Long Push: Value Assessment of DeFi Dual Token Model

Original author: @k63jpx

Original source: Twitter

Note: The original text is a long tweet posted by @k63jpx.


For the DeFi dual token model (ticket token + governance token), it can be assumed that the protocol’s sustainable profit S0 and the funds behind the market maker are limited (S1), which can be understood as the project’s long position funds.

If a project is extremely dependent on the depth of its issued ticket assets, a large amount of long position funds S2 is needed to build liquidity in order to operate.

The sustainable funds used for token dividends are only S0 – S2.


If S0 < S2, funding for S1 needs to be subsidized to borrow liquidity.

If S0 > S2, the protocol can accumulate funds for governance tokens to boost the price.

This depends heavily on the depth of the market maker’s market-making funds S1, which is a circle with few powerful market makers.

If it is due to the distribution of chips, market makers are even less willing to boost the price.

This is an inevitable problem with the DeFi dual token model and a problem that secondary investors need to consider.

A team/market maker’s investment is always limited. The key reason why Uni V3 is prone to outbreaks of thousand-fold/million-fold soil dog projects is that the algorithm of V3 allows the project party to manipulate the price with very low liquidity costs. Although local pricing strategies will cause V3 to lose the pricing power of the overall price range, for some project parties, they just want to concentrate all their funds on boosting the price and do not want to build liquidity.

Behind the centralized power to boost the price and create a wealth effect, it is worth thinking about the fact that there are some very good projects that require many project parties to spend a lot of protocol profits and market maker costs to maintain liquidity. Although this is a good thing for crypto, for secondary investors, they are prone to the painful situation of “the project is good, but the coin price does not rise” ~ ~.

The key problem encountered by the DeFi dual token model is: there is only so much money, whether you use it to boost the price or build liquidity depth, relying on retail LPs is definitely unreliable. Retail investors’ funds are not loyal enough, unless PCL is used to completely control the LP with contracts. I think this is something that all project parties need to think about. Maintaining liquidity depth is responsible for the project, and maintaining the trend of governance tokens is responsible for secondary investors.

Of course, I am very clear. The price P of governance tokens is positively correlated with sustainable profits S0; the liquidity depth R of bills is positively correlated with sustainable profits S0; therefore, the project party should calculate an account: S0 = y(P, R, S1). The whole problem can be transformed into an optimization problem of maximizing S0 with the minimum cost of inputting the market maker S1, which is quite interesting~

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