Made popular by Curve protocol on Ethereum, “Wars”, refers to the competition for liquidity amongst protocols, signaling a new era of incentive mechanisms in DeFi.
These wars for liquidity can impact the flow of assets in profound ways, and determine the success or failure of both protocols and liquidity providers (LPs) aka farmers.
Let’s get up to speed on the wars happening on the Fantom blockchain and explore how you can take full advantage as a farmer.
How do wars work?
When wars take place, emerging protocols compete in incentivizing users, to achieve two crucial goals:
- discouraging people from selling their tokens
- encouraging people to provide liquidity for their tokens.
However, not all protocols are directly competing, instead depending on the type of protocol it is, it will play a different role within the war.
The usual roles of any governance war include:
- DEXes or Lending Protocols with high liquidity and gauge-controlled emissions
- Emerging protocols that compete to acquire more liquidity for their token
- Yield aggregators acquiring governance power to establish a secondary market for yield
DEXes or Lending Protocols (Battlegrounds)
Historically, most liquidity is found on decentralized exchanges (DEXes), and lending protocols.
With DEXes, people can make deposits to provide liquidity for others to trade with low slippage, while lending protocols allow people to supply assets as collateral for loans. Up to this point, they are the two protocols with the most pronounced product-market fit in DeFi.
As such, these platforms provide the perfect battlegrounds for warring protocols to compete to increase the liquidity of their tokens.
Currently, the following “battlegrounds” in the wars on Fantom include:
- Spirit Swap (DEX) – Spirit Wars
- Beethoven-X (DEX) – Beets Wars
- Hundred Finance (Lending protocol) – Hundred Wars
- Equalizer (DEX) – Equalizer Wars
Like many other crypto projects, DEXes and Lending protocols both issue governance tokens ( i.e. Beethoven-X’s $BEETS, Equalizer’s $EQUAL, etc.) These tokens are sought after by users and the teams of other protocols, for the special privileges they grant you on those platforms.
However, to ensure token holders are aligned with the protocol’s long-term vision you are required to lock your tokens to access those abilities.
vote-escrowed (VE) tokens (weapons of war)
When users lock their tokens they receive vote-escrowed (ve) Tokens, which grant them the following privileges:
- A share in platform revenue
- Boosted yields on platform deposits
- Most important for our discussion is, Voting power over guage-controlled emissions (rewards) for specific Liquidity pools (LPs) and assets.
With voting power over gauge-controlled emissions, token holders can vote on how the platform’s emissions (rewards) are allocated to liquidity pools on the platform.
This feature drives other protocols to acquire massive amounts of governance tokens so they can direct emissions to specific pools thus increasing liquidity and promoting the holding of their tokens.
For instance, FRAX Finance can use its large holding of inSPIRT (VE $SPIRIT) to vote to increase rewards for the FRAX/USDC liquidity pool. By increasing rewards to this pool, users will be more likely to buy $FRAX and $USDC to deposit it for high yields, thus increasing the liquidity of $FRAX.
Emerging Protocols (Warring States)
VE tokens provide a great opportunity for emerging protocols to bootstrap liquidity for their token –ensuring efficient swaps for traders–and encourage holding –promoting positive price action of the token.
however, there’s stiff competition in the market as other protocols are looking to increase their market share as well.
This competition causes various protocols to engage in “war” with each other by acquiring VETokens to direct emissions to their token pools to increase their market share.
Current projects looking for liquidity are typically algorithmic stablecoins and new, emerging protocols like:
- Frax Finance – Frax (Algo Stablecoin)
- Deus Finance – Dei (Algo Stablecoin)
- OneRing Finance
- Summit
- Many others.
Bribe Markets
Though the usual strategy is to acquire massive amounts of governance to drive liquidity, some protocols find it more budget-friendly to bribe users who already have voting power instead.
With bribes, protocols incentivize retail users who already have VE tokens to use their power to vote for their pools.
For instance, protocols will offer users X amount of their governance token for Y amount of VE token votes towards their pool on the DEX or lending protocol.
Yield Aggregators (War Profiteers)
So far, we’ve got two major groups involved in the war: battlegrounds, which represent the DEX or lending protocol where wars take place, and warring states, which are the protocols competing to capture allocations and win votes.
The final participants in these wars are the yield aggregators. Similar to emerging protocols, yield aggregators seek to acquire governance tokens. Yet, instead of attempting to boost liquidity for their tokens, yield aggregators seek to boost user activity on their own platforms.
With the massive amounts of governance tokens they acquire, yield aggregators establish secondary marketplaces for governance tokens and re-direct rewards and certain perks to users of their protocol.
The yield aggregators battling in the governance wars on Fantom are:
- Liquid Driver
- Beefy Finance
- Tarot Finance
- Ola Finance
Common strategies yield aggregators employ include:
- Boosted pools
- Wrapped governance tokens
- Special yield products
Boosted Pools
With boosted pools, yield aggregators create staking pools for specific LPs on the DEX. Using its VE power, the platform can redirect its revenue share to users who stake their LP tokens on the yield aggregator (instead of the DEX).
For instance, if users provide tokens to a liquidity pool on a DEX they can take the returned LP tokens to stake them with a yield aggregator. In return, the yield aggregator will reward depositors with the initial APY% + a boost. This encourages more users to use the yield aggregator and raises the platform’s total value locked (TVL).
Wrapped Governance Tokens
Wrapped governance tokens are essentially liquid VETokens; meaning you can receive the VE benefits while maintaining the ability to swap tokens at any time. By using their governance tokens yield aggregators create wrapped derivatives that are pegged 1:1 to the underlying asset.
In providing a wrapped derivative, yield aggregators can continue their quest to acquire massive amounts of governance power and offer users worthwhile benefits.
Some notable examples of wrapped governance tokens include:
- linSPIRIT (Liquid Driver wrapped $SPIRIT)
- RainSPIRIT (Ola Finance wrapped $SPIRIT)
- beBEETS (Beluga Finance wrapped $BEETS)
LinSPIRIT
LinSPIRIT, Liquid Driver’s wrapped version of inspirit can be staked on Liquid Driver. Staking in Liquid Driver’s auto-compounder produces a receipt token, slinSPIRIT. slinSPIRIT can be used as collateral for borrowing the stablecoin Mai or FTM on @Marketxyz. This enables more complex leveraging strategies.
RainSPIRIT
RainSPIRIT is Ola Finance’s wrapped version of inSPIRIT. rainSPIRIT is unique because it can be staked in Ola’s bribe farms allowing the wrapped tokens to earn additional yields from bribes.
BeBEETS
BeBEETS, developed by beluga finance, allows users to unlock the full potential of their fBEETS. Users who stake their fBEETS on beluga receive boosted rewards and the ability to direct BELUGA emissions on Beethoven-X. This allows users to participate in two different governance votes using the same token. Capital efficiency and democratic efficiency!
Special Yield Products
As more yield aggregators are introduced to the market, they are using the composability of DeFi to create specialized yield products. These specialized yield products are created by leveraging the benefits of VETokens such as revenue share, and voting power, to create new primitives for users.
One notable example of a yield aggregator leading the race with specialized yield products is Liquid Driver.
Liquid Driver
As Fantom’s native liquidity mining dApp, Liquid Driver has managed to produce strategies that have cemented its position as a kingmaker in the Fantom ecosystem. Liquid Driver holds a majority share of governance power in Spirit Swap, Hundred Finance, and several other protocols. They are also the only protocol on Fantom to keep their wrapped tokens at peg, building trust with the community.
Liquid Driver’s token $LQDR, is a sort of Fantom Index Fund. $LQDR can be locked for $xLQDR which rewards users tokens from various blue-chip protocols on Fantom, granting users exposure to the entire ecosystem. Liquid Driver also provides a more liquid form of $xLQDR in the form of cLQDR (auto-compounding xLQDR).
The platform also pioneered a specialized product known as Shadow Farms. These vaults allow users to accumulate governance tokens while maximizing their yields.
When users make deposits into shadow farms, their funds are staked in partner pools, and the yields are automatically converted into yield-bearing versions of the partner governance tokens (i.e. slinSPIRIT, xBOO, and fBEETS).
If you’d like to read more about Liquid Driver, you can check this thread out 👇:
https://twitter.com/DefiVaults/status/1514111700445765634?s=20&t=clxf8xzHmvK-Po910fCJ8w
How to benefit as a yield farmer
There are many ways to benefit from the wars as a farmer, depending on your risk appetite. I recommend using yield aggregators, instead of chasing yields on DEXes and Lending protocols.
Here’s an example strategy for farmers looking to benefit from the ongoing wars on Fantom:
- xLQDR strategy via Liquid Driver
Ensure you take your time to research each of these projects and their unique risks and how they fit into your strategy as they are beyond the scope of this article.
xLQDR strategy via Liquid Driver
Staking LQDR for xLQDR on Liquid Driver allows you to earn rewards in $BEETS, $linSPIRIT, $BOO, $LQDR, $SPELL, and $DEUS. Users can swap their rewards or they can create positions to participate in the #Beetswars and/or #Spiritwars.
Here’s what you can do with your xLQDR rewards if you want to participate:
BEETS
- Stake Beets for fBEETS on Beethoven-X. Staking fBEETS is unique from a lot of other voting systems because:
- Staked tokens aren’t locked.
- fBEETS consists of 80% BEETS, and 20% FTM.
- fBEETs stakers receive rewards from swap fees, BEETS/FTM farm rewards, and fBEETS staking rewards (14% APY).
- Engage in bribe voting every 2 weeks (currently users can earn ~$2 every month in bribes for staking $60 worth of fBEETS (1000 fBEETS) which is ~3% returns monthly).
Linspirit
- Swap linSPIRIT to $SPIRIT and lock on Spiritswap for inspirit to provide a staking boost for stable LP pairs.
SPELL & DEUS
- Swap $SPELL, and $DEUS for a stablecoin to increase your stablecoin position, and take profits. Use your stablecoins to provide liquidity on stable pairs on Spiritswap and take advantage of your boosted yields via inspirit.
BOO
- Swap $BOO for stablecoins to increase stable position.
LQDR
- Lock $LQDR for more xLQDR to increase your position and boost output.
Conclusion
As you can see, the Governance Wars on Fantom has managed to improve the cohesion of the ecosystem while increasing yields for users. As more protocols launch and take part in the ongoing wars, Fantom will continue to be the breeding ground for complex DeFi yield strategies.
Here are some resources to stay up-to-date with the ongoing Fantom governance wars:
