Tokemak Report by Jesse

Surprisingly, last week’s project AUDIO has pushed its way into this week’s highest gainer spot with a 125% jump in price. Caused by an announcement that TikTok would be partnering with the project to develop a “TikTok Sounds” library, the project has been exploding. This new feature would allow Audius users to upload tracks directly to TikTok with an upcoming share feature. This week we’ll be looking at the newly released liquidity aggregator Tokemak.

Introduction

Tokemak is focused on creating sustainable Defi liquidity and capital-efficient markets through a convenient and fully decentralized market-making protocol. Factors that Tokemak finds to be the most important in obtaining sustainable yield farming are democratically sourced, sustainably produced, capital-efficient, superfluid, and encourages a deep accumulation of assets to reduce slippage to zero. Believing that liquidity mining has been an invaluable resource and extremely successful in bootstrapping liquidity during the early stages of Defi’s short history. It was and is an important stepping stone for the movement, leading to an explosion of product creation and the onboarding of millions of users. Yet bootstrapping liquidity for a new project is currently too costly and inefficient. A tokamak (with an “a”) being a reactor used in nuclear fusion for the magnetic confinement of plasma. Inside a tokamak, gases are heated to the point that they ionize into plasma, and energy is produced through the fusion of atoms. The heat from this reaction is used to produce steam and generate sustainable energy/electricity. So Tokemak (with an “e”) has been architected to gather idle tokens in order to seamlessly generate and deploy sustainable liquidity. Each asset has its own token reactor, where the protocol token, TOKE (toe-kuh), is used to direct liquidity. The native TOKE can be thought of as tokenized liquidity. When staking to a given asset’s token reactor, TOKE holders control not only where the liquidity gets directed, but also what market receives liquidity, pulling from Tokemak’s reserves of ETH and Stablecoins. Tokemak is the first protocol that allows for increased transparency and democratization of liquidity provision, with the goal of becoming the primary vessel through which liquidity can flow freely and efficiently across networks to provide a more generalized liquidity aggregator for decentralized exchanges.

Tokemak is designed to be used by anyone who wants to deposit single assets into the network to be utilized as liquidity. For liquidity providers that deposit assets into a token reactor. They’ll earn a yield on their single asset deposits in the form of the TOKE. Initially, there will be select whitelisted projects that will have a token reactor to deposit into. But eventually, this will be opened up to more projects. These assets will then get deployed as liquidity across various exchanges with various pairs, and mitigated exposure to impermanent loss. When an LP deposits assets into a reactor, they’ll receive a corresponding amount of t(Assets) which is reflective of their claim for the deposited assets. The t(Assets) are then burned upon redemption of their underlying funds. This is conceptually similar to c(Assets) on Compound or a(Assets) on Aave. Any DAOs that wish to harness Tokemak’s liquidity flow in order to strengthen and direct liquidity for their project, are offered an alternative to traditional liquidity mining. New projects that want to inexpensively stand up their own token reactors and use Tokemak’s protocol-controlled assets to generate healthy liquidity for their project from its inception are welcome to do so. Market makers can also take advantage of the network’s store of assets in order to direct liquidity across various exchanges, while exchanges can also leverage TOKE’s utility in order to gain access to deeper liquidity to bolster their market depth. 

On Tokemak there are “Liquidity Directors” (LDs) who utilize TOKE to control liquidity direction. They stake their TOKE into a given reactor and use that stake as voting power to direct liquidity to an exchange of their choosing. Voting power from TOKE in a given reactor is directly proportional to the amount of TOKE staked and the number of assets in that specific reactor. Tokemak operates on a cyclical basis, and a ‘Cycle’ will initially be set to one week, something that a DAO may later vote to change. Mid-Cycle, assets can be deposited and LDs’ votes can be rearranged. Assets are deployed when a new Cycle begins and LPs may also request to withdraw their assets mid-Cycle or can withdraw during the Cycle’s conclusion. For any non-AMM exchange where a third participant is required to provide real-time pricing, Tokemak sources “Pricers” (normally these would be considered ‘market makers’) in order to set the bid/offer prices. In its simplest form, users are playing a game of balancing the reactors. The reactors incentivize a ‘balance’ between the value of assets deposited and TOKE staked through a variable APY. If there is a significant amount of assets deposited into a given reactor, and a minimal amount of TOKE directing that liquidity, the APY will be boosted on the LD side of the reactor, encouraging LDs to stake more TOKE and participate in directing that liquidity.

Reward cycles are everything in Tokemak and if a user deposits TOKE mid-cycle they’ll only begin earning rewards once the next cycle begins. Users can always request their assets be withdrawn. However, the request cannot be granted until the start of the next cycle. TOKE rewards are only claimable on a weekly basis. For example, at the start of Cycle Zero-8, Cycle Zero-7 users will be able to claim their TOKE rewards. Withdrawals are enabled at each cycles rollover for earning from the previous cycle with the current cycle visible on the top left hand of the dashboard. This allows for the easing of gas costs for both users and the protocol, but more importantly, the IL management mechanics become more effective in operating in this way. This balances well with the issuing of tAssets. Like most synthetic tokens, these tAssets are tABC/XYZ tokens that an LP receives when they deposit tokens into a token reactor. These tABC tokens represent the underlying claim to the assets deposited into the token reactor, available to be redeemed 1:1 at any time, pending Cycle withdrawal periods naturally. The underlying tAssets are transferable, however, only whoever owns the tABC tokens can claim the underlying deposited assets, as well as earns the rewards for those deposited assets. At the moment five farming pools are operational on Tokemak to earn emissions from. Those being ETH, USDC, TOKE, TOKE/ETH SUSHI LP, and TOKE/ETH UNI V2 LP.

The Token

TOKE is the native network token that is earned through participation in the protocol. It’s utilized mainly for directing liquidity and governance. The collective TOKE holders comprise the Tokemak DAO, which will oversee the accrued protocol-controlled assets and grow the allowed whitelist of assets and markets. TOKE also acts to collateralize the network similar to AAVE. Making Impermanent Loss risk transferred from LPs to LDs via the TOKE staking mechanism itself. The Total Supply of TOKE is set at 100 Million with 30% reserved for Rewards, 17% Investors, 16.5% Contributors, 14% Team, 8% TOKE DAO Reserve, 8.5% DAOs, and Market Makers, and the remaining 5% for the Liquidity bootstrapping of the project. The initial 30 Million reward tokens are designed to be emitted over a 24-month period. The first distribution of TOKE during the Degenesis Event was only possible for Discord whitelisted participants between July 27th and August 4th. However, an Ethereum address was all that was required for participation with no identifying information necessary. All Contributor, Investor, Team, and Market Maker tokens have been locked into a 12-month linear vesting schedule. 

The Founders

No direct information is available for the founding team of Tokemak as the project itself has been created by established trading firm Fractal. As their first venture into creating blockchain technologies, and a strong track record of previous investments such as Chainlink and Synthetix. They only sought to raise the required capital necessary to build the protocol. With investments from ConsenSys Ventures, Electric Capital, Coinbase Ventures, Delphi Digital, North Island Ventures, and Framework Ventures the project raised a meager $4 Million in its April 2021 Seed Round. This pales by comparison to the almost 

Market Impacts

After the initial Degenesis farming event, TOKE began its price journey on August 7th, 2021. Releasing to market around $17 USD, early entries only looking to farm those initial tokens drew the price down to $10 briefly before new farmers entered to briefly create the first all-time high of $25. Dipping to $15 the following week the token has since recovered towards $25 with an average daily volume of around $10 Million USD this is the very beginning of a growing TOKE market. With a $71 Million Market Cap and only 3 Million TOKE circulating there’s a lot of upsides to farming tokens. The initial TOKE pool has almost doubled its TVL in the last week and reflects that new users are continuing to join the project. Tokemak users have taken up the Mech as the community moniker. Future Reactors will each have their own accompanying Tokemech as the embodiment and extension of each individual Reactor. While the community is still forming around Tokemak the project has gained 10k Twitter followers and a very engaging Discord community of almost 8k members. 

Concerns

No immediate concerns were found when researching Tokemak at this stage. While a Github would have been nice to reference, the most important information is readily available for the project. 

Conclusion

While no Liquidity Reactors have been built yet to facilitate the true goal of Tokemak and acting similar to Bancors Single-sided LPs. The current emission cycles can be a very lucrative earning opportunity. While we currently sit in Cycle Zero-10 it’s a very early time to join the protocol. Of the five pools listed, both ETH and USDC are only available to those early miners who participated in the Degenesis. However, the team states in the Discord that that will be changing soon. As of this time the ETH USDC pools are earning between 200%-300% APR while the TOKE pool remains at 100% APR. Because of the added risk in acquiring TOKE tokens for the singular use of joining a pool. Waiting for one of the previous two pools to open up for the public would provide a much lower risk to farming additional tokens with less volatile USDC and ETH. The total locked value in the protocol is currently below 100 Million USD and leaves a lot of room for newcomers to earn rewards. No timeline is given for when these Tokemak Reactors will be completed and with a 2-year emissions timeline, expect to be in the accumulation phase for a while before seeing the possible full potential of the protocol. 

Until next time, remember that the only guarantee is BTC. So keep stacking that Satoshi.

-Jesse Koz

Follow Jesse on Twitter

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