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Andre Cronje introduces new liquidity mining design on a new account, along with two smart contract tools.

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Andre Cronje introduces new liquidity mining design on a new account, along with two smart contract tools.

After a period of silence following the hack of the Eminence EMN project, Yearn founder Andre Cronje, known for his frequent Twitter updates, has resurfaced. Last night, Cronje published two new blog posts addressing the pain points of DeFi liquidity mining. The Twitter community discovered that he seems to be working on a new project called Liquidity Income LBI.

The Restless Andre Cronje

After the EMN hacking incident, Andre Cronje posted a series of tweets reflecting on the EMN event. There had been no new updates since September 29, and his previously active account @AndreCronjeTech went silent. Perhaps due to the overwhelming attention and scrutiny, Andre Cronje finally spoke up on October 10:

"I'm still here and still developing. Nothing has changed. All other voices can go away. I just don't want to tweet or be on social media anymore."

https://twitter.com/AndreCronjeTech/status/1314633629599965186

However, after the discovery of Andre Cronje's new project, it seemed like a blow to his own face. In fact, he created a new Twitter account @andrecronjedev in October, with the first post on October 5, revealing new plans and ideas. When the new account was found, he seemed quite surprised and mentioned that the account was just for development updates and nonsense talk.

A New Design to Solve Liquidity Mining Dilemma?

In the past, liquidity mining platforms usually had two pools, Pool 1 and Pool 2. Pool 1 was for providing liquidity and earning rewards by minting new reward tokens, while Pool 2 was for providing liquidity for reward tokens to be traded.

For example, in SushiSwap, the ETH/DAI liquidity pool is Pool 1, where people could provide ETH/DAI liquidity to earn SUSHI rewards, while SUSHI/ETH is Pool 2, where people could trade SUSHI.

Since Pool 2 is the main pillar supporting the value of reward tokens, it usually offers the highest liquidity reward to attract liquidity providers. Due to the high impermanent loss in Pool 2, most users opt for Pool 1 with lower rates and less impermanent loss to earn liquidity rewards. As Pool 2 is only used for trading reward tokens, with no one willing to provide liquidity, mining rewards collapse, making the platform less appealing.

In his latest blog, Andre Cronje mentioned that APML, YAM, UNI, and SNX inspired him with a new idea for a liquidity-based inflation token that could eliminate impermanent loss temporarily through liquidity governance.

He has two main goals: to maximize trading income and minimize impermanent loss.

According to Andre Cronje, to achieve the first goal, creating an arbitrage platform is essential. The mining reward token has two pools, one in Uniswap, similar to the traditional Pool 2 design, such as the LBI/ETH trading pair shown in the image below, where LBI can be freely traded; the other is the pool created by Liquidity Income, where only ETH can be deposited to buy LBI, and LBI cannot be sold. The deposited ETH is automatically sent to the Uniswap pool, and both pools follow a constant product price curve.

How does arbitrage opportunities arise? When people buy LBI in the Uniswap pool, based on Uniswap's automated market-making algorithm, the reduced LBI quantity in the pool causes the price to surge. As the price of LBI remains unchanged in the Liquidity Income pool, it's relatively cheaper, attracting arbitrageurs to buy LBI here and sell it for profit in the Uniswap pool. As a result, with more LBI in the Uniswap pool, the LBI/ETH quantity rebalances, suppressing the surge in LBI price. Moreover, as the Liquidity Income pool sends ETH to the Uniswap pool, it increases liquidity.

Andre Cronje believes that the key to the design lies in "token volatility" rather than token price, where liquidity providers generate more income due to high trading volume from arbitrage activities.

Furthermore, this new design is expected to attract more participants to the LBI/ETH pool, addressing the traditional issue where no one is willing to provide liquidity for Pool 2. It ensures minimal fluctuation in token price, sufficient capital levels, and minimizes impermanent loss.

What Details Have Been Adjusted?

Andre Cronje mentioned that the overall process remains the same, where users can still provide liquidity, add LP tokens to the reward contract, and earn rewards over time.

The original design primarily benefited liquidity providers, so everyone tended to participate in Pool 1. To address this, Andre Cronje made some changes; only 50% of LBI tokens will be obtained through liquidity mining, while the remaining 50% must be obtained through the two liquidity pools mentioned earlier.

It is expected that 1% of LBI tokens will be distributed every 25 hours. Of this 1%, 90% will go to liquidity providers, and 10% will go to regular LBI token holders. This means that liquidity providers will receive 0.9% of the total reward tokens every 25 hours.

The Vision Behind: Becoming a Liquidity Bridge

Andre Cronje believes that the tokens he designed can serve as a liquidity bridge for multiple trading endpoints, ultimately integrating all liquidity to improve trading depth and reduce impermanent loss within certain limits.

Providing Two Tool-Type Smart Contracts: Facilitating Governance

On the same day of proposing the design, based on the essential elements of liquidity mining projects: token governance, token liquidity supply, and time locks, Andre Cronje released two smart contracts to make the process of defining these conditions more efficient:

Liquidity Factory 0x323B2b67Ed1a745e5208ac18625ecef187a421D0

Governance Factory 0x4179Ef5dC359A4f73D5A14aF264f759052325bc1

【Special thanks to Blocto co-founder Lee Hsuan for assisting in contract interpretation】