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Fluidity Wars
Fluidity Wars, Utility Mining, Curve Wars and a snapshot of the present state of liquidity mining and DeFi.
Let's have a look at Curve Wars. Curve’s governance, attractive yields, and token lockup distribution system are and will be a prominent manner of moving liquidity within the crypto space. It also allows for protocols to create attractive liquidity mining programs.
Liquidity, however, is not directly correlated to users. It is also important to note that protocols sustaining liquidity mining programs usually see a brief spike in users without creating stickiness, as well as having costly liquidity mining programs.
Protocols can utilise Fluidity’s ‘Utility Mining’ to distribute their Governance Tokens to end-users and attract new users to their protocols.
Curve Wars focuses on where liquidity moves in the DeFi space, Fluidity is about where users move in the space, and luckily for us, users have a direct positive correlation with liquidity and its flow.
In the Fluidity ecosystem**,** Utility Mining **** rewards users with governance tokens and other incentives, such as higher yield, when targeted on-chain interactions are taken by a user.
For example: Using a Fluid Asset, performing a specific action in the protocol (Swapping a certain pair, transacting a certain amount, etc.).
Other protocols can also utilise Utility Mining to provide a fairer mechanism for the distribution of their Governance Tokens to end-users and attract new users to their protocols, helping bootstrap themselves.
Example: Users swapping on an AMM can earn supplement yield in native tokens through Fluidity. Allowing an AMM to target users, revenue and liquidity to be moved.
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As Fluidity allows for user attention and behaviour to be incentivized, protocols can capture users by participating in the Fluidity governance mechanism and affecting how the Utility Mining mechanism behaves. In Fluidity, governance tokens, yield and rewards are extracted through actions, this means that specific action can pay higher yield than other actions, allowing protocols to consolidate user attention.\
An example outcome of Fluidity Governance can result in users of Fluid Assets on Sushiswap receiving higher expected outcome and payouts than users of Uniswap. This results in potentially users of Fluid Assets on Uniswap migrating to Sushiswap to capture higher emissions and yield, when they trade using Fluid Assets.
A secondary example outcome of Fluidity Governance can result in users of Fluid Frax receiving higher expected outcome or governance token emissions that users of Fluid USDT for the same actions. (A $1000 trade using Fluid Frax (fFRAX) results in higher expected outcome/yield than a $1000 trade using Fluid USDT (fUSDT). This creates more demand for fFRAX and FRAX.
The decisions can be extrapolated to different chains, and dApps (such as NFT Marketplaces, or games).
As Fluidity allows protocols to capture user attention and eventually incentivize specific behaviour, this can have significant effect on how protocols engage with Fluidity governance mechanism. Given critical mass of Fluid assets in circulation. protocols can significantly be affected by the outcome of Fluidity Governance. Contrary to Curve Wars, that affects liquidity on specific stable coins pairs, the outcome of Fluidity Wars can effect products ranging from Dexes, NFT Marketplaces and even specific Stable Coins.
Rational users will aim towards maximizing their expected outcome and yield from participating in the Fluidity ecosystem, this may cause protocols to lose or gain users, revenue. liquidity and network effects as users migrate or react to the yield/ emission changes.
To receive yield using Fluid Assets, actions need to be taken such as swaps, trades, transfers, purchases, hence as users migrate, so does revenue and liquidity, as a second order effect. Theoretically users will concentrate their activity in the higher yield bearing actions/ protocols, this suggests that potentially revenue and liquidity will also be concentrated as LPs move to capture this change.
Last modified 8mo ago