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Here are some benefits of implementing Defi Bonds and POL

Problems With Liquidity Mining

  • The sustainability of protocols is negatively impacted by the allocation of a large percentage of their token supply for incentivizing liquidity providers. Despite current solutions such as time-locked staking, short-term behavior still prevails, thus increasing sell pressure on the farm tokens.
  • Furthermore, liquidity providers are incentivized by high reward rates rather than the success of the protocol, and consequently, once the rewards are exhausted, they will remove their capital from the pool.
  • Additionally, due to the price appreciation of the native token, liquidity providers face an impermanent loss, disincentivizing long-term commitment.
  • Finally, during market crashes and uncertain times, liquidity providers tend to exit the pool, leaving no buyer of last resort when the protocol needs liquidity the most.
  • This is evidenced by stats showing that 42% of yield farmers exit within 24 hours, 16% leave within 48 hours, and by the third day 70% of these users have withdrawn from the contract (Source: Masterchef Analysis from Nansen.ai).

Problems of asset accrual and diversification strategies

  • The decentralized finance world is growing rapidly, but many protocols still lack reliable ways to accrue and diversify assets after their initial token sale. As a result, most protocols are overexposed to their native token, with treasury holdings often comprising 90% or more in those token of the total holdings. This leaves the protocol vulnerable to price fluctuations and other risks.
  • The existing solutions to this problem can be difficult to implement, as they can lead to over-inflation of the protocol tokens. This can cause a large drop in the value of the tokens, eroding the funds available to the protocol and reducing the return on investment for token holders.
  • The Mizu Protocol offers a solution to these problems, by allowing protocols to accrue and diversify their assets in a reliable and secure manner through Defi Bonds. Indeed we help protocols raise assets, diversify their treasury holdings, and avoid over-inflation of their tokens.

How are Defi Bonds superior to traditional liquidity retention and asset accruals approaches?

  • Offers a way for protocols to diversify their treasuries reducing exposure to native tokens and lowering insolvency risk due to token depreciation.
  • Protocols are now able to take control of their own liquidity, thereby reducing token inflation and securing stability without depending on external Liquidity Providers.
  • Protocols can unlock new revenue streams by capturing liquidity fees as they become the liquidity providers themselves or earn Defi interests thanks to raised assets.
  • The pool's accumulation of liquidity ensures price stability and safeguards users from experiencing potentially damaging liquidity exits. This secure environment encourages larger trades and encourages healthy price action, which in turn attracts long-term holders.
  • Protocols gain access to an experienced engineering team, providing market expertise and ensuring success from deployment to maintenance.