Tokemak-A new generation of liquidity management infrastructure overall project analysis

特邀专栏作者

2021-09-29 09:26

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Although there are many current liquidity mining track projects, market liquidity is still scarce. As a brand-new liquidity management system, Tokemak is expected to open up a new path in the liquidity mining track and become a new generation of liquidit

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Research Institution: Mint Ventures

Researcher: Rollin

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Research Report Highlights

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Research Report Highlights

Tokemak has currently issued tokens, and its platform currency is Toke.

1. Core investment logic

1. Wide track: The market demand for liquidity is strong and growing rapidly. This track has long-term and stable demand.

2. Unique innovative mechanism: Although there are many current liquidity mining track projects, market liquidity is still scarce. As a brand-new liquidity management system, Tokemak is expected to open up a new path in the liquidity mining track and become a new generation of liquidity management infrastructure.

Compared with similar platforms, Tokemak's competitive advantages are as follows:

● Liquidity providers can conduct single-asset mining without taking the risk of impermanent losses (except in extreme cases)

● Liquidity demanders (project parties or dex that need to establish token liquidity) can obtain sustainable liquidity and be able to manage token liquidity across exchanges

● The platform automatically optimizes the allocation of liquidity

3. Luxurious financing background: Framework Ventures led the investment, and ConsenSys and Coinbase Ventures participated in the investment. It can provide a large number of project cooperation resources in the early stage and complete the cold start quickly.

2. Major risks

1. Product mechanism risk:

● The Tokemak model is novel, the main product has not yet been launched, and the business logic needs to be verified after a certain period of time.

● The liquidity miners in the current market are all people with high risk appetite, and whether the market demand for liquidity supply with low risk appetite is strong remains to be verified.

● The risk of impermanent loss is transferred from liquidity providers to liquidity demanders and the platform itself, which is both innovation and risk. While providing security for liquidity providers, it also allows the platform to bear more downside risks.

2. Smart contract risks:

● The project contains a large number of original codes and functions, and there are many audit issues, and the code risk is greater than that of mature products.

The current liquidity leverage ratio of Toke is close to 3, and the market valuation is reasonably low.

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Basic information of the project

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Basic information of the project

1. Business introduction

Tokemak operation mechanism

reactor

Tokemak builds a reactor (asset pool) for each liquid asset. The reactor is mainly composed of two roles, liquidity provider and liquidity guide.

The image below is an example of the Aave Token Reactor:On the left are liquidity providers (LP, Liquidity Providers):

Deposit a single asset into the token reactor to obtain the corresponding tassets certificate to ensure that the deposited asset can be exchanged 1:1 when exiting. During the liquidity provision period, the non-TOKE token income obtained by the reactor assets to provide external liquidity will be directly deposited into the Tokemak protocol and managed by the Tokemak DAO (composed of Toke holders). Liquidity providers only get Toke rewards.On the right are Liquidity Directors (LD: Liquidity Directors):

Use the pledged TOKE to control the whereabouts of liquid assets in the designated reactor. They pledge their TOKE into a given reactor, and use this pledge as a voting right to direct liquidity to the Dex of their choice.

Current reactor-bootable decentralized exchanges include Uniswap, Sushiswap, Balancer, Deversifi. Liquidity guides will also receive Toke rewards.Reserve pool:

The reactor of each asset will establish a corresponding token asset reserve pool (non-Toke token), which is the first layer of protection measures for the impermanent loss of the reactor. When an impermanent loss occurs, it will first be repaid through the asset reserve pool. The initial acquisition method of reserve pool assets is through DAO TO DAO communication, which will be further explained later.

If the docking dex is in order book mode, the price maker role is also required.Pricers:

Any non-automated market maker (AMM) needs a third-party organization to provide real-time price information. Tokemak will reference Prices to set buy and sell order prices.cycle:"Tokemak operates on a periodic basis,"cycle

tAssets：Initially this will be set to one week (the DAO may vote to change this later). Halfway through the cycle, assets can be deposited and LD votes can be rearranged. Assets will be deployed at the beginning of a new cycle, LPs can also request their assets back halfway through the cycle, and can be retrieved at the end of the cycle.

Liquidity providers will receive corresponding tABC tokens (tokens of tAssets) when they deposit tokens into the token reactor. These tABC tokens represent your potential claim on the assets you deposit into Token Reactor and can be redeemed at any time in a 1:1 ratio (period based). tAssets are transferable, and those who own tABC tokens can claim back the corresponding assets in the pool and receive rewards from these assets.

Automatically optimize the allocation of liquidity

The Tokemak platform automatically balances the supply and demand relationship between liquidity providers and liquidity guides to the optimum through a dynamic yield balance mechanism, without the need for the community to determine the incentives for each reactor.

The balance method is shown in the figure below:Earnings seesaw:

If there is a large amount of ABC token assets deposited to the left side of the reactor, and the liquidity leader on the right side pledges a small amount of TOKE, the annualized yield (APY) will increase on the liquidity leader (LD) side of the reactor , so as to encourage LD to mortgage more TOKE and participate in guiding the liquidity. Conversely, if there are a large amount of TOKE mortgaged on the right side of the reactor, but too few ABC token assets are deposited, the reactor's liquidity provider (LP) will receive a higher rate of return (APY) to incentivize more More token assets are deposited.Redistribution of income:

Toke rewards are not based on the exchange of actual mining rewards from a certain token pool, but are determined purely based on the supply and demand relationship of the liquidity in the platform. This income distribution method breaks the existing liquidity incentive model. Through the income seesaw mechanism, the liquidity income in the platform is redistributed, so that the liquidity in the platform no longer depends on the income incentives of secondary pool mining. mechanism.

For example, the project party wants to increase the liquidity of its tokens, but the mining yield of its assets to ABC/USDT on a certain exchange is very low. Under the traditional incentive model, the project party has to increase the inflation rate mode to incentivize liquidity providers. But through the Tokemak platform, the project party only needs to hold and pledge a certain amount of Toke on the right side of the ABC asset reactor, and the revenue seesaw will continue to attract corresponding liquidity providers. Project parties can also conduct liquidity guidance according to their own needs. The more tokens pledged, the more long-term liquidity providers will be attracted.

DAO TO DAO pattern

Before Tokemak builds a token reactor, it needs to obtain the corresponding token assets as a reserve pool. The non-Toke tokens in the reserve pool are initially replaced by the reserve Toke of the Tokemak protocol.

The way to obtain the assets of the reserve pool is through DAO TO DAO communication. Both parties can exchange or borrow the required tokens according to their respective needs to achieve mutual benefit.

If the two parties adopt the lending method, decentralized lending will be conducted through Rari Capital's Fuse platform. Fuse is an interest rate lending agreement for Dao, which was launched in March this year, and will not be introduced in detail here.

This DAO TO DAO model relies more on the business development capabilities of the community in the early stage. The current project team has actively communicated with more than 20 DAOs, and the overall resources and business capabilities of the team are relatively excellent.

Main users of Tokemak platform

● Liquidity Provider (LP): They can pledge their idle assets to provide liquidity and obtain corresponding returns.

● Liquidity demanders (project parties, Dex): they can obtain the right to guide the corresponding sustainable liquidity by holding and staking Toke; they can manage the liquidity of target tokens among multiple exchanges.

● Liquidity guides speculators: the purpose is not to increase the liquidity of a certain project, but to share the high returns of liquidity providers (LD) in a certain reactor.

2. Project progress

Tokemak is currently still in the startup phase, and plans to start it through a series of "zero cycle" events. The "zero cycle" consists of the following 3 steps:

DeGenesis: DeGenesis is an initial stage, from July 27th to August 6th, during which whitelist addresses can obtain the first release of TOKE by submitting ETH and USDC. Tokemak finally raised $21.65 million through DeGenesis, and the final price of TOKE was locked at $8.

Genesis mining pool: an additional pre-launch stage, users can pledge a single asset: ETH and USDC, and the assets in the pool will be used to provide liquidity and obtain corresponding TOKE rewards. Even after the "zero cycle", these mining pools will maintain a competitive incentive to continue accumulating the necessary token pairs to deploy liquidity.

Reactor mortgage event: Beginning at the end of September (lasting 7 days), the first batch of reactors will be selected from the following candidate projects, and 5 project tokens will be selected by token holders, and 5 reactors will be built first, and more will be created later many.

The Tokemak team has established contact with more than 20 Dao. After voting for 5 reactors to be created, the Tokemak team will conduct DAO TO DAO communication in order to obtain appropriate asset reserves. If they fail to obtain sufficient asset reserves , it will continue to communicate with the sixth item, and so on.

Code audit: Currently Tokemak has passed Bits preliminary audit and Omniscia audit.

3. Tokemak's current operation

Tokemak is still in its early stages, and the relevant detailed documents have not yet been released, but the market feedback is good, TVL continues to rise steadily, and its market value exceeds Alpaca.

At present, Tokemak has only opened Toke’s first and second mining pools, and the main product (reactor) will be launched soon. The income of the mining pool is shown in the figure below:

The market is optimistic about Tokemak's later performance expectations.

Since Tokemak released the first Toke, the price of Toke has risen all the way from $8 to $50, and the current price is stable around $35. The total TVL of the platform is about US$500 million, of which US$300 million is the lock-up value of non-Toke assets, ranking 18th among similar wealth management products on the defillama platform.

Toke's current token circulation market value is 160 million US dollars, and the coingecko market ranks 310th overall. In the yield aggregator category, Toke ranks seventh, with a current market capitalization over Alpaca Finance.

It should be noted here that although Alpaca's TVL is US$1.3 billion, which is much higher than Tokemak's US$300 million TVL, this does not mean that Tokemak is overvalued. Because Tokemak's token model is quite special, its token market value is not suitable for horizontal comparison with other projects, and the token model will be explained in detail later.

4. Team details

The Tokemak project originally originated from a project called "Fractal". But it needs to be pointed out that there are currently more than one project named Fractal. Tokemak’s predecessor “Fractal” is a market maker that provides liquidity for DeFi, not the Fractal project on the Polkadot chain.

Tokemak core team members include:

Carson Cook: Ph.D. in physics, master's degree in electrical engineering, worked in financial technology at McKinsey, and has trading experience in the foreign exchange market. Beginning in 2017, Carson began to get involved in the field of cryptocurrency market trading. At the beginning of 2018, Fractal was founded as a DeFi market maker to provide liquidity services for decentralized exchanges. It has been in operation for more than three years. The origin of Tokemak comes from Fractal's market maker experience.

● Bruno: He once worked in a Fortune 500 technology company and was mainly responsible for designing Tokemak's token economic model.

● Paul: Responsible for design and community work.

5. Financing situation

In April 2021, Tokemak completed $4 million in financing, led by Framework Ventures, with participation from Electric Capital, Coinbase Ventures, North Island Ventures, Delphi Ventures, and ConsenSys.

6. Summary

Tokemak is a set of protocols to achieve sustainable DeFi liquidity. Its design purpose is to solve the problems of difficulty, instability and high cost of liquidity acquisition under the existing liquidity incentive model.

Tokemak adopts a brand new liquidity management system. Different from the existing income aggregation platform, it faces both liquidity demanders and liquidity providers, and redistributes income according to the supply and demand of liquidity in the platform to maximize the distribution efficiency of liquidity in the platform. The emergence of Tokemak will help project parties to better obtain and manage their token liquidity, and is expected to become a new generation of liquidity management infrastructure.

The Tokemak team has rich experience and excellent financing background. The team has many years of experience in centralized market makers in the DeFi field, led by Framework Ventures, with an excellent investment lineup.

As a new liquidity solution and management tool for project parties and Dex, Tokemak deserves continuous attention.

business analysis

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1. Industry space

Liquidity is very important to the financial market. In a market without liquidity, the transaction efficiency is very low, the market price is easy to be manipulated, the price discovery mechanism fails, and the market is prone to a death cycle.

A liquid market is characterized by buyers and sellers in the market at any given moment. If there are many buyers and sellers in a market, then the liquidity of this market is very high, and such a market is called a deep market, otherwise, the liquidity is low and the market depth is shallow.

Early liquidity woes for token projects

For blockchain start-up teams, in the early days of the market, the project party had to distribute a large number of tokens (airdrops, single-currency mining, etc.) in order to promote the project. At this time, the value of project tokens is usually not fully known by the market, and a large number of tokens will be sold. At the same time, there are very few people willing to provide liquidity for project tokens, and the liquidity of tokens is very poor. Undertaking the selling pressure of the market, the price of the token and its true value are often unanchored.

For example, if the project party airdrops 100,000 tokens, 50% of the tokens will be unconditionally sold, 50% will be held for value, and only 5% of the tokens will be used for liquidity mining. In the short term, 5% of the liquidity cannot undertake 50% of the token sale. Even if half of the people recognize and favor the project, the lack of liquidity will cause the market price of the token to drop sharply, and the deviation from the normal market value will easily cause vicious Circulation seriously affects the healthy operation of the project's token ecology.

High subsidies attract liquidity. In order to avoid this situation, the project party usually adopts the single-currency pledge mining of the second pool and the liquidity mining mode of the second pool at the same time, and provides ultra-high subsidies through inflation to minimize short-term selling pressure and increase the generation currency liquidity.

The high subsidy method has low efficiency and high cost. The original high subsidy method, the high subsidy in the early stage will attract a large amount of short-term liquidity. Even so, the slippage of many project token transactions is still high, and most project parties still cannot attract enough long-term liquidity providers , unable to provide sufficient liquidity for project tokens. The short-term liquidity of a day or a week or two attracted by high subsidies is meaningless. If the rate of return declines in the later period, the liquidity will dry up immediately. Some teams will also choose to hire a centralized market maker at a high cost to help them provide sufficient liquidity. This fee is still a huge expense for many founding teams.

The traditional way of obtaining liquidity is a high-cost and low-yield transaction for many projects. Tokemak hopes that through its own platform, it can help these project parties obtain sustainable liquidity in a better way.

Tokemak Market Size Outlook

Open the long-tail asset TVL market

Currently, the lock-up value of the DEX industry is around $30 billion. Excluding stablecoin trading pairs, the market TVL is around $20 billion. Tokemak-backed Uniswap, Sushiswap, Balancer, Deversifi exchanges have a total TVL of about $12 billion. As shown in the figure below, the TVL of the Dex industry continues to grow steadily.

In the TVL of Dex, the trading pairs of ETH, wBTC and stable coins are the main ones, followed by popular tokens. Most of the long-tail assets account for a very low TVL. Taking UNI V2 as an example, the statistics show that the TVL of mainstream ETH, wBTC and various stablecoin trading pairs accounted for more than 30%, the top 50 market-making asset pairs accounted for more than 60% of the TVL, and the transactions ranked between 50 and 90 It accounts for about 20% of TVL, and the last 50% of transactions account for less than 20% of TVL.

If Tokemak can help these projects ranked below 50 create better token liquidity, it will bring considerable incremental TVL to the current decentralized exchanges.

Tokemak's current net TVL (excluding Toke value) is 300 million US dollars, both of which are the locked value of ETH and USDC. After the main product is launched, the matching liquid assets will further flow into Tokemak, assuming that the capital utilization rate is 50% -80%, TVL will increase to about 500-600 million US dollars after the project starts.

Tokemak lockup amount (2021/9/27)

If Tokemak can increase the liquidity of decentralized exchanges by 10% for the intermediate asset pool and tail asset pool, then its TVL will rise to 1.2 billion US dollars, which will be consistent with the current TVL of Alpaca (a leveraged mining project on the BSC chain) , will rank No. 5 among DeFillama projects of its kind. If the liquidity can be increased by 30%, the TVL of the Tokemak platform will reach 2.4 billion US dollars, second only to the current TVL of YFI, ranking third in its category.

2. Project competition landscape

Before analyzing the competitive relationship between Tokemak and similar projects, let’s first understand the hidden lending relationship in the Tokemak mechanism.

Tokemak's liquidity providers transfer their impermanence risks to the liquidity guides, and at the same time entrust their own liquidity to the platform agreement for directional use by the liquidity guides. This is equivalent to the liquidity provider lending its assets to the liquidity guide and obtaining the corresponding loan income.

This is different from over-collateralized lending models such as AAVE. Tokemak’s lending has a leverage effect. The asset platform lent through the AAVE platform is uncontrollable, and the safety of assets can only be ensured by over-collateralization. The capital utilization rate of such lending platforms is usually lower than 50%, or even lower. The Tokemak platform cleverly uses smart contracts to connect liquidity market-making and lending businesses. The platform assets are managed by the agreement, but only a certain right to use is transferred to ensure the safety of assets without pledge, which greatly improves the utilization efficiency of funds. . Through 1 Toke, the liquidity of multiple Toke values can be guided.

In this regard, the borrowing principle of the leveraged mining platform and Tokemak is the same, and the users of the two also have a certain overlapping relationship. We take Alpaca Finance as an example for comparative analysis.

3. Competitive advantage

Competitive relationship with Alpaca

On both the Tokemak and Alpaca platforms, there are lending pools with allocation assets such as ETH/USDT/DAI, which are their main competitive parts.

The following figure shows the yield and utilization rate of Alpaca single currency lending:

Alpaca's paired single-currency assets will be automatically matched as a market-making trading pair and deposited in the exchange to obtain higher returns. BUSD and BNB (about 50%), the assets with the highest usage rate on the Alpaca platform, have a lending rate of about 10%.

What are the advantages and differences of Tokemak, which can improve the utilization rate of its platform assets and the efficiency of income distribution?

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Tokemak's competitive advantage

1. Single asset provides liquidity

The liquidity provider on the Tokemak platform is a single asset provider.

For the start-up team, the early project party will have a lot of their own tokens in their hands, but the early team is unwilling to sell a large amount of their own tokens, only a large number of unilateral assets, on the Tokemak platform, the project party can make good use of Its own single-currency token assets provide sufficient liquidity for its own projects.

For other token holders, there is no need to match asset pairs, and only need to provide idle unilateral assets to share the benefits of liquidity supply.

2. Risk transfer of impermanent loss

Tokemak transfers the risk of impermanent losses that liquidity providers may face to liquidity guides.

When the impermanent loss occurs, Tokemak’s reactor reserve pool first protects the liquidity provider, and then the reward Toke and pledged Toke of the liquidity guide in the reactor perform the second layer of protection.

Essentially, liquidity providers on Tokemak just lend their idle assets to liquidity guides through the Tokemak protocol. Compared with lending platforms like aave, liquidity guides borrow corresponding assets on Tokemak without over-collateralization and liquidation risks, and have a good leverage effect.

3.tToke

For liquidity providers, without considering contract risks, it is better to lend their liquid assets to platforms like aave than to lend to Tokemak. The income of liquidity supply is usually higher than the income of inefficient lending.

All pledged assets of Tokemak will receive corresponding tToke tokens, which are liquid. This is similar to the ytoken in Yearn Finance, which will have more liquidity and combined gameplay in the future.

4. Liquidity can be pooled across exchanges

The Tokemak platform can bring together the liquidity of multiple exchanges, which is very convenient for project parties to manage the liquidity of their tokens among multiple exchanges.

5. Provide sustainable liquidity, no digging, selling, raising and selling pressure

The Tokemak platform brings together all kinds of token rewards obtained from liquidity services and deposits them in Tokemak's Dao reserve pool. In the absence of large impermanent losses, the agreement will not sell these non-Toke assets . These non-Toke assets will serve as the underlying assets supporting the value of Toke, providing continuous liquidity services for the market.

The traditional liquidity incentive method (incentivizing liquidity mining through inflation) provides liquidity to the market, but also increases the selling pressure brought about by more mining and selling. And with the rapid decline of liquidity mining incentives, liquidity will also shrink sharply. This short-term liquidity incentive is of little significance.

Through the Tokemak platform, liquidity demanders can adjust the amount of Toke pledged according to their own liquidity demand. The rate of return will be dynamically adjusted according to the difference between the supply and demand sides, and the liquidity supply and demand will be automatically adjusted to an optimal balance point. superior. This is also one of the main innovations of Tokemak, which is not available in other liquidity income projects currently on the market.

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Tokemak differentiated service targets

Liquidity Provider:

Low-risk appetite: Any user can deposit a single asset into Tokemak to provide liquidity without bearing impermanent losses (except for extreme risks). Similar to the aave platform or the Alpaca platform, it lends its own assets to the agreement and charges interest.

DAO：Liquidity guide:

DAO can use Tokemak's liquidity to strengthen and guide the liquidity of its projects, as an alternative to the traditional liquidity mining model.new project:

Dex：New projects are able to build their own token reactors at low cost. Generating healthy liquidity for their projects from the beginning in a low-cost way through Tokemak.

Dex can use the Tokemak platform to strengthen its market depth.

In the long run, Tokemak's service targets are not the current second-pool liquidity miners who are attracted by high returns, but those low-risk users who are willing to hold some token assets. They are unwilling to bear the impermanent losses caused by market making, and their assets are idle in their hands. Tokemak can effectively help them utilize idle assets.

In addition, Tokemak's more important service targets are to b-side, those DAOs, new projects or Dex that want liquidity. Their original liquidity acquisition method is too costly and unsustainable. Tokemak can effectively reduce their liquidity acquisition cost and obtain more stable liquidity.

4. Summary

Tokemak has many ingenious designs to realize functions such as low-risk market making, continuous liquidity acquisition, liquidity management, and seesaw dynamic rate of return. Tokemak is a new set of decentralized liquidity management tools and solutions.

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Token Model Analysis

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Token Model Analysis

1. Token distribution

Tokemak’s protocol token TOKE has a total supply of 100 million, and the specific distribution is as follows:

● 30,000,● Total supply: 100,000,000 TOKE

● 5,000,000 TOKE (30%): reward release (released in 24 months)

● 9,000,000 TOKE (5%): In the "Cycle Zero" (Cycle Zero) DeGenesis event and CoRE (reactor mortgage event), TOKE will be issued for the first time

● 16,500,000 TOKE (9%): DAO reserves, these reserves can be used to replace non-Toke assets in DAO TO DAO communication.

● 14,000,000 TOKE (16.5%): Contributor (12-month cliff + 12-month linear release)

● 17,000,000 TOKE (14%): Team (12 months cliff + 12 months linear release)

● 8,500,000 TOKE (17%): Investors (12-month cliff + 12-month linear release)

000 TOKE (8.5%): DAOs & Market Makers (12 months cliff + 12 months linear release)

It is worth noting that the proportion of Toke reward release is lower than that of other projects. On the contrary, the proportion of the team, investors, and contributors is close to 50%, and the concentration is relatively high.

The value of Toke tokens includes Tokemak Dao's governance rights and liquidity distribution rights.

Governance

Toke holders have the governance rights of Tokemak Dao and control the income of Tokemak agreement through Dao.

Tokemak Dao governance includes controlling protocol fee distribution, calibrating cycle length, adding new token reactors, modifying protocol security measures (reserve/deployment ratio + TOKE mortgage parameters), etc.

a. Tokemak protocol income has a strong cumulative effect:

Most platform tokens realize their value by charging service fees (transaction fees, revenue sharing, etc.), and Toke tokens will capture all the benefits obtained by the platform to provide liquidity.

Tokemak will only pay TOKE rewards to Liquidity Providers (LP) and Liquidity Leaders (LD), and all non-Toke asset income obtained from providing external liquidity will be fully retained by the agreement. This means that Tokenmak will continue to accumulate market-making profits, which will be deposited into the protocol’s pending profits and risk reserves. As time and scale increase, the underlying assets will slowly accumulate, increasing the intrinsic value of Toke.

b. Singularity:

Tokemak is constantly accumulating its own non-Toke asset reserves. When the assets accumulate to a certain extent, its liquidity can be self-sufficient and reach a certain singularity. After reaching the singularity, Tokemak does not need a third-party LP, nor does it need to continue to issue TOKE rewards. Instead, TOKE holders will decide how to use these asset reserves to provide liquidity.

Liquidity allocation rights

Toke holders have the right to distribute the liquidity of all platform assets in the agreement. Any user who wants to obtain liquidity through Tokemak needs to hold and pledge Toke to obtain the corresponding liquidity distribution rights.

benefits and risks

While Toke tokens acquire all Tokemak liquidity values, they will also bear corresponding risks.

Different from the independent liquidation mechanism of other aggregator platforms, when the market fluctuates sharply, the Toke reserve pool is sacrificed first, which is equivalent to diluting Toke’s agreement assets, which is essentially an insurance that everyone buys together.

2. Five core questions

What operating cycle is the project in? Is it a mature stage, or an early and middle stage of development?

Currently Tokemak is in its early stages and faces many uncertainties. In terms of business model, the liquidity management market has a lot of room for development, with a high business ceiling and strong sustainability. However, the main product of the platform has not yet been launched, the white paper has not yet been released, and many details have not yet been made public. Whether the project party can launch the product according to the original plan, whether the code can run smoothly and safely, and whether the business model can run smoothly remains to be verified.

Does the project have a solid competitive advantage? Where does this competitive advantage come from?

Tokemak has strong innovation: as a new generation of liquidity solutions, it has many highlights and advantages. Aiming at the pain points of current liquidity management, it solves the problem from the perspective of the liquidity demand side, and currently has no direct competitors.

The team background and project business direction are very compatible: the team has been doing centralized market maker business in the DeFi field before, which is completely consistent with the project business direction, and has sufficient experience advantages.

Is the long-term investment logic of the project clear? Is it in line with the general trend of the industry?

Liquidity management infrastructure is crucial in the DeFi field, and it is the current industry pain point, which is in line with the general trend of industry development. However, because its business model is relatively new and has not been verified by the market, it is currently impossible to determine the medium and long-term investment value.

What are the main variables in the operation of the project? Is this factor easy to quantify and measure?

Whether Tokemak can attract enough liquidity demanders in the early stage depends on the operation ability of the community. At present, judging from the operation of the community, the community has good business resources and relevant professional experience.

In the middle and late stages, Tokemak mainly relies on the virtuous cycle of the protocol itself, and its dependence on community operations will be greatly reduced.

How will the project be managed and governed? How is the DAO level?

Tokemak's team, investors and contributors hold a relatively high proportion of tokens, and the team has a strong control over the project. In the short to medium term, the project will most likely be operated and managed by the founding team.

In the long run, Tokemak operates through the Tokemak Dao composed of Toke holders.

3. Valuation evaluation

Valuing new token models is not easy. Tokemak's unique token value model cannot be compared with similar projects in horizontal valuation. Here, we use the simplest and most intuitive indicator - liquidity acquisition leverage ratio to value Toke.

Liquidity acquisition leverage ratio = TVL of pledged Toke / TVL of liquid assets

The liquidity acquisition leverage ratio is how many times the liquidity that the liquidity leader can control for each Toke. The higher the leverage ratio, the higher the value of Toke and the more conservative the valuation, and vice versa.

Toke value is equal to the continuous liquidity acquisition value of the platform and the corresponding impermanent loss risk premium. The asset itself has a liquidity of 1 times. The current leverage ratio of Tokemak is in the range of 2-3 times. Combined with the risk premium, under conservative estimates, we use the 3 times leverage ratio as the anchor point for a reasonable valuation.

We estimate the value of Toke through the following parameter assumptions.

● The leverage ratio is 3 times

● The capital utilization rate of the initial non-toke asset TVL is 50%

● Toke pledge participation rate is 80%

● Release 1,250,000 Tokes every month in the first year

Tokemak's total TVL refers to the assets and TVL of the platform's liquidity providers, excluding the value of Toke.

The initial value of Tokemak's total TVL is calculated based on 50% of the initial capital utilization rate:

Tokemak total TVL initial value = current non-Toke asset TVL ($360 million)*(1+0.5)

Toke price (estimated) = Tokemak total TVL (non-toke assets) / Toke leverage / Toke quantity

Valuation with slow TVL growth:

Remarks: The total TVL of Tokemak does not include the TVL of Toke

With the TVL of non-toke assets growing at a rate of 20% per month (close to the inflation rate of Toke), Toke's reasonable estimated price in the early stage is stable around the 50 yuan range.

Valuation in case of rapid TVL growth:

Note: Tokemak’s total TVL does not include Toke’s TVL

In the case of rapid growth in scale, that is, when the growth rate of TVL is higher than the circulation market value of Toke, the valuation price of Toke will rise steadily.

When we follow the above price estimation logic, we invert the protocol’s token reward rate of return.

Average annualized rate of return = number of Toke incentives per month * Toke price / (Total TVL of Tokemak + market value of pledged Toke) * 12

According to the above calculation formula, in the first year, the agreement releases 1.25 million Tokes every month, all of which are used for platform incentives, and the average annualized return on assets changes as follows:

It can be seen from the calculation that Tokemak can bring good income incentives to the platform through token inflation in the early stage, but as more and more tokens are released, the proportion of tokens used for rewards is getting smaller and smaller, and the incentive effect is marginal Decrease, which may bring some pressure on the growth of TVL in the future.

In the medium and long term, the impact of token dilution will weaken, and the platform incentive income will gradually tend to the market average. Whether Tokemak can grow into a self-growing liquidity management platform, we will wait and see.

*The above valuation model is for reference only, and Toke price is highly sensitive to Toke pledge rate and Toke leverage ratio.

4. Risk

Mechanism risk

● During the extreme bull market and extreme bear market, the impermanence losses are greater, and the losses suffered by Toke are also greater, which will increase the downward pressure on Toke prices.

● Since the current product has not yet been launched and many product details have not been announced, it is still unknown how big the market demand of Tokemak will be and whether it can attract enough idle assets.

Smart Contract Risk

● Tokemak is a brand new project with a large amount of original code. Whether the project can run smoothly and whether it has the ability to resist hacker attacks will take time to verify.

● Tokemak involves many DAO to DAO business communications, and the initial development of the project has a relatively strong binding relationship with DAO's business capabilities.