Poolside: Benefits of an AMM for Value-Accruing Tokens
Liquidity Provision on Leisure Mode.
Poolside allows for more potent liquidity rewards
Poolside solves unnecessary divergence loss and value leakage
Poolside is the only AMM that integrates elastic assets
Value-accruing tokens are too big to ignore as liquid staking derivatives have risen to become DeFi’s top category. Poolside is the only AMM protocol that provides infrastructure for value-accruing tokens. Technically speaking, this means our DEX integrates assets that rebase or have an intrinsic conversion rate. AAVE's aTokens and Compound's cTokens are two types of value-accruing tokens that have popularized these concepts.
Thanks for reading Poolside! Subscribe for free to receive new posts and support my work.
The interesting thing about these tokens is that they introduce elasticity in different ways. The first way is through a rebasing mechanism that updates supply to map 1:1 with the underlying asset. The most popular rebase token is Lido’s stETH. Like aTokens, elasticity occurs in the actual supply of stETH. When this occurs inside of liquidity positions, most AMMs assume that an increase in supply of stETH is driven by a decrease in demand. So, it becomes discounted against the other token it's paired with. LPs' assets become mistakenly cheaper, and stETH rewards are lost due to arbitrage.
The second way is through an exchange rate. Rocketpool's rETH, which behaves like a cToken, represents ownership of the underlying ETH. When rewards are accrued, the supply of rETH remains the same, but the claim on the underlying ETH grows. Said another way, the elasticity happens downstream in the underlying asset. Most AMMs don't realize what has occurred when value-accrual materializes this way. rETH has intrinsically grown more valuable but remains at the same price in the pool. As with rebase tokens, the mispricing results in “value leakage,” where traders arbitrage value out of the pool. The same value that LPs should own.
Poolside solves for this 🏊
Our team has done the complex math and hard work of solving for on-chain value-accrual. We will dive more into this in the future. In the meantime, we suggest reading our whitepaper for a thorough explanation. Just know that Poolside fully integrates tokens that rebase or have intrinsic exchange rates. Ultimately solving for value loss and leakage that occurs with these tokens inside liquidity positions. Something that our friends at Uniswap, Maverick, and others still need to solve.
It might shock some of you, but Stable Math, as popularized by Curve, doesn’t solve for the unnecessary divergence loss that occurs when tokens accrue value.
Poolside is the DEX of the Future
The popularity of value-accruing assets has experienced exponential growth over the past year with no signs of slowing down. Poolside is set to be at the heart of this paradigm shift, with the goal of bringing more liquidity off the sidelines and rewarding LPs, rather than compensating them for their losses. With the recent proliferation of liquid staking protocols, it’s clear that DeFi is ready to operate using the most productive versions of assets. Why not earn fees from swaps alongside interest or rewards from other protocols?
This shift has yet to happen because current-generation AMMs cannot handle the best versions of assets. The kind that earns rewards, interest, yield, and more.
In traditional finance, the majority of financial instruments are value-accruing and elastic. Everything from money supply to treasury bills operates as elastic assets. Our protocol provides the legitimate infrastructure to rehome these types of instruments on-chain. Imagine being a DEX that ignores the possibility of assets with notional values in the trillions of dollars.
We have a lot planned for Poolside in the coming weeks. So please subscribe and stay tuned as we bring the Poolside Party to DeFi!
Find all of the helpful information you need here: https://linktr.ee/buttondefi
Thanks for reading! Subscribe for free to receive news and updates about Poolside!