental is that liquidity is an issue for every single project. You get some that eventually have solved it, right? I would argue that LINK, for example, has very deep liquidity out there right now.

Carson (00:59:59):

So you can of course use this tool to support more liquidity in different venues but there’s the ability to buy and sell LINK with pretty tight spreads throughout the ecosystem DeFi and CeFi. But because liquidity touches each and every single product, it’s really a velocity of tokens concept, it means that this can be used to basically increase the bandwidth into and out of any token project out there.

Carson (01:00:26):

And that’s why I would call this infrastructure is protocols. I think right now we’re operating all of these things. And I can give you other examples, but Tokemak is one of these things that sets up one layer from baseline DeFi. In other words, if you didn’t have Uniswap, and you didn’t have 0x, and you didn’t have these exchanges, this wouldn’t exist, this needs a place to be able to route liquidity to.

Carson (01:00:45):

The things that are going to be built on top of that, I’m a firm believer that there’s about six to 12 months left, where DeFi can be held in someone’s head. And I know already beyond that, that level, but I think conceptually, people can have a rough mapping still of how these things connected to each other. I think in six to 12 months, it’s game over for that. No human is going to be able to understand how all these things connect to each other as they build on top of these things, and connected really novel ways.

Carson (01:01:13):

So that just gives you this idea of this liquidity as a bandwidth. There’s so many different protocols and applications that will plug into this because really, anything that needs tokens to flow into it or, importantly, needs to make some sort of a trade or a swap are directly impacted by liquidity.

Carson (01:01:31):

You’ll have many exchanges, but all those exchanges need liquidity to thrive. And this is basically conduit to get more liquidity into all these venues.

Paul (01:01:37):

And you can see a world where new user behaviors and new business models are unlocked by lossless or broadband value flow. And this level of automated, reliable and sustainable liquidity will allow new business models, they’re probably orders of magnitude larger than even the current ones, which everyone is impressed with to be unlocked, and a new competitive arena will have been built. So we look forward to that.

Tom (01:02:08):

It’s incredible, guys. Yeah. There’s so much here to think through, there’s so much to go through. Why don’t we close out with how could the listeners on this podcast get involved? Who do they follow? Where they follow? And I guess, what’s on the near term horizon for Tokemak?

Carson (01:02:25):

Yeah, absolutely. So, first and foremost, follow @TokenReactor on Twitter. We’re going to have a lot of announcements coming soon. That’s the main Tokemak handle. For myself and probably we can, Tom, give you all of our handles later, but for myself I’m @LiquidityWizard. Was in building mode, so I’ve been late to the Twitter game, but I’ll be starting that up aggressively now going forward, as we’re going into rollout and then launch is coming sooner than probably a lot of people that haven’t been plugged into this thing.

Carson (01:02:54):

So the first phase of launch is going to be coming late May and there’s going to be some interesting ways that DeFi participants can plug into this even in the interim. So I would say, for now stay tuned to our Twitter @TokenReactor and we’ll have a lot more announcements coming in the coming weeks here.

Tom (01:03:14):

Carson, I was excited for a COVID free summer but I think I’m more excited for you guys to launch.

Carson (01:03:19):

It’s going to be a fun summer. It’s going to be crazy. It’s going to be a packed launch as well from that late May timeframe on, there’s going to be new features rolling out every couple of weeks.

Tom (01:03:31):

That’s incredible. Well, guys, thanks so much for your time. I’ll link to everything you guys listed on the show notes. And just thanks again for your time. It’s been incredible.

Paul (01:03:37):

Awesome.

Carson (01:03:40):

Thanks so much for having us, Tom.

Paul (01:03:41):

Great job, Tom. Thank you.

Carson (01:03:41):

I really appreciate it.

Craig (01:03:42):

Thanks, Tom.

Carson (01:03:42):

And thank you everyone for tuning in.

Apr 9, 2021 | 63 minutes | Chain Reaction

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