Liquidity Black Hole Theory and How it Now Applies to WLEO

in LeoFinance5 months ago

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Many of us in the LeoFinance community have been discussing the RUNE cryptocurrency. Thorchain (RUNE) has an amazing community and massive potential to change the crypto landscape from the ground up. Many in the RUNE community have been talking about "Liquidity Black Hole Theory" today.

I feel like it's been a while since I sat down and just wrote a long-form post about something on my mind. As I've been working on the WLEO launch and releasing the Geyser distribution ecosystem for the WLEO-ETH pool, liquidity and DeFi more broadly have been at the forefront of my mind.

Today I came across a few of these tweets talking about Liquidity Black Hole Theory and the fascinating part about it is not only how it applies to RUNE (something that I'm invested in) but also how it applies to WLEO/LeoFinance (something that I care deeply about).

Liquidity Black Hole Theory Explained

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Thread

AMM stands for automated market maker. AMM is one of the fundamental ways in which DEXs like BEPswap, Uniswap, Balancer and others operate. It's a protocol that allows investors to deposit liquidity in the form of the swappable currencies (in our case, WLEO and ETH) and earn a % of fees as traders swap in and out of the two currencies.

The problem with AMMs - and every exchange, really - is the time tested chicken and egg riddle. You start out with 0 liquidity and 0 trading volumes.

Without high liquidity, you will struggle to have high trading volume.

Without high trading volume, you will struggle to have high liquidity.

How Does a New Exchange/AMM Protocol Solve This Problem?

Answer: Liquidity Mining.

How Liquidity Mining Kicks Off the Network Effect

Liquidity mining has been given several names. Many will recognize "Yield Farming" as a term in the crypto space. Some negative connotations come along with that term, so lets stick with the liquidity mining term - which, in my opinion is more accurate when describing something like RUNE or WLEO.

With WLEO, we've created a sustainable model that distributes LEO/WLEO from our daily rewards pool to liquidity providers.

Investors who hodl LEO/WLEO are able to deposit WLEO + ETH liquidity into our Uniswap pool.

When a pool or exchange starts like this, there is no reason for investors to deposit liquidity. As we said before, this is a chicken and egg problem.

Listing WLEO on Uniswap and letting users jump in on their own won't get you very far. When the pool first starts, there is no trading volume and no liquidity. Again - without the liquidity, the trading volume will not come. Without the trading volume, the liquidity will not come.

If that's true, then how did we manage to get $350,000 USD into our Uniswap pool in the first 48 hours?

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Outside of having the most loyal and amazing community ever (which we have), liquidity mining plays a central role in this early liquidity.

The liquidity mining rewards incentivize users to buy LEO/WLEO, match it with ETH and provide liquidity to the Uniswap pool.

We amplified this effect by turning our liquidity mining system into a geyser model: which means that the earlier you provide liquidity and the longer you provide liquidity for, the higher your liquidity mining rewards.

Liquidity Feedback Loops

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As early liquidity is incentivized, the trading volume increases naturally as new/existing investors want more WLEO or ETH to establish their position in the liquidity pool.

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This trading volume increases market maker profits (% rewards earned as fees) which then also contributes to the capital that is being provided as liquidity (since it has a greater incentive).

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This increased liquidity decreases the spread (also referred to as slippage). As the spread tightens, traders have an easier time doing larger and more frequent trades in and out of the pool.

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So the cycle repeats.

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Where Does WLEO / LeoFinance Go From Here?

I've been seeing a ton of posts lately asking where LeoFinance and the WLEO token go from here. The goal of WLEO is not to simply set up a liquidity pool and then coast along as if nothing's changed.

As liquidity mining incentives are distributed and discussed in the broader space, new investors are attracted to the yield. As this attraction increases, these investors are incentivized to join the WLEO-ETH pool. Not only for the mining incentives but also for the trading fees because the volume and initial liquidity are established.

The virtuous cycle stems far beyond initial liquidity.

For a project like LeoFinance liquidity is essential. Without liquidity, new users and existing investors wouldn't be able to seamlessly buy and sell LEO/WLEO.

Without this seamless process in place, your scope and scale are limited to a great deal.

I put out a tweet from the LeoFinance account earlier today and discussed the vast difference in potential that is offered to us from Uniswap versus Hive Engine.

On Hive Engine, the total trading volume per day is on the order of $7k USD.

The trading volume on Uniswap averages in the hundreds of millions of USD per day.

Our WLEO-ETH pool did $42,000 USD in trading volume over the past 24 hours. That's more than 6x the entire trading volume on Hive-Engine for all tokens combined.

Also consider that LEO is consistently the top #1 or #2 token (usually only rivaled by DEC) in terms of daily volume. We typically contribute more than 30% of the total daily trade volume on Hive's second layer.

Many have discussed this before: LEO had reached the ceiling of potential that Hive-Engine offered. The volume and liquidity haven't been growing. The best way to improve that situation is to branch out.

We set our sights on Uniswap and have made our intentions clear. As WLEO is kickstarted with all of the liquidity that we've seen thusfar and all of the liquidity that I know is on the way in the coming weeks, we're going to take the project to new heights.

Liquidity Black Hole Theory offers an insight into how a token like LEO/WLEO can increase 20x over night. It offers insight into how our pool can go from $0 to $350k in 48 hours and most importantly, it offers a perspective on what is possible as we take WLEO to new DEXes, CEXes and DeFi protocols.

WLEO is an ERC20 equivalent of LEO and it opens up the doors to an endless sea of opportunity.

So to answer that original question: "Where is LeoFinance & WLEO Going?"

The moon.

We're achieving our goal of becoming a cross-blockchain ecosystem. A hardcore community of hodlers, investors and content creators. People who work together on a common mission to grow our ranks and continue to onboard new users who are as passionate about finance & crypto as we are.


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LeoFinance currently sits at a $1.1M market cap. Our potential as a project has only just begun as we continue to develop the core pillars: Community, LeoFinance.io UI, Liquidity, WLEO, LeoApps..

Throughout the rest of this month, we're releasing V2 P2 of the LeoFinance.io UI which brings a set of essential features to the community.

In December, we'll release an updated month-to-month roadmap which will also unveil our latest project: micro blogging on Hive. Many community members have heard whisperings about this project, but none of them are prepared for the integration itself. Get ready to change the face of web3 🦁

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It's called wash trading. It's algos trading against themselves. The volume isn't real. I've seen it in other places too.

Hey, what do you do when everyone is a liquidity provider and nobody wants to buy and hold? You've got a big candy store and no buyers.

Think about the sustainability of this reasoning. Simple economics dictates diminishing returns, and somewhere along the line zero is reached.

$350,000 is a lot of money, and you've got a huge responsibility. Hope my observations and thoughts are helpful - I'm trying to be constructive - and best wishes for long term success.

It's a good marketing strategy and that's what we need at the moment. When new people aka. traders get introduced to leofinance some of them will join and maybe power up their leo.

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As a content-creator, I honestly can't figure out what ANY of this means. It sounds like marketing hype for the most part, but what would I know? I'm just a simple chart analyst, monetary theorist, photographer, vlogger, writer, and bitcoin seer who has been in it since 2011 and never wrong. I wish the Leo team well and thank them for the posting platform.

Oh man, i was out for a couple months, i come back and see so many updates ... it's crazy! you guys are doing great and you must work really hard. I keep watching different kind of developments in different aspects of Leo, the interface, the apps, Wleo, Hivepay!

I had to get so excited since the steemit sbd 10$ increase! I caught myself these 2 days since i came back, being in Leo for over 6-7 hours per day. I was years since i feel this hyped about a crypto!

Once again good work guys we are here to support your dream and make it ours!

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Thank you! Glad to hear you're excitement about the project. I think we're just getting started but also getting some recognition on our project. It's fun to see but lots of buidling yet to come ;)

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With the move of LEO to go cross chain; Wouldn't be the logical next step to move to LEO's own home chain? Or do you think the content part of LEO is well off being the HIVE chain?

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I think hive is the best blockchain in the world for connecting the token distribution/content storage of LeoFinance.

That said, something major needs to change with Hive’s second layer/SMTs for us to reliably keep the native LEO token on the hive chain. We’ve all waited so long for a decentralized token protocol and @theycallmedan is one of the only people who is making the push to get this done as others have sat back and done nothing to achieve it.

I’ve spent the past 16 months building LEO with the hope that we’d prove the viability of tokenization on Hive. Now I hope that everyone sees how important it is to deliver on a decentralized Hive token protocol. Whether that’s first or second layer doesn’t matter.

A lot of people have asked recently if we have any intention of moving off hive - the answer is not unless a nuclear scenario forces us to (something wrong with HE/no hope of a decentralized token on Hive). If you cut me, I bleed Hive but LeoFinance’s security and future will always come first. With Dan now working to get this delivered, I feel that we’re closer than ever to a true token on Hive

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I read messages from a few HIVE users (witnesses I suppose) SMT is not that important anymore, Smart Contract should become the next thing, which makes SMT obsolete, in their views. Now I hope they don't forget SMT in whatever form, but must be decentralised. Otherwise you may find a new home for LEO at the KOINOS chain. From the little we know about that chain, what it tells me that everything can be build into smart contracts, its gonna be fast and its fee-less.

I do hope the HIVE guys pickup the speed, since the speed of LEO should not outpace the changes needed to HIVE.

I do hope the HIVE guys pick up the speed since the speed of LEO should not outpace the changes needed to HIVE.

When they forked they claimed there're 75 devs. I wonder?

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When they forked they claimed there're 75 devs. I wonder?

Hahahaha, 'they' claimed a lot; Kinda like what marketeers do! But when nobody wants to work in an organised way, nothing really happens. The statement when I try to form some team for some of the concepts and propositions I have, I usually get the feedback: HIVE sells itself, bringing HIVE to the market shall not be like a normal business. Furthermore I get no response at all from Devs to join in a team to materialise any of my ideas.... Ok they maybe super bad, but I don't believe so :)

Decentralization is good.
Or is it?

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Hahaha, difficult to get something going really LOL

Blocktrades also has some things in mind.

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That would be like changing the engine during a race, I don't think that matters at this time, others have explained it better though. I do like that Leo is reaching out to other chains to let them earn their own tokens too!

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I do like that Leo is reaching out to other chains to let them earn their own tokens too!

Absolutely! And the way they do it, I really like. Not by duplicating the tokens for distributing, but by the ability to swap them.

That would be like changing the engine during a race

A nice challenge :) That said, Khaleelkazi explained in his comment what HIVE needs to add for LEO to prosper tohether with HIVE. And I agree to that point: SMT or some other decentralised form to create and manage tokens on top of the HIVE chain.

Leo Finance tokens are like shares of a company. And I am holding it like Warren Buffett...:)

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Your ability to hype stuff up rivals that of aggroed from Splinterlands. I am so excited to be in the LP since day one with a considerable stake that I have hodled for a long time (since day 1 plus curation and author rewards). In fact, LEO makes me really believe that HIVE has a glorious future as platform second-level tokens (or maybe first layer eventually but who really cares for that these days anyways - SMTs anyone?).

Micro blogging via LEO? Like Twitter on Hive? But for finances? Potentially connected to Twitter to pull in the tweeters? Bring it on!

Lol thanks. You’ve been here since the beginning so always happy to see you around.

“ Micro blogging via LEO? Like Twitter on Hive? But for finances? Potentially connected to Twitter to pull in the tweeters? Bring it on!”

Yes, yes, yes ;) this week/next we’ll release LeoInfra V2 which is closely connected to this long term microblogging roadmap.

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You've spoke about the importance of liquidity and definitely one thing that's obviously pointed out is how new investor come into play and are attracted to the yield. It's all about growth for the long term and how everyone involved gets to go home happy in a win-win situation.
At the end I only see Leofinance increasing in reach and bringing in more business oriented users to th fold.

Cheers Khal, Wleo 2:0 came with goals.

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I am already making money just from the information I get on LEOfinance alone and acting upon it. And that does not include the price appreciation of the LEO token itself. I see a lot of win-win here!

and all while everyone keeps saying its not investment advice...

tsssss... shame on you :-)

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Yeah, that whole legal loop-hole with claiming that stuff is no financial advise is ridiculous and annoying. Somehow like a semi-forced hypocrisy.

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Many win-wins and even more win-wins that's the goal I guess

We have only 600K liquid leo available. How we gonna provide more liquidity for exchanges and new pools?

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What pools do you suggest? Something like LEO/DAI for a stable coin variant? More people would power down to join other pools, assuming the incentives are good enough. I certainly would!

I know for one coming to Thorchain in the future. But anyone can start the pool.
Koin- Eth was launched while people still mining and there's no chain yet.

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LEO/RUNE would be an awesome pair. I have already loaded up some RUNE since I read so much about it here on LEOfinance. Very interesting project for sure. I wonder where the incentives would come from. The 15% LP rewards from the inflation are reserved for the WLEO/ETH pool, right?

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It's so awesome the way you just keep the good stuff coming, to the moon is what we are all dreaming about, and for once in a long time, I have faith in something else other than my 9 to 5 job!

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You must have a great 9 to 5 job to have faith in it. But I do have faith in LEO and crypto in general pulling me out of my 9 to 5 job.

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Yes, after decades at the same place I can have faith I will be able to retire in my 5o's, Hopefully, cryptos make it more comfortable.

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November is a killer month for updates.. December will be even crazier in my opinion. Can't wait to launch all of the stuff we have under development into the world!

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I can't wait either, you are giving us so much to look forward to.
I'm always looking for the next roundtable hoping to catch one of your top-secret surprises. lol

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November is a killer month for updates.. December will be even crazier in my opinion. Can't wait to launch all of the stuff we have under development into the world!

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Glad to see your actions!

For me, I will earn LEO From Blogging gradually and re-invest as LEO Power or WLEO.

I hope that Wrapping LEO to WLEO will stay long alive and move forward on some huge DEXs.

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So to simplify to the extreme - People stake LEO to the Pool, which attracts more trading volume, which makes the token more attractive, which attracts more staking to the pool, which increases the trading volume and so on, each time the price/ market cap of WLEO increasing and increasing visibility!

Is that roughly how this works?

We need more LEO pairs! Is that even possible?

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I just love how your team keeps delivering one thing after another. It's like you guys don't sleep at all.
Waiting for the microblogging now! Peace and productivity!

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That's more than 6x the entire trading volume on Hive-Engine for all tokens combined.

That is a huge volume for a starter in ether network. I know that the positive response from eth users are backed by leofinance.io community, because they are the real asset of all leo projects. When wleo 1 was hacked , the basic community of leofinance.io got no much influence from tha hack case.

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I consider myself a pretty smart guy but that is all some deep deep stuff right there. I want to make my hive wallet into a black whole sucking up all of the assets. Lol.

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Leo is growing in astonishing rate I must confess
Well done to the great work you guys are doing I must commend your effort

Yes i'm quite impressed with the success of Leo. The problem i see is that as you mentioned the greater part.. or i may venture to say like 90% of your trade volume comes from ethereum uniswap. None of that liquidity seems to actually appear on Hive. I like the concept of Hive-Engine but marketing seems nonexistent always has. It feels like the idea of smt's if smt's were to occur i don't think it would be much different or any less opportune than now.

Yet the trade volume on Hive-Engine is incredibly low in comparison to almost every exchange out there. It's very strange because if you really think about what Hive Engine is there should be alot more attention and hype to it. It's easy to use. I certainly a million times over prefer it to ethereum and uniswap. In fact i don't even like ethereum and uniswap i think they are much too complicated for the average person to use. This is for experienced people and developers so ethereum doesn't even keep in mind a product for normal people to use. I think atleast Hive Engine seems to be designed for anyone to use. It's better you don't have to worry about all this gas business.

At the same time to me the Hive Blockchain almost seems obsolete to your product at this point. Leo could clone Hive and dpos systems and do all this without an anvil around their necks. It would more than likely still work the same maybe even better. I'm not saying do that. I'm simply saying at this point hive blockchain seems obsolete. It's more seemingly depending on you than you on it. That's one issue with smt's that unlike ethereum and erc-20 tokens. Ethereum built up their infrastructure and value. A ton of money on ethereum. Hive and Steem.. dpos been struggling to get any liquidity and value for a long long time. So i don't know how much liquidity you going to get from Hive Engine. You may get more from ethereum and i'm not sure ethereum will want to bring their money back to hive. So it will be interesting to watch. I'm sure whatever you all do seeing that it's been successful so far will be successful in the future.

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Our WLEO-ETH pool did $42,000 USD in trading volume over the past 24 hours. That's more than 6x the entire trading volume on Hive-Engine for all tokens combined.

That showcases the strength of Leo. However, how does all these initiatives attract new users ? Do they need to invest ?