Taking the Headache Out of Tokenomics: How Founders Can Leverage the DeFi Terminal for Staking and Liquidity Solutions
New and recently-launched projects can use staking and liquidity mining to stabilize their liquidity, leveraging AllianceBlock’s DeFi Terminal’s chain-agnostic solution.
Welcome to the third in a series of blogs highlighting potential use cases for the DeFi Terminal and how different projects can use staking and liquidity mining to their benefit.
In the previous instalments, we’ve discussed how the DeFi Terminal can benefit launchpads, providing greater benefits for builders and their communities. In the use case for GameFi, we’ve highlighted how builders can create inclusive and immersive experiences in their games using staking. In this edition, we are broadening our focus to new projects coming into the space in need of staking and liquidity mining campaign infrastructure.
For Web3 entrepreneurs, the learning curve is steep, and builders need to learn fast. In a relatively young industry, there is no Chamber of Commerce that builders can consult with to understand the basics of the crypto industry or follow a typical path to success. Founders generally start by researching on the internet, joining Telegram groups and participating in Discord discussions — fellow crypto enthusiasts are a rich source of knowledge and insights.
Given the number of platforms and apps in the space now, it’s difficult to quantify how many new projects are coming onto the market each week. CoinMarketCap currently lists over 20,000 tokens, but it’s unclear how many are active. While many aren’t likely to meet AllianceBlock’s criteria for participation in our ecosystem, other metrics also point to the size of the addressable market. For example, in 2021, 1,700 blockchain-based projects secured venture capital funding, with a further 461 following in the first quarter of this year. In the recent Crypto Fundraising Report by Messari and Dove Metrics, fundraising activities in the first two quarters of 2022 topped at US$30.3B, even outpacing the growth for the whole of 2021.
In addition, while most builders have a good understanding of the business process they want to bring to the blockchain, they struggle with token economics. It’s easy to overlook the do’s and dont’s in keeping a project’s liquidity healthy and stable.
In this article, we aim to equip up-and-coming Web3 entrepreneurs with the essential information regarding owning and managing a token and introduce the benefits of staking and liquidity mining on the AllianceBlock DeFi Terminal. We’ve seen that funding for blockchain and crypto-related projects grew as adoption widened over the past few years, coinciding with the success in the sector. It’s easier to launch, with the ongoing improvements in the technology stack and the widespread availability of token launchpads.
Many think raising capital is the hard part of launching a project with a token, but this is often only the beginning of the journey. Keeping the liquidity stable on exchanges and maintaining sustainable growth in the business is difficult. Effective token management requires carefully-designed incentives to protect from low liquidity and ensure that the community of holders keeps engaging with the project. These activities are always ongoing, and founders can often overlook or underestimate how important they are, resulting in a loss of liquidity after the initial funding round and listing on exchanges.
Why staking?
After successfully launching a token, it is essential to maintain the health of the initial liquidity on exchanges. Based on our experience, an optimal way to keep liquidity stable and healthy is by incentivizing communities with the right rewards and benefits.
This is where staking comes in. Staking enables token holders to lock up their tokens for a certain period in exchange for additional token rewards. These token rewards can also be other project tokens or tokens related to governance, access, and utility. Staking campaigns help make projects more inclusive, offering multiple ways and incentives for their community to participate actively. In turn, their communities are also helping them keep their liquidity on exchanges stable and providing more availability for the project’s tokens.
Projects can anticipate the start and end of staking campaigns in line with their token’s vesting schedule. When a significant amount of tokens is vested, a reward campaign could be available for the project’s community to participate in. With communities often looking for available campaigns, setting up regular campaigns allows users to keep supporting the project.
Liquidity Mining
Liquidity mining is another vital function in tokenomics. While projects often provide the initial liquidity on exchanges, their users and community could provide additional liquidity. Most projects set up liquidity pools with their token and a stablecoin like USDT or USDC. A token pool with a stablecoin makes it easy for users to swap for the project’s token. Alternatively, projects can set up a pool with the token of a project partner to show the collaboration between them.
In the early stages, projects need to choose the network and DEX on which they will set up their liquidity pools. This depends mainly on where the project has launched its token and which networks they will support. For projects launching on Ethereum, Uniswap and Balancer are popular exchanges; BSC has Pancakeswap; Avalanche has Pangolin and Trader Joe; Polygon has Quickswap; EnergyWeb has AllianceBlock DEX; Moonbeam has Solarbeam.
Regardless of the tokens in the pool, in return for providing these tokens, users receive a liquidity provider (LP) token, provided automatically by the DEX smart contract. Liquidity providers can earn more project tokens as rewards by staking this LP token. Similar to staking campaigns, liquidity providers can receive additional tokens related to governance, access and utility. This program allows more users to provide liquidity, on top of the exchange fees they earn, they are rewarded with additional tokens for participation.
Liquidity providers, however, are exposed to an additional risk called impermanent loss or IL. Put simply, IL is the difference between providing liquidity versus holding the asset. For more information on impermanent loss, we have embedded a video below from Finematics. You can also check out this article from Coinmarketcap’s Alexandria.
https://www.youtube.com/watch?v=8XJ1MSTEuU0
Because of this additional risk, projects could design liquidity mining campaigns to cover IL and provide additional rewards to counteract or mitigate it.
The benefits of a multi-chain approach
There are several considerations when choosing a specific network. Ethereum is still often the first choice for most decentralized applications. However, maintaining liquidity on Ethereum requires liquidity providers to pay for Ethereum’s high gas fees, which is unappealing to smaller participants.
If you’re looking to tap into the long tail of smaller liquidity participants, the BNB Smart Chain or Polygon networks are attractive options. Avalanche is building an extensive developer ecosystem on their network, and Energy Web is focused on working with projects in the energy sector.
Therefore, it might be in the project’s interest to operate on multiple chains. Adopting a multichain strategy has become a potential route to success for leading dApps in various industry segments over the past few years. In the DeFi sector, four out of the five top-ranked dApps by liquidity operate on multiple chains — Lido, Aave, Uniswap, and Curve. Similarly, the biggest NFT marketplaces, including Opensea, Rarible, and SuperRare have found success by adopting a multichain approach. Axie Infinity, a popular blockchain game, built its Ronin chain out of necessity and thus became multichain. Still, new up-and-coming projects like Blockchain Monster Hunt are launching with multichain support as part of their core offering.
Multichain support allows dApp users to choose which platform they want to use based on factors like fees or speed, appealing to a larger base across many ecosystems. Operating multiple pools makes liquidity more important, creating a more compelling case for designing incentive programs and choosing the right platforms that will attract liquidity providers.
AllianceBlock’s solutions make it easy to get started
We have so far covered how staking and liquidity mining can help keep your liquidity healthy and stable on exchanges. However, the additional development resource and overhead needed to create these smart contracts and protocols take away from the core product development of young startups. Moreover, developing custom solutions for these protocols can be costly and may introduce potential security issues. While we’ve established the benefits to having these campaigns, especially for new projects, the complexity and development overhead often lead to roadmap delays and expensive development costs.
AllianceBlock offers a liquidity mining and staking solution that makes it quick and easy to launch your own campaigns. It removes development overhead to let new projects focus on their core product and business development goals. Builders can utilize our no-code solutions or SDKs to introduce liquidity mining and staking for their apps and take advantage of use cases powered by these protocols.
Easy to Setup: With the DeFi Terminal, projects can launch liquidity mining and staking campaigns in less than an hour. With a few steps, our no-code solution can deploy campaigns quickly, preserving development bandwidth so builders can keep focusing on product development, their core expertise.
Branded Campaigns: New projects can easily create a portal that matches the look and feel of their brand. This means that builders can create a trustful environment for their token holders. With a great user experience, users can quickly navigate the portal and participate seamlessly in the campaigns.
Secure Smart Contracts: Security is of utmost importance for any developer, especially in blockchain applications. Our smart contracts are regularly internally and externally audited, and we use them for our own campaigns. We also offer the option for multisig wallets for added security. In addition, builders own the deployed smart contract, which anyone can inspect through blockchain explorers. Our 16 clients have launched over 99 campaigns on the DeFi Terminal, which they deployed themselves (in a few clicks) that we don’t have access to.
Made for New Projects: Our solutions offer features built with young blockchain startups in mind. Builders can set up their accounts once, schedule multiple campaigns, and even provide multi-token rewards. We can help design a successful campaign with tools such as our APY calculator and data extraction.
Made for Community: Our DeFi Terminal is the portal where retail users from the wider crypto communities could participate in liquidity mining and staking campaigns launched by our client projects and partners. All campaigns are listed on the Terminal, where it’s featured next to similar projects, increasing exposure to more potential participants.
Made for Developers: We offer an SDK for our Liquidity Mining and Staking Protocols, the same one that powers our no-code solution. Builders can integrate the liquidity mining and staking protocols directly into their applications whilst taking advantage of secure and audited smart contracts.
In addition to the DeFi Terminal, we have a Bridge that supports eight networks, making it easy to adopt a multichain approach. The DeFi Terminal works in tandem with the Bridge to make it easy for projects to deploy campaigns on multiple networks while making it easy to move tokens across those networks for the project and their users.
We launched our proprietary DEX with a custom automated market maker (AMM) algorithm that works to mitigate impermanent loss. This makes it more attractive for users to provide liquidity to the project’s pools. In turn, projects could create liquidity mining campaigns on top of this, both mitigating IL for their communities whilst also providing additional rewards.
We are developing the Single-Sided Liquidity Provisioning (SSLP) Protocol, which allows users to provide only one of the tokens in the pool for liquidity. This works by matching the liquidity provided with other users who have provided other tokens in the pool. This will be deployed on both the DeFi Terminal and the DEX, enabling the benefits of providing a single token while mitigating the additional risk of impermanent loss.
Your Next Steps
Interest in blockchain development continues to grow, even amidst the current bear market in crypto. And with the ongoing improvements in the technology stack, as well as wider adoption of decentralized apps, we anticipate growth in the coming years.
The AllianceBlock DeFi Terminal enables new projects to create a holistic package of incentives to stabilize liquidity and create appealing rewards for their community. Ultimately, founders are freed from the workload of token management to focus on their core business and deliver on their roadmap.
Our core mission at AllianceBlock is to develop an end-to-end infrastructure for blockchain that enables builders to accelerate their roadmap. The DeFi Terminal offers an easy-to-setup, branded, secure and fully-integrable solution that allows projects and developers to launch a campaign within an hour.
Are you interested in learning more about how the DeFi Terminal and our suite of solutions can accelerate your roadmap? Book a meeting with our team here. You can also find more information on our website here.
For more DeFi Terminal use cases, we have published an article on how launchpads can take advantage of the DeFi Terminal by offering rewards for their project and community. We published an article explaining how our staking solution could help create inclusive and immersive experiences for GameFi applications.
Our clients are already taking advantage of these use cases, and we’re looking forward to your project utilizing our liquidity mining and staking solution.
About AllianceBlock
AllianceBlock is bridging the gap between decentralized and traditional finance by remedying issues in both spheres and linking them more closely. They see the future of finance as an integrated system in which the best of both worlds can work together to increase capital flows and technological innovation.
They are building this future by bridging traditional finance with compliant, data-driven access to new decentralized markets, DeFi projects and ecosystem-scaling tools such as funding and interoperability. As such, they are building a next-generation financial infrastructure that aims to provide regulated financial entities worldwide with the tools they need to access the DeFi space seamlessly.
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