By Peter Girr, Founder and CEO of WiseSoft, LLC
Liquidity 2.0 refers to the improvement of the tokenomics surrounding the original liquidity formation on the DEX in the Wise Ecosystem. This document is an extension of the original WISE whitepaper.
The Original: Liquidity 1.0
The Wise Liquidity 1.0 model was a proof-of-concept fair-launch protocol designed to create the first Ether-backed token. Of the 57,900 Ether raised, more than 28,000 Ether is provably and immutably locked in the WISE/ETH liquidity pair on Univswap, thereby creating a mathematical price floor, priced in Ether. The 28,000 Ether is mathematically calculated from what would remain in the WISE/ETH liquidity pair, should all WISE (staked and unstaked) be sold back into the liquidity pair.
There are two primary factors that affect this 28,000 Ether — WISE token inflation and Uniswap transaction fees:
- WISE token has a 4% annual supply inflation. The inflation will slowly decrease the relative value relationship of the Ether in the pair; however,
- Each Uniswap transaction fee that is generated from buys and sells of WISE will increase the relative value relationship of Ether. Currently, these transaction fees comprise a 5% annual deflation to the liquidity pair, significant considering the liquidity pool is currently over twice the value of the WISE token market cap.
Additionally, any burned WISE, lost wallets, and staked WISE also need to be accounted for, which all increase the remaining amount of Ether in the pair further above 28,000. Suffice to say more than 28,000 Ether is locked below the price floor, never to be accessed.
The Wise Liquidity 1.0 model is at least 50% inificent. Why?
Primarily due to the nature of Uniswap, liquidity pools, and AMMs (automatic market makers), the immutable capital locked beneath this mathematical price floor will never be utilized in any capacity, other than to prop up the price of WISE token. The purpose of WISE is to create truly decentralized finance, so this inefficiency was purposely created to ensure greater initial security for the proof-of-concept model. WISE/ETH is now the largest pool on Uniswap V2, proving this uniquely fair and highly secure model works and can be iterated upon.
Enter Wise Liquidity 2.0.
The Upgrade: Liquidity 2.0
The purpose of Liquidity 2.0 is a more efficient use of capital from a launch event, while maintaining security and fairness. Liquidity 2.0 allows 50% of the funds raised from a launch event to be removed without changing the amount of liquidity that would have been added to the DEX in the original model. The removed funds are used to create a large revenue-generating treasury that generates airdrops for Wise token stakers.
The revenue for these airdrops is generated immediately after launch by utilizing validator nodes and stable yield farming opportunities. On BSC, the WISB (a WISE Token variation backed by Binance Coin (BNB) instead of Ether) treasury is generating $30,000 each week for the BNB airdrops by utilizing yield farms like CAKE on Pancakeswap. Any additional funds below the mathematical price floor are used for ongoing project development in the Wise Ecosystem (like LiquidNFTs.com and the Lending/Borrowing contract), website maintenance, dev payrolls, etc.
After a launch event, the funds should be separated between the treasury and the developer’s wallet for transparency. Unfortunately, the WISB presale did not exceed the amount of working capital needed to further develop the Wise Ecosystem. However, sans a massive development treasury, it was crucial to demonstrate the power of Liquidity 2.0; ergo, airdrops of BNB began at a rate of $25,000 per week, which has since been increased to $30,000 per week.
The scope of Liquidity 2.0 includes several smart contracts, with the primary difference being the creation of a synthetic token contract that works with the DEX pair.
On the BSC chain this is synthetic BNB (sBNB) and on Casper it will be synthetic CSPR (sCSPR). Since it is impossible to alter or utilize the capital in Liquidity 1.0, the WiseSoft team created the synthetic contract to allow presale funds beneath the price floor to be securely released. For example, instead of pairing the WISB with BNB — like the original model — WISB was paired with sBNB, where the synthetic contract regulates the BNB. Just like a traditional wrapping contract, anyone can trade sBNB for BNB 1:1 and the synthetic contract will always have BNB to pay out even the very last holder, while still releasing 50% of the original BNB raised due to the AMM and price floor mechanics described earlier. This decreases the capital inefficiency described in Liquidity 1.0.
An additional aspect of Liquidity 2.0 is that the remaining 50% of funds (in this case BNB) are sent to the DEX to form a second liquidity pool. This second liquidity pool will be half the size of the main pool. The purpose of this is to facilitate seamless swaps from WISB to BNB.
Note: As stated, this second pool is 50% smaller than the primary liquidity pool and will lead to higher slippage on swaps. While not an issue for most users, swapping very large amounts can be done more efficiently by using the main pair to swap into sBNB or sCSPR and then using the synthetic contract to trade 1:1 into BNB.
The final state of the treasury will be realized when 100% of the treasury funds are deposited into a smart contract connected to the Wise ecosystem governance protocol, forming a DAO known as the “The OWL DAO.”
How does the OWL DAO Work?
The OWL DAO will keep each ecosystem’s funds separate (WISE, WISB, WISC projects) through the use of multiple smart contracts on each chain, although the UI will include all of the treasuries together to show the full scope of the Wise Ecosystem. Before the final stage of the OWL DAO is completed, each ecosystem’s treasury is controlled by the WiseSoft, LLC team via a multisig vault; although, future launches and revenue-generating protocols will send treasury funds directly to a smart contract once the governance contracts for the DAO is live. Note that Liquidity 2.0 does not include a start-up fee (2000 Ether) as Liquidity 1.0 did.
Liquidity 2:0 is a significant and game-changing tokenomics upgrade for the Wise Ecosystem that facilitates the creation of a DAO-owned treasury, which ultimately increases yield for stakers in the form of weekly airdrops as well as providing working capital for ongoing ecosystem development.
Many thanks to the members of the WiseSoft team, the Casper Developer DAO, who is translating our contracts into Rust for the Casper launch, and our wonderful community members, who have supported our journey every step of the way.
Authored by Peter Girr — Founder and CEO at WiseSoft, LLC