What Comes After Incentives: Building Sustainable Liquidity in DeFi | Wesley Xia - Momentum

And we have Wesley Sha from Momentum to talk about incentives and holding on to the liquidity in DeFi. Welcome Wesley.

Thank you. Hello everybody. Hope everybody's are uh hanging tight for the last day of East Denver here. Um well uh yeah so just uh maybe a show of hand. How many of you guys have interacted with like D5 protocols?

All right great. Yeah. How many of you guys interacted with D5 protocols before they launch a token of some sort? Right. Okay.

Like did you did you guys receive the amount of tokens that they promised delivered? Whatever. Right. Never. Right.

Almost almost none. Right. Yeah. Exactly. Exactly.

So So it sucks, right? So like today we're going to address that exact issue and uh moving forward hopefully you guys can get something out of my presentation to help you with uh your future interactions with DeFi protocols in the landscape. Uh yeah so you know uh the the defining questions for the next chapter in DeFi is how do you keep liquidity uh when the incentives are running out right every DeFi protocol launches with incentives with points with airdrops and yield boost right but what happens when the music shares stop running right so this is the this is exactly what's happening today right there are $237 billion in the entire DeFi landscape while there's 22% % drop in the user uh users in DeFi, right? That's what we have seen. Uh like there's more money flowing into DeFi than ever.

Uh but the real users are dropping down, right? What what exactly is the reason behind it? Uh that's what I'm here to tell you guys, right? It's because of the airdrops. The air drops are not working.

The point systems are not exactly working uh in the ways that they are designed to, right? uh majority uh maybe 60 to 90% of the tokens drop down 90% of the volume uh in less than three months, right? So what's the point of like getting tokens when you're putting and depositing liquidity of your own assets and referring all the users, right? Let alone majority of the rewards are being uh snucked up by like people like Justin Sun and other whales that are participating at large, right? So there's no point uh really uh in participating into D5 protocols as a whole uh unless you know you uh you you're one of the whales in a small syndicate or a cabal of some sort.

Uh so so so yeah. So uh you know here's a uh a specific case study of uh how much how much money or how much um uh quantitative amount of action that has been put into a example such as Starknet, right? Uh I I love Starknet. you know, like I talked to their founders, but uh the reality is, you know, $400,000 being put in uh in terms of action uh and but as a result, $500 in terms of token incentives and reward are presented to uh the users that interact. So uh that's a 0.

125% uh return for months of active participation uh etc. So that is uh that is simply not fair. uh and then uh the uh what we have to what what we have seen is almost 94.3% of the uh capitals right now in the D5 landscape are uh are deployed by uh by by by whales as well right so this is what we like to call the mercenary capital of death spiral right uh if we do not fix this issue uh moving forward into the future nobody will interact with D5 protocols nobody will interact with all these ghost chains uh and and we'll face uh more price drops in all the altcoins that people are buying. Uh, pardon my language.

Uh, so let's get down to the bottom of this, right? Like how do we build a sustainable liquidity uh across the the the landscape of DeFi, right? That actually lasts longer than uh than normal, right? Uh so from day one, uh for any protocols builders out there that are uh building your protocol, uh the goal isn't to really eliminate incentives, right? rather is to uh design them to attract users in a way uh that really appreciate the uh the power users, right?

The people that interact with your protocol on a daily basis, the people that actually invite and and do referrals. Um and you need to make sure that uh transparent reward budgets are given out immediately to the community. uh a uh activity weighted rewards and loyalty mechanisms are all in place uh to help engage uh all the community right uh so uh keeping the transparency is key. Uh next up uh I wanted to talk about you know how um how how these uh you know transparent uh reward budget uh we we we should structure in a place to end the guessing game. uh what what the guessing game is is that we often times see a uh a a a a protocol giving a um I guess an unlimited amount of uh uh of points uh but the denominator often times does not change right they're offering like 1% 2% over a vesting period of 12 months uh and and it's not fair right so you need to be very clear as of like okay how much you are allocating immediately from the get-go I don't care if you raise from polychain or a6z you got to tell people uh that come into your protocol uh you know how much how much they're making right um and and we need to have a activity weighted reward flip flipping the script uh so say if I have a whale coming in today uh depositing $20 million they should not be getting a 10% yield on a a 60-day deposit versus somebody that you know comes in at $100 uh and then you know referring their friends and family members to participate in your uh DeFi protocol every single day And yeah, they're they're getting like $1, $2 uh by the time of TGE.

That should not be uh the way uh this industry work in the in the in the future realm of DeFi, right? Um yeah. So, uh next up, I want to talk a little bit about postGE. Uh uh you know, like a lot of founders uh right now are sort of like giving up in terms of like, okay, like I launch a token, I'm done with my protocol, right? Like that's definitely not not cool and it should not be um the way builders uh uh uh h like builder mentality should be right.

There should be um clear mechanisms of buybacks. Uh there should be clear mechanisms of staking rewards uh to really facilitate and stimulate the entire ecosystem uh moving forward uh to grow and uh consistently and organically. So here is an example of a successful case uh case study uh of GMX. uh GMX basically you know distribute all 100% of the protocol fees directly to the token holders right this is what we like to call decentralization uh to the key right uh so 30% of them goes to the GMX holders 70% goes to the GP liquidity providers uh it's a truly decentralized protocol in a way that um uh revenue and token prices are uh are are basically having a positive uh uh uh positive mechanis mechanism uh around it right Uh so there's not just mercenary farmers uh around your tokens around your points. Um uh there are uh there are continued uh growing support of this and we have seen uh uh time and time again right like we have seen uh you know hyperlquid uh edge all of these like longlasting uh uh I guess per dexes that are coming up uh that are doing a fantastic job uh uh in terms of uh u making making sure the stickiness of the user still stays right.

Um so yeah so uh here's the moat that uh nobody really uh really talks about the dimensions uh right uh uh the composibility uh is a moat uh right uh and it often often times is overlooked uh so when uh when you're building a D5 protocol right when your liquidity is deeply uh integrated into the broader D5 system uh then it becomes uh incredibly sticky right uh what I mean by that is like okay if you're building a DEX if you're a lending protocol, it should be a uh a integral part of a bigger bigger piece. Uh and that is uh uh that that is something a lot of uh you know builders uh fail to recognize. Uh but uh yeah, I think uh in the future that should be taken into consideration. Uh and also you know uh going into a bigger uh and broader um uh ecosystem of newer assets uh is something that uh we strive to do. uh uh and also uh I I wanted to kind of iterate as well.

Uh there is currently about $370 uh70 billion uh worth of RWA assets uh including you know securities uh uh including uh uh uh private credits etc right like these these type of assets uh needs to come into crypto uh uh more often than not so uh last year alone you know black rockck toss about 500 million uh JP Morgan about a trillion dollar in volume uh all of these are sort of uh up and coming and a lot of people doesn't realize uh this entire industry is no longer driving just by retails like how it used to be in the previous cycles uh but rather by a lot of the institutions uh as well as bigger uh investors as well right so this is some knowledge to take in uh so here are uh here are some of the RWA asset class breakdown uh due to the time constraint I'm not going to go into details of it uh but mostly it's private uh uh private credits and also securities uh in the US in the US capital and also money markets uh so how do we bridge you know RWA liquidity into DeFi uh or into the ecosystem broader at large. Uh this is uh this is some some of the uh scalability issue that we need to solve both from the regulatory standpoint as well as uh from a protocol standpoint. Um yeah so institutional security regulatory compliance uh as well as uh the uh uh composibility right so these are the three items uh uh so yeah uh lastly I want to quickly uh touch bases on you know what define a protocol to build uh and last uh here are five uh you know qualities I think kind of messed up but uh uh yeah so you you need to continue iterate your product uh you need to uh uh put your tokconomics in as an integral part of your product uh and you need to generate real revenue. I cannot stress this enough, right? Like people think that you know coming into crypto land uh crypto industry launching a token that's and call it a day.

uh you know this is this this entire trend this entire marketplace uh has uh this entire market cycle has changed and uh moving forward from this year onward uh I think we'll see a lot more protocols uh uh DeFi or non-defi alike uh will be shifting more toward real revenue uh to come uh and of course uh right community ownership and de uh composibility uh you need to make sure that your community is alongside with you uh and they they they they are not just there uh to be the mercenary token hunters as well. Um uh yeah, a lot of this uh is hard uh hard to do uh than just you know speaking it out loud. uh but uh I would still encourage if there's any builders out there uh you know try to follow the parameter and the guidelines uh uh of this particular uh uh uh framework right uh so the the road ahead right like what what can you do right as a builder uh you know start optimizing for uh for real revenue as an investor uh look for yields looking for uh compound optimization of uh what a protocol can actually do if you're a user uh provide your uh seed your liquidity with a with a protocol that really cares about you right? Like don't don't just go because they were invested by like you know A6Z it was like $17 million. It it doesn't work like that.

Right. So uh so yeah just uh just a just a quick pointer. Uh awesome. All right. Yeah.

So that's basically my presentation. Uh well thank you guys very much. I hope you guys enjoy a very uh great afternoon here in Denver as your last day. Thank you.