Tracer’s Aggregated Liquidity & $100k grant from Balancer DAOIntroducing Tracer Aggregated Liquidity using the latest Balancer DAO grant
Authored by Ray Mogg, Tracer DAO
Tracer receives 100k USD grant from Balancer DAO!
Tracer is thrilled to announce that we have been approved for a Balancer DAO grant worth over 100k USD!
Utilising Balancer infrastructure has allowed the Tracer team to focus on our core product delivery while still having an easy system to route liquidity to and build unique products on top of. With our V2 release we are taking this a step further and using various Balancer Pools not only as our main market for leveraged Perpetual Pool tokens liquidity, but also to add new features to our product set and provide more unique value to our end users. We are excited to be rolling out aggregated liquidity, yield generating markets and lending and borrowing markets for derivatives with the help of the Balancer team.
Balancer DAO is equally excited to have Tracer building on top of their infrastructure again and offered the following statement:
“Tracer was one of the first major projects to roll out on Balancer Arbitrum shortly after the launch of Arbitrum mainnet itself. TVL ramped up pretty quickly due partly to the uniqueness of Tracer’s perpetual pools and led to a good portion of trading volume in the early days of Arbitrum. Tracer’s V2 is looking to improve on the V1 system and it is great that Tracer wants to keep building with Balancer. I’m hopeful that both Balancer and Tracer will continue to have a fruitful relationship on Arbitrum and possibly beyond if necessary.”
Uses of grant funding
The 100k USD grant encompasses funding for two major projects.
Creation of an aggregated liquidity model for Tracer’s Perpetual Pools product that enables the settlement of markets using LP tokens from a Balancer Pool. This greatly reduces the fracturing of liquidity between markets settled in assets which have valuations which are theoretically identical - such as different stablecoins. A more complete description of our vision for Tracer Aggregated Liquidity can be found below.
Creation of yield generating pools which leverage Balancer and Rari/Fei’s Fuse infrastructure to create the first derivatives lending and borrowing platform. Perpetual Pool markets can be settled in yield generating assets such as ERC4626 or Balancer LP tokens. Yield Plugins would be a new contract that builds on top of Perpetual Pools. By selecting a Yield Plugin users would be able to use yield generating tokens as settlement assets and split these rewards between the protocol and the pool.
More information on the specific milestone and funding split of the grant can be found by reading Balancer’s official announcement here.
Aggregated Liquidity - Deep Dive
As the Tracer ecosystem grows, it is important that liquidity, and liquidity fragmentation is kept at the forefront. Our vision for mitigating these concerns is to introduce Tracer Aggregated Liquidity which:
- Introduces yield generating Perpetual Pools
- Reduces the fracturing of liquidity across markets leading to reduced skew and better pricing
- Supports the adoption of stablecoin partners
As everyone in DeFi knows, liquidity is king. Recently there has been a massive surge in the battle for liquidity throughout the ecosystem. This started off with the Curve wars, as teams battled to ensure that their stablecoin had sufficient swap liquidity to be deemed usable. The competition is now growing - we’ve seen Tokemak introduce a unique mechanism for liquidity bootstrapping to help protocols source, and maintain liquidity for their native tokens. Users now have an overwhelming number of options regarding a) what stablecoin to hold, and b) where they should provide liquidity if they wish to generate yield.
From a derivative protocol perspective, this creates some clashing points that must be dealt with in order to enable a seamless user experience. There are countless teams looking to improve liquidity and use for their stablecoin, which is positive for the protocol as if we are able to provide these stablecoins with utility, it will in turn increase the usage of the protocol itself. On the flip side, protocols don’t want fractured markets as low liquidity leads to poor token pricing, higher funding rates, and an overall negative experience for users. Attention is space in this crowded ecosystem - if your protocol doesn’t have good liquidity and pricing, users will simply leave.
One of the great things about Tracer is that it’s a fully modular system that allows us to craft creative solutions to ensure that the protocol can a) support these numerous stablecoins, and b) provide a good experience for our end users. Enter Tracer Aggregated Liquidity.
We are out of water: The Naive Approach
Let’s imagine Tracer was not a modular system. How would we take part in this new age of liquidity?
We could take the approach of having stablecoin protocols deploy Tracer Perpetual Pools settled in their native token, and have them incentivise people to use these Pools through token emissions.
However, fractured liquidity is negative-sum for derivative markets. In this model, stablecoin protocols have created isolated markets that are unable to tap into Tracer-wide liquidity. Here, we see countless markets settled in different currencies, all with insufficient liquidity. Ultimately, this would cause more pain for both end-users, stablecoin providers and Tracer. We all lose.
Turn on the tap: Aggregated Liquidity
The key to solving this problem lies in modularity and the beauty of composability that allows Perpetual Pools to be settled in any ERC20.
Luckily for us, protocols enabling efficient swaps between stablecoins already exist (e.g., Curve and Balancer). These protocols provide users with a token representing their share of the swap pool. Conveniently, this token is also ERC20 compliant.
What if, instead of having countless isolated Perpetual Pools settled in individual stablecoins, we have a single Perpetual Pool that is settled in a token that represents all of the stablecoins, wrapped. This is what we call the Tracer Aggregated Liquidity Pool.
Now, there exists a single ERC20 that represents a basket of stablecoins. Instead of settling Perpetual Pools in an individual stablecoin, Pools may now be settled in this basket stablecoin. This means that rather than having countless ETH Pools settled in different stablecoins - we would simply have a single ETH Pool settled using this token.
In this proposed model, users will still receive exposure to the asset that they want, settled using their desired stablecoin. This is possible as their stablecoin will be deposited into the Tracer stables pool, entitling them to a share of the pool. This pool share then is used to open up a position in a Tracer Perpetual Pool, all within a single transaction. Users won’t have to leave the protocol or worry about swapping tokens. Further, the end-user gets much more liquidity leading to better pricing. Another added benefit to the end-user is not only do they get exposure to their asset, but they also earn yield at the same time through swap fees and liquidity incentives.
From a stablecoin perspective, this allows a few things. Firstly, it means that other stablecoin users are now helping to increase their stablecoins swap liquidity through this pool. Since liquidity is what these protocols are all battling for, this is positive-sum for all. It also provides a great yield generating location for them through arbitrage and farming the skew (read more here). Finally, it provides more utility for their token. Users are able to gain exposure to many different assets without having to sell the actual stablecoin, instead, they can simply use a Perpetual Pool with aggregated liquidity.
From our perspective, this is great as it means there will be fewer clashing Pools (i.e., less confusion for users), more liquid Pools, and the protocol will be able to provide a much better user experience.
Caution! Drowning may occur
While there are many benefits of aggregated liquidity—as there always is in large composable systems—there are risks involved that must be transparent to end-users.
By depositing into the Tracer aggregated liquidity pool, users expose themselves to the de-pegging risk of all the stablecoins in the pool, rather than just the single stablecoin that they have deposited.
We acknowledge that aggregated liquidity may not appeal to all users - therefore it will still be possible for markets to be created and traded which utilise individual stablecoins as settlement.
Time to go for a swim
Aggregated liquidity is the protocols first step in ensuring all Perpetual Pools are sufficiently liquid for you to enjoy a swim. Aggregated liquidity will prevent fracturing of liquidity across some of the larger markets on Tracer. As an end user, you not only reap the benefits of more liquidity, but your positions will now generate yield as you hold them.
Stay tuned for further updates as we utilise the Balancer grant to build out this system that will enable much more yield for end users, as well as a much more capital efficient system.
Stay up to date with Tracer’s developments!