Utilizing Excess Liquidity: An Introduction to tETH
Evolution Finance will be utilizing locked liquidity and a token transfer-fee token model. There are many benefits to this, especially deflationary farming, staking, and staking incentives.
The token transfer-fee enables the Evolution money market to incentivize deposits, just like Compound Finance, but without inflating token supply.
The locked liquidity model has been successfully demonstrated by several recent projects. Though, like most novel ideas, the locked liquidity model has some issues that need to be addressed. The primary issue is the excess liquidity generated by this model, and this article covers how Evolution Finance accesses and makes use of it.
Assessing an Example
The team at Rootkit Finance utilized a wrapped version of ETH ERC-31337, which they called kETH, to gain access to excess liquidity that gets locked into Uniswap pools. Since its launch, Rookit has used kETH to expand liquidity by over five times the initial amount locked, peaking at $42M, thereby creating great value support for the token along the way.
Locked liquidity, combined with the accessibility of the excess ETH, produces an ideal model to set a foundation for new projects, which can then help in building out key products at a faster pace. To gain access to any excess ETH locked into liquidity pools, Evolution Finance will be using tETH.
Surplus ETH will be acquired to further develop the lending platform, and generate greater token support.
How is Excess Liquidity Created?
Whenever a trader uses the swap interface on Uniswap to buy tokens, they pay a 0.3% fee to the people who provided liquidity to Uniswap’s liquidity pools. A locked liquidity model causes fees generated by the Uniswap pool to remain in the pool.
As more and more fees build up, the token price floor grows
Evolution Finance will be utilizing a vault that will allow people to add liquidity to the EVN:ETH pool on Uniswap and then liquidity will be managed with the second pair, EVN:tETH.
Whenever someone deposits EVN:ETH LP tokens to the vault, he/she permanently locks of all the liquidity in the pool. In exchange for using the Evolution Finance vault to lock their liquidity on the Uniswap liquidity pools, traders will receive EVNY tokens, which earn 1% of all EVN transfer volume.
Whenever traders on Uniswap will swap one of the tokens from the EVN:ETH pools, they will be charged a 0.3% fee, and it will remain locked in the pool, further locking supply into the liquidity pool.
As more fees are paid out, the locked liquidity will increase and raise the price floor of EVN tokens. The continuous addition of liquidity through Uniswap fees creates the excess liquidity locked in the Uniswap pool.
The combination of more locked EVN plus the token burn can drastically reduce the circulating supply and increase the price floor of EVN.
Managing Excess Liquidity
Over time, locked liquidity models tend to generate large amounts of excess liquidity, and if not dealt with, that liquidity (ETH) just sits there as an idle asset.
The last thing any investor wants is for a part of the ecosystem’s value to be idle, therefore dealing with this excess liquidity is fundamental to the accelerated success of the project.
Evolution Finance will be using a wrapped version of ETH called tETH to help manage all the excess ETH generated by fees on Uniswap, increased liquidity and token burns. The tETH will act as a synthetic asset that will mimic the price and price fluctuations of the underlying ETH. This tETH can also be redeemed for the underlying ETH locked in the Uniswap liquidity pools (below the price floor only) by the protocol at any time.
Gaining access to the excess liquidity will allow the platform to put the ETH back into the token ecosystem, so that the community can benefit. For example, Evolution Finance will take the excess ETH generated, continue to build out the lending platform, and increase the value of the EVN token through additional liquidity, buy backs and further reducing EVN supply.
Evolution of Token Ecosystems
Evolution Finance is taking the highly innovative world of DeFi onto the next phase of its evolution.
Even though DeFi created a paradigm shift in the world of Finance and blockchain, it still uses an archaic inflationary token economic model. Evolution finance is using the locked liquidity model to create the first decentralized borrowing and lending platform that offers a deflationary token economy.
Locked Liquidity models will soon prove to be the superior method to manage a token economy.
Evolution Finance has thoroughly assessed locked liquidity token models to find their shortcomings and is now working with the lead developer of Rootkit to maximize value.
Having access to the excess liquidity in a liquidity lock system opens up various new options that can be used to increase the value of a system. For example, ETH from the excess liquidity can be used to buy more tokens that are then added back to liquidity.
Repeating this simple process on a loop with all the ETH in excess liquidity will give a multiplied buying power on the ETH, without ever needing to sell. This will also thicken the order books, increasing the capital requirement needed to provide support to the token.
When combined with a burn-on-transfer mechanic, new ETH is moved below the floor on every transaction. The uniswap trade fee also moves directly under the floor, immediately available for extraction while at the same time increasing token value.
The ERC-31337 concept behind tETH and kETH is new and still being explored, but it has already been proven safe and flexible. High value and extremely deep liquidity markets can now be created in AMMs like Uniswap. These can be made in a completely safe manner without needing the full liquidity to support the price all the way up. Evolution Finance and Rootkit are the first of many systems that will use their own wrapped version of ETH to provide massive extra value to their tokens.
Learn More
The development partners of Evolution Finance are DAO Maker, Ferrum Network, and Blockchain Strategy Team. The security partners are Arcadia Group and CipherBlade and one of the initially planned liquidity partners is HBK-GoChain, a $100M+ AUM fund.
Website: http://evolution.finance/
Telegram Chat: https://t.me/evolutionfinance
Twitter: https://twitter.com/evn_finance
