Inuko Finance Documentation
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Protocol-Owned Liquidity

Thicken POL to avoid paying rent and liquidity flight risk during periods of market distress Protocol-owned liquidity is the new approach to providing liquidity on AMMs. The advantages vis-à-vis the traditional approach are summarized below.

Traditional form of LP vs. POL

Actions
Traditional form of LP
POL
How
a. High emission of governance token to incentivize liquidity providers b. Get a gauge/s and continuous bribes
Acquire LP tokens via bonding
Impact & Effect
a. Stagnant or downward pressure on token price due to inflationary pressure b. Continuous time and resources required to secure gauge
Emission from bonding can be modeled and numerous variables within one's disposal, giving a large degree of control
Advantages
None
a. Relatively maintenance-free once bond market has been created b. Ability to let the bond market run until the desired level of POL is achieved

How

For protocols soon to go-live

  • conduct liquidity bootstrapping event (LBE)
  • allow two weeks post-LBE for market discovery of token's price and price stabilization
  • using the price data, use Bond Protocol to create bond market to acquire POL

For existing protocols

  • create bond market to acquire and thicken POL by redirecting existing pool2 incentives to bond market
  • monitor POL tokens acquired and switched off pool2 incentives at the appropriate time

Why

  • Cost-effective: mercenary capital is expensive while POL provides an additional revenue stream in the form of swap fees provided by AMMs
  • Eliminate capital-flight risk: mercenary capital has high probability to pull liquidity out during times of market distress (which is when liquidity is most needed). With POL, this is eliminated as the protocol will not remove its own liquidity, avoiding downward spiral of token's price