🔮Why Fluidity?

What is the opportunity cost for using Fluidity? and where is this yield coming from?

At times in the present DeFi ecosystem, it may seem that incentives are misaligned.

While NFTs and cryptocurrencies are in the public’s eyes, they are being utilised as speculative instruments, instead of their intended utility. Due to the potential of growth, users tend to not spend their crypto assets as the speculative value that they hold is exponentially higher than that of momentary purchases.

In a user’s perspective, it would be equivalent to selling a portion of their house to buy pizza, rather than an expendable and fungible asset class.

TL;DR: Before now, there was no incentive to spend.

What is the opportunity cost for using Fluidity?

A person could be holding a yield-bearing asset for the period of time that they hold an asset. Someone could be earning interest and using that to pay through an asset such as aDAI, or through the means of a yield generating asset.

That is the opportunity cost of utilising a fluid asset to transact with.

Instead, what Fluidity does is aggregate the interest of the people that aren't spending or staking their base assets in the first place. The interest generated is coming from somewhere where someone might be losing.

Even if a user is holding small interest-bearing assets for microtransactions, the opportunity cost from not receiving immediate yield from the small valued interest-bearing asset is so low that users don’t lose from participating in the Fluidity ecosystem.

Would a user be willing to lose that opportunity to participate in Fluidity? Is there a potential expected outcome of at least 10x of using our system? Their downside is technically 0.

Example:

You have $1000 in USDC that you plan on using for various purchases such as NFTs or retail purchases. You could arguably keep your USDC in lending protocols and withdraw it every time you want to spend some of it, but the rewards would likely be measured in cents and depending on the fees and gas the rewards would likely be less that the cost of deposits and withdrawals.

If that asset were to be swapped into a Fluid version of the base asset, and utilised within a transaction, the user is then subjected to a potential reward as well as having the ability to swap back to their base asset at any time. They have basically lost half a cent, while being exposed to a much higher odds of winning a much larger yield reward. Hence the opportunity cost is extremely low.

Even if a user planned on only temporarily interacting with Fluid assets, they can also see that the opportunity cost would be extremely low. Take the USDC example in the same light as aDAI, rewarding the user a 5% APY for simply holding the token within that same 1 hour period that they were to interact with Fluid assets instead. By holding that yield generating asset for the specified period, you would have generated a return of USD$0.05.

As a side note, it is important to mention that a user holding a fluid asset would have an even lower opportunity cost for participating, as they are more likely to transact due to the mechanism presented to them.

The way someone would use on-chain assets then becomes the opposite of staking.

The novelty is that you are now having a system that rewards users for transacting.

Even if there were to be an innovation in staking or intermediary transitions, Fluidity would still have the upper hand when it comes to the opportunity cost due to the high-value proposition of rewarding transactions.