Providing Staking Liquidity with LP Tokens: The Case for STRP
The automated market maker (AMM) is a crypto innovation created by decentralized exchanges (DEX) that allow you to contribute your tokens to add to the liquidity of a pool. You contribute your ETH and USDC into an ETH-USDC pool so traders can swap those assets, and you receive trading fees (yield) for your contribution. It’s a democratization of market making.
This concept carries over to the perpetual-contract space, and Strips has structured it in such a way that drives real value to STRP holders and stakers.
Perpetual-contract protocols use vAMMS (virtual). What this means is the tokens you’re providing aren’t what’s being directly traded. Back in our AMM example, you provide ETH and USDC to an ETH-USDC pool and people swap only those assets in the pool. In a vAMM, it’s often a stablecoin deposited to collateralize the creation of perpetual futures contracts that trade on the platform. You’re still providing liquidity, it’s just facilitated in a unique way. Synthetic liquidity.
Why token? It’s a valid question for many protocols that fundamentally don’t really need one because 1. it doesn’t provide any utility to the protocol and 2. there’s no explicit value accrual to the token. You buy it because hopefully number go up?
We don’t want STRP token to be that. We want it to be integral to the protocol and have a very real mechanism for value accrual and rewarding investors as Strips succeeds. So that’s what we did.
Many protocols opt for USDC to act as this collateral. We chose STRP-USDC LP. Here’s why we think it’s the superior choice and drives value for STRP.
- When you stake STRP-USDC, you receive a cash flow stream based on Strips trading activity. We send 100% of trading fees and profits to our liquidity and insurance pool stakers. This means if you want access to this revenue and share in the success of the protocol, you must buy and stake STRP. This dividend-esque payment is the core value-accrual vehicle.
- The majority of revenue redistributed to STRP stakers is in the form of USDC, which means less sell pressure on STRP itself (often staking rewards paid in native token are dumped). The part of the staking ROI that’s in the form of LP is compounded back into your original position automatically. Further, there is a hard cap of 100M STRP, so it will not be inflated into oblivion in this process.
- Increased Strips trading volume and fee distribution to stakers creates buying pressure for STRP so it can be staked. A direct relationship between STRP price and the success of the protocol.
- To get STRP-USDC LP, you must provide liquidity to the STRP-USDC pool on Sushiswap. So this LP-staking approach not only generates natural buy pressure, but also creates liquidity for STRP in the open market.
Volume on Strips increases → which creates revenue for our stakers → which increases intrinsic value for STRP → which fosters buy pressure for STRP. Flywheel go brrrrr. We are building a first-of-its-kind interest rate swap protocol in crypto that has volume measured in the hundreds of trillions of dollars in TradFi. It’s the kind of product designed to attract very real institutional money. As the DeFi market matures, IRS will be a necessity, and we will be leading the way.
The information presented here is meant for educational purposes, and is not investment advice. Any past performance, projection, forecast or simulation of results does not necessarily indicate any investment’s future or likely performance. The information and publications are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by STRIPS Finance.