Tokemak Basics

Tokemak is a protocol that enables sustainable DeFi liquidity

Introduction to Tokemak

Tokemak v2 has been developed as an enhanced system to provide optimized solutions for both liquidity providers (LPs) and Decentralized Autonomous Organizations (DAOs). This system introduces a new concept called Liquidity Management Pools (LMPs), focusing on two specific products: Autopilot and DAO Liquidity Marketplace.

Autopilot is a dynamic pool allocator that optimizes returns for LPs across different pools and decentralized exchanges (DEXs). The DAO Liquidity Marketplace is a liquidity order book enabling DAOs to rent liquidity at a transparent market rate.

Currently, DAOs acquire liquidity through gauge systems which incentivize LPs to provide liquidity to specific pools. However, this strategy presents limitations, including unknown depth of liquidity, lack of flexibility for adjustments, and delayed response to changes in liquidity needs.

LPs, on the other hand, encounter challenges in maintaining exposure to pegged assets (like ETH LST pools) and capturing variance in yields across pools due to high gas costs and complex rebalancing logic.

Tokemak v2 addresses these issues through LMPs, offering DAOs more control and flexibility over liquidity, and simplifying liquidity provision for LPs. Initially, Tokemak v2 will focus on liquidity for ETH liquid staking tokens (LSTs), providing a solution for LPs seeking dynamic and optimal exposure to ETH and equipping LST protocols with new tools for liquidity management.

The Autopilot is a liquidity provider (LP)-centric utility that automatically rebalances liquidity across different assets, pools, and decentralized exchanges (DEXs) within a given Liquidity Management Pool (LMP). It achieves this by considering several factors such as yields, exchange rate, slippage, and required liquidity constraints. Through this rebalancing, Autopilot reacts to market dynamics and captures variable yields across different pools. This utility simplifies the experience for LPs, optimizes returns, and ensures sustainable liquidity sourcing.

The DAO Liquidity Marketplace is a novel approach to liquidity management for DAOs, enabling them to rent liquidity in real-time at a transparent rate. The marketplace uses a system through which buyers can bid for liquidity at the current liquidity rate, effectively skipping indirect incentive mechanisms. The rate is sensitive to supply and demand, increasing when demand is high and decreasing when supply is high.

The proposed TOKE tokenomics model allows users to stake TOKE tokens as collateral for LMPs according to individual risk preferences. In return, stakers receive LMP-specific performance fees for potential slashing risks. There is a mechanism to handle slashing events, where the backing asset is moved into a vesting contract and then vests over time. Additionally, a TOKE LMP can be created to optimize returns for TOKE stakers.

Tokemak's product rollout will be sequenced, starting with the Autopilot, followed by the DAO Liquidity Marketplace. Initially, the rollout will focus on pegged asset pools for ETH LMPs, with plans to expand to stablecoins, more stable pools, and volatile pairs. Future developments include swift expansion to multiple L2s and their native DEXs.