Considerably better bribery

tl;dr

Everyone who has liquidity on almost any pair, for which there hasn’t so far been rewards, involving $FRY or $dEth, will be eligible for an airdrop of levr.ly tokens in proportion to the size, duration and profitability of their position.

Yield farming

Yield farming, man, what a genius concept. You have some product that needs either a user network or liquidity to be useful to others, you can attract those people or that capital by giving the a slice of the pie you’re baking.

One of the most interesting trends I’ve been seeing is the increase of EVM compatible L1 networks (AVAX, MATIC, FTM) to hand out their tokens to participants who hold various products from LP positions to debt positions on their networks. Thanks to these incentives you can essentially hold large leveraged positions that actually pay you a positive interest rate! Sometimes even on stable coin pairs!

Yield farming is an ingenious way to pull in users when you have to start from scratch. The only argument I can currently see that might crack Ethereum’s dominance is when a chain that can scale, and is fully EVM compatible, like Avalanche, can bribe enough users over and scale before Eth2 goes live.

But…

The problem with yield farming for (currently) smaller operations like Foundry is that the mechanisms by which these rewards are distributed are extremely inefficient. They are inefficient in four ways.

Firstly they cost a lot of gas for users to participate. While gas costs don’t necessarily scare off capital, it severely dents the number of individual users who can participate.

Secondly they are expensive to implement, you typically need to find, modify and deploy a yield farming contract that does what you want to do. Any modifications needing some level of audit to guarantee funds are safe. If you want yield farming on something like Uni v3 you also can’t use the same contracts the industry has been using in the years prior to Uni v3. On top of all the smart contract work, you also need a reliable and pretty UI.

Thirdly, they aren’t cross chain and cross app. We can’t implement rewards uniformly, in proportion to the usefulness of the liquidity or locked value the users is providing. We would need to deploy a staking strategy for each chain, rollup and AMM combination out there.

Lastly (4), and most tragically, they don’t allow the market to be as intelligent as it wants to be. Let’s say we want to incentivise $dEth AMM liquidity and increase TVL, given the current set of tools. We would need to first pick a chain or rollup, we need to then pick an AMM, we need to deploy tools for it, possibly audit those and we need to write a UI for that system. But after ALL that effort, the market might actually be doing something entirely different on a rollup and AMM we didn’t think to cover, simply because there’s more yield. One of the best things about DeFi is the market intelligence and the way we’re doing farming now has lost the capability to leverage that.

How we intend to fix this.

Thanks to the overwhelming amount of intelligent people in the Ethereum ecosystem, we now have great tools like the Merkle Drop. A Merkle Drop is a very efficient means to distribute tokens. Essentially a list of recipients is constructed off-chain and a small proof is published to the blockchain. That small proof can then be used by recipients to claim their rewards.

This opens up a world of possibilities.

Firstly, we can construct far more elaborate queries, based on off-chain data, to see what was or wasn’t constructive liquidity provision. If trade were happen on some new platform or new rollup we didn’t anticipate, that can be easily factored in without a development cost or a gas cost.

Secondly, we can drop rewards on any EVM compatible rollup or EVM compatible chain. For instance, we can hand out wrapped $FRY on Matic/Polygon at very little aggregate cost to either Foundry or the LPs claiming it.

Thirdly, we can make rewards more multifaceted. We can for instance airdrop tokens to all distinct users (similar to how Uniswap did it), we can provide other rewards based on TVL and yet others based on how productive of an LP position someone created on Uniswap or any other AMM.

All of this from existing, audited smart contracts.

What needs to happen next

We’re currently in the process of setting up the Foundry DAO governance v0.5. Essentially delegatable token voting on a Compound based DAO. This will finally allow $FRY holders to direct the treasury and its funds.

Once this is done one of the first things to run by the token holders is how exiting products like SmokeSignal, Permapost and DAIHard will exist in relationship to $FRY. Currently, my personal thinking is that it would be better to spin all of these off into their own DAOs, of which Foundry gets a significant stake.

The above plan is already how levr.ly is being designed. Levr.ly, for those of you who aren’t caught up, is a product Foundry has funded, the first version of which is the dEth contract. Levr.ly will provide generic long-short pair tokens. It will be governed by a fair launch token of which Foundry will receive a significant chunk.

We then need to build a reporting website that puts together the various identifiable sources of productive liquidity across the tokens.

What that means for existing Foundry LPs

I will put out a future post and video about the how the levr.ly product’s value accrual token will be generated. For now know that its governance token will be extremely rare and will have a very high liquidity-to-market-cap ratio by design, meaning if you got your hands on any it was likely due to real effort or risk you expended.

levr.ly’s governance contract will own a separate treasury (in addition to its normal treasury), intended purely to reward people who either hold levr.ly long/short tokens (LSPs henceforth), providing TVL or who provide liquidity on for LSPs. The first LSP is live today in the form of the dEth contract.

The yield farming for the Foundry pool that ended in September will be eligible for the initial drop of levr.ly tokens, as will any of the unrewarded LP tokens that people have for $FRY on Uniswap v2. The rewards will be distributed via Merkle drop and we will communicate the calculations as we formulate them.

Right now, calculating the yield on LPing will be impossible as we still need to finish and deploy the levr.ly token generation system (another post on this and the rest of levr.ly should be out soon).

So what do liquidity providers have to do?

If you’re already providing liquidity, nothing. You can leave your liquidity, on $FRY or $dEth where it is now. We will build a report that reflects the share of the $LEVR rewards you are eligible for soon.