Call Notes:
Overview:
Yield farming is the act of staking or lending your crypto assets to receive interest payments
Sources of DeFi yields: yield farming, LPing, and staking/lending
Several projects offer substantial inflationary incentives, resulting in sell pressure which decreases the price of their tokens without providing long-term benefits
The current bear market and the catastrophic collapse of the Terra stablecoin highlighted the shortcomings of the present DeFi ecosystem
People have started to pay more attention to the “real yield” methodology that rewards stakeholders based on recent revenue generated
A percentage of a protocol’s revenue, which may be earned by staking or locking their governance token, is distributed to users
DeFi projects should generate more revenue than they consume, just like any sustainable business strategy
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Bob Baxley
Academic background in signal processing and machine learning
Entered into crypto in 2016/17
Building Maverick Protocol
An Automated Maker Maker (AMM) that allows users to choose not just which ranges of prices they stake but also how their liquidity moves around as the price of an asset pair moves - increases price efficiency and generates more fees for liquidity providers (LP)
Bob has been a liquidity provider himself for a while
LPs yield farm, so they want to be where the best incentives are but also want it where the volume is so they can benefit from fees
Wanted to give LPs the ability to maximize their capital efficiency and choose how it moves with the price
Where does yield come from in DeFi?
The Real Yield narrative is taking over, and ponzinomics is dying
Yield used to come from artificial sources - printing and emitting tokens at ridiculous APYs, which was unsustainable.- last person out was the loser
Yield needs to come from real utility
Revenue is redistributed to users/stakers/gamers
Different yield models
Bob stated that Step 1 for a protocol = decide how you will provide real utility & Step 2 is how you distribute it
A fundamental question for protocols: What do you want to incentivize with this yield?
Things like governance participation, adding liquidity, traders (rarely), and directing liquidity are all things incentivized with yield return
Bob said he found it interesting that in the last 2-3 years, there's been heavy innovation in how you do a decentralized version of these incentivized activities - if you want more TVL, how do you use your yield to do so?
What behaviors do you want to encourage?
Past narrative in yield generation
Yield 1.0: you stake your tokens and receive emissions for it, this was ponzinomics as eventually, people want to sell, and that’ll crash it
Yield 2.0: a protocol should own its liquidity, not just rent it
The next evolution was locking LP tokens for yield - if the emissions fall in price, you will sell your token
If there are price fluctuations in the tokens you deposited, you’re vulnerable to that also
So Bob thinks the next stage is utilizing the locking mechanism correctly - if you want to earn yield, you must lock your tokens
A long-term lock like this eliminates short-term and random sell pressure
Bob mentions that the goal is to have people continue using the protocol and discourage mercenary capital (capital only focused on yield) that is highly yield sensitive
Maverick - What are you building?
DEX based on a novel Automated Market Maker to provide LPs with higher capital efficiency and greater capital control
Bob stated that existing AMMs don’t give liquidity providers enough flexibility:
In TradFi, instead of AMMs they have central limit order books and limit orders
To fill an order, somebody needs to come in and buy the market price, the market maker makes money on the spread, and the user gets their order filled
For crypto, there is no spread, so AMMs must make money on fees
In order books, you can control liquidity distribution to create an asymmetric spread to protect yourself from risk on the opposing side
If you're bullish, you’ll weigh the spread in favor of this - this is what Maverick is trying to achieve within an AMM model
There’s an idea in crypto that fixed fees are best because they simplify the process of LPing
But in TradFi, market makers make the most money in really volatile markets when there’s a ton of volume. In these periods, the spread widens and they make more money from it.
The equivalent of this in the AMM world is that you need to move your capital to a higher fee tier pool or somehow charge more fee during periods of volatility when people will be willing to pay a higher fee.
So Maverick offers two things:
Power to set the distribution of your liquidity and direct liquidity to move with the price natively
Greater fee flexibility so you can react as the market moves
Competition and how does Maverick stand out?
There's a whole class of AMMs with fixed or parameterized bonding curves, like the XY=K curve, with little flexibility
Maverick is the next generation of AMMs, offering absolute flexibility for liquidity providers by providing a directional LPing mechanism and flexible fee tiers to help LPs maximize capital efficiency
The Maverick community is quite large - thousands participating on testnet, and mainnet is coming end of 2022 or early 2023
The legal stuff - the regulatory future of DeFi?
Bob said it was clear that the CFTC wouldn't tolerate any on-chain derivatives
The regulatory space is still in flux, and the current world of AMMs may have set precedence as being okay, but it’s still up for debate
The US regulators are still figuring things out, which is slightly scary for DeFi, but it's still early
Bob stated there is so much innovation to come from this space, so we have to hope it isn’t stifled by reckless regulation
Final thoughts
Yield allocation will be important going forward - either % is allocated to the significant parts of the protocol, or there is a voting mechanism for allocating
Longer lock models are working the best right now
Innovation in both lock-up and yield distribution will continue to perfect it
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