Understand the three major liquidity solutions: Olympus, Tokemak and Fei&Ondo

Improving liquidity is one of the main goals of any developed financial market. Essentially, “I want to make this transaction as cheap as possible, and I need liquidity on the other side.” This applies not only to trading tokens, but also to lending, derivatives, and structured products.

For young DeFi projects, liquidity is especially important. They hope that new users and pledgers can enter the market with their growth.

This article shows how DeFi has solved the liquidity problem in the past, and how projects such as Fei, Ondo Finance, OlympusDAO, and Tokemak can solve it in the next wave of DeFi.

Liquid mining and hired capital

A major catalyst for DeFi is that Compound began issuing COMP tokens to suppliers and borrowers in its loan market. This is the first “liquid mining” activity-exchange project ownership for temporary liquidity.

The problem is that liquid mining is expensive and expensive.

From a consumer’s point of view, “income farming” is the best strategy, which can transfer funds to the place where the liquidity mining rewards get the most rewards. But this also leads to the tendency of capital to leave immediately after the reward ends. In addition, as the tokens continue to be dumped into the market, there will be a slow bleeding effect. As we all know, competition is excellent for consumers, but it is difficult for enterprises (agreements). Competition also encourages innovation, as we will see later in this article.

Even with high costs, guiding the user base has never been easy. In the summer of 2020, DeFi ushered in a wave of development. A new project only needs to start a token and give away 10-50% of it, and you can instantly have hundreds of millions of TVL. Driven by innovative gameplay such as farming and agriculture, the new DeFi project ushered in the Cambrian outbreak.

But this phenomenon is unsustainable. Project parties and investors are becoming more and more aware of the harm caused by liquid mining to the long-term development of the project, and are looking for solutions.

New ways to improve liquidity

How to solve the problems of employing capital is also an integral part of the future development of DeFi, which has recently been called DeFi 2.0. These new protocols are at a higher position in the DeFi stack. They can use the scale and network effects of the DeFi protocol at the base layer to solve liquidity problems and obtain higher market efficiency.

The project party had to pay high fees for employment liquidity before, and now they can take the following measures:

1. Buy their liquidity directly

2. Rent from an agreement that can provide the cheapest and highest quality liquidity

The former method is called agreement-controlled liquidity (or agreement-controlled value, agreement-controlled assets). For example, Fei Protocol, OlympusDAO and Frax Finance are all supported by this method, and their tokens have extremely high liquidity per unit of TVL.

The latter method of leasing liquidity is called Liquidity as a Service (LaaS). LaaS can be very efficient when services are provided by specialized protocols (such as Fei and Tokemak).

Note: There are many ways to solve the employment capital problem, including options and hedging. This article only focuses on a few methods of popular projects.

Liquidity through the Olympus Pro protocol

Olympus Pro uses the OlympusDAO bond mechanism to provide the project with the opportunity to obtain its own agreement liquidity. Project parties can exchange their tokens for any type of LP tokens or underlying assets they want at a discounted price. Compared with traditional liquid mining, this is a huge improvement. Previously, the project party could not retain any liquidity of hired capital.

The underlying token in the Olympus Pro bond does not need to have any relationship with the OHM token, but the project can be paired with OHM or sOHM to access the OlympusDAO ecosystem.

Traditional liquidity mining requires high upfront costs without any return. Olympus Pro subverts the way that liquidity mining rewards costs, and it shifts the burden of the agreement to the liquidity owned by a more sustainable agreement. Here, the protocol can use native tokens to permanently obtain liquidity without worrying about losses.

If you only want liquidity but do not need to fully own a project, you can explore alternative leasing methods for traditional liquid mining programs (such as Tokemak and Fei).

Tokemak sustainable liquidity

Tokemak introduced a liquidity-as-a-service approach. Tokemak allows the project to provide a single token to the token library reactor, and then pair it with basic assets such as ETH and USDC in the liquidity pool. It may also be paired with FEI in the future. TOKE holders direct this liquidity to the places where it is most needed and make up for any non-permanent losses incurred by the project.

This guarantee has brought huge benefits to depositors. Tokemak accumulates assets for itself through transaction fees. This ultimately enhances its ability to provide sustainable liquidity. Initially, TOKE was issued as a reward to users, and TOKE holders ultimately own the ownership of the Tokemak Protocol Control Assets (PCA).

TOKE token economics encourages long-term, value-oriented participants to enter the network. By obtaining TOKE’s share, the project party can direct its liquidity to any place they need. As an early investment for the project, this method is much better than traditional liquid mining.

For projects seeking long-term sustainable liquidity, the best way is to acquire TOKE shares and seed Tokemak reactor. In the liquid market, they can use TOKE to match any project tokens they support without the risk of permanent loss. Voting for the Tokemak CoRE2 event will start on November 1.

Liquidity as a service (LaaS) through Fei and Ondo

The Fei protocol supports FEI, which is a fully decentralized and scalable stablecoin supported by on-chain reserves. Fei can use its PCV to support the supply of liquidity priced on the basis of FEI.

Fei Protocol is working with Ondo Finance to provide cost-effective and flexible LaaS products. Essentially, project parties can deposit their project tokens into a flexible maturity Ondo liquidity vault, Fei Protocol will match their deposits with the same amount of newly minted FEI, and the tokens will be decentralized in Uniswap or SushiSwap, etc. The matching is completed under the automatic market maker trading mechanism of the chemical exchange.

In essence, Fei Protocol can double the liquidity of the project and eliminate all its previous capital costs. At the end of the window, the Vault will return the FEI and all remaining tokens to the project, plus a small fixed fee.

Ondo Vault is responsible for handling all the accounting work behind it, all transaction costs and all non-permanent losses that the project will leave behind.

Fei Liquidity-as-a-Service (LaaS) is a fast and cheap way to obtain dollar-denominated liquidity for projects.


Project parties now have a variety of options, either through the liquidity owned by the Olympus Pro investment agreement, or through Tokemak to invest in long-term value-aligned liquidity, or through Fei and Ondo to invest in cost-effective liquidity-as-a-service.

These products are major improvements to traditional liquid mining projects. We expect that new projects will shift to products tailored to the needs of different stages of their growth.

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