A prototype of ‘Spontaneous Liquidity Accumulation Protocol’ (SLAP)

I drank too much coffee and could not sleep last night. It was snowing outside and the white silent beauty took my wild imagination far away from my study room. As my thoughts wander, one of a sudden, here comes the thoughts of the prototype of SLAP.

It has a little bit of (3,3) from Gaming Theory as introduced by OHM, a little bit of DeFi 2.0 as the spontaneous mechanism creating the virtuous circle by itself, and a little bit of FOMO by providing a high USD-based APY for stakers.

Here comes the wonder:

A Token Bonding Contract

A Token Bonding Contract is created for the minting of the token (Let’s call it SLAP for now). When users deposit DAI into the bonding contract, an equivalent amount of SLAP will be created at a price, controlled by the embedded algorithm, and vested in one day.

The paid DAI will be reserved in the Reserve Contract.

In the Bonding Contract:

• SLAP bonding price will be ever-decreasing if no one is bonding in one hour.
• SLAP bonding price will be ever-increasing if more users are continuously bonding every hour.
• The slippage of increase of the SLAP bonding price is algorithmically controlled, and more or less equivalent to the slippage in the liquidity pool on Dex like Uniswap.

The Reserve Contract

The Reserve Contract is preserving the collected and unused DAI from SLAP bonding. And we can also call it the reserve pool. It will perform as the treasury for the SLAP protocol, for liquidity accumulation, distribution and DAO reserves.

The initial liquidity

The initial SLAP/DAI liquidity will be created on Uniswap V2 or other dexes with a similar mechanism. The initial price for SLAP is set to be 1 DAI.

The mechanisms of the Reserve Contract

Here comes the best part.

The Reserves are fully made of DAI tokens, and the following behaviours will be triggered once every day. (The frequency and the percentage are adjustable. It can even be adjusted to a more dynamic model, say, if the bonding SLAP price is higher than the market price, more SLAP should be purchased from the market; if the bonding SLAP price is lower than the market price, more SLAP should be minted to pair DAI and be contributed to the liquidity pool.)

1. 10%. 5% of the DAI is used for purchasing SLAP on Dex. Then paired with another 5% of the DAI to deposit in the DAI/SLAP liquidity pool.
2. 40%. 40% of the DAI, accompanied with the same value of SLAP, minted from the contract, will be deposited in the DAI/SLAP liquidity pool.
3. 40%. 40% of the DAI will be distributed to SLAP stakers directly and linearly in 3 months. Or it will be transacted for SLAP and distributed to SLAP stakers linearly in 3 months.
4. 10%. 10% of the DAI will be reserved in DAO for the ecosystem building, marketing and incentives for stakeholders.

Why this mechanism can work and create a favourable rolling circle?

• The liquidity is ever-increasing. As introduced by the name, the liquidity depth in the Uniswap V2 alike dex will be ever-increasing and 100% controlled by the protocol, with 50% of the reserves contributed into the pool. As the pool grows bigger, this percentage can be adjusted to a lower level.
• The 5% of the reserves will continue to have the buying power into the pool and create a force of pushing up the price. This percentage can be adjusted to a lower level as the pool grows bigger.
• The bonding mechanism can provide a dynamic arbitraging and gaming opportunity for the participants. The bonding price is decreasing if no one bonds in an hour, which may cause the bonding price to be lower than the market value, incentivizing the bonding actions. If more users are bonding, the price has a similar slippage as the liquidity pool in Dexes and thus push up the bonding price.
• The bonding actions can enrich the DAI in reserves, which will further contribute to the liquidity and distribution for stakers.
• The stakers will have an attractive APY directly in DAI or in DAI equivalent value. For a newcomer, if the SLAP price is 100 DAI and he/she is bonding and staking, 40 DAI will be distributed in 3 months, equivalent to 160% APR in USD in one year!
• If SLAP token price falls, the APY in USD will be even higher, as there will be a 3-month time lag for the distribution of the DAI reserves in bonding. This mechanism will incentivize the purchasing of SLAP as staking will be more profitable.
• The SLAP is anti-inflationary. The bonding can create some new supply of SLAP but it is purchased around the market price. The 40% in minting can some new supply of SLAP but it is accompanied with DAI to contribute in the liquidity pool. Therefore, the SLAP token is an anti-inflationary asset.

What do you think?

Welcome to discuss with me on Telegram (Ryan_tian) or Twitter.