Creating dependable liquidity for GET Protocol on Polygon
Today we are excited to be announcing the start of our Protocol Owned Liquidity program that will commence on the 17th February! This blog will serve as an overview for the program and reinforce why liquidity is so critical for GET Protocol’s global operations.
Liquidity is often an overlooked yet necessary piece of a protocol’s puzzle. Part of the overlooked nature of liquidity can be boiled down to its 'invisible' functioning. When liquidity is deep everything works just as expected but when there’s a shortage of liquidity it becomes very apparent.
Whilst liquidity is crucial for any project, for GET Protocol it’s amplified as we’ve consciously built our global ticketing infrastructure to remove all crypto & blockchain complexity away from the experience had by the event organiser and attendees when using our products.
Behind the scenes at the heart of GET Protocol’s NFT ticketing infrastructure is the $GET token that fuels every ticket issued through the protocol. The on-chain nature of the $GET token ensures a clear value flow, accounting and pricing for ticketing activity. But due to the very nature of the $GET token fuelling operations in the background, it is not an option for us to turn away ticketing integrators and event organisers because of low liquidity.
‘I’d love to use the protocol but I can’t buy in effectively’ are words we need to avoid at all costs.
Liquidity needs to flow at all times and be deep enough to support high throughput of on-chain ticketing & tokenomic activity. As such we’re always looking for ways to strengthen the liquidity available for the GET-ETH pairs on a long term basis and share in the collective evolution of liquidity capturing mechanisms as they are discovered and battle tested by the Web3 space as a whole.
One of GET Protocol’s primary liquidity capturing mechanisms has been the ‘LP rewards program’ which rewards individual market participants who add liquidity to GET-ETH pools across Ethereum and Polygon with $GET on a twice-monthly basis.
The twice-monthly distribution up till this point has been:
6,000 $GET - Polygon GET-ETH Pool
6,000 $GET - Ethereum GET-ETH Pool
Which results in 24,000 $GET total distribution per month across both networks.
Beginning Thursday 17th, we will be launching in partnership with Olympus Pro what’s known as our ‘Protocol Owned Liquidity’ program (or POL for short). You may not yet be familiar with this mechanism, but it’s a method that’s grown in popularity over the last 6-9 months spearheaded by Olympus DAO & their Olympus Pro program.
Protocol Owned Liquidity unlocks the ability for a protocol to own its own liquidity by acquiring LP tokens from market participants, this gives the protocol autonomy over the LP tokens & thus underlying liquidity that it accounts for.
Simply put it’s ‘dependable liquidity’. When the protocol needs it, it’s available for use.
The major difference here between ‘liquidity provider ‘and ‘protocol owned’ liquidity, is that the goals of an individual liquidity provider and the goals of the protocol are generally misaligned.
A liquidity provider is often looking for a high yield in return for providing their liquidity and whilst that is a completely reasonable expectation, for a protocol that needs deep liquidity at all times to serve customers and clients, not being able to guarantee liquidity is a risk.
Another way to look at it is through the mental model comparison of housing ownership vs renting. The ideal situation for the protocol is to own its ‘liquidity house’ for perpetuity, mortgage free, instead of renting indefinitely.
Not only will this create dependable liquidity but it will allow the protocol to earn fees from trading activity; the more trading volume, the more liquidity grows.
Furthermore, over time the emissions of $GET for LP incentives can be reduced, preventing indefinite $GET emissions to pay for the liquidity mining program.
These emissions that would have gone to guaranteeing liquidity, can then be freed up for initiatives that promote longevity and optimisation of the treasury that increase the network effect of the protocol.
Through partnering with Olympus Pro, GET Protocol is able to offer GET bonds in exchange for LP tokens from the GET-ETH pool on Polygon. Those who have GET-ETH LP tokens on Polygon will be able to exchange them through the Olympus Pro site for discounted $GET.
This discounted $GET is vested for 7 days, meaning that it cannot be accessed by the bond purchaser until the vest period is complete.
The discount rate for GET is based on bond demand and is always in a state of change, it’s worth noting however that this discount rate is maintained by Olympus’s mechanisms and whilst the discount will be attractive enough to capture LP, it will never drop low enough to create a significant arbitrage disparity between the open market and discounted $GET offering. This mechanism has been battle tested by Olympus across not only their own treasury but also through 25+ partnered protocols.
Our goal for the POL program is to build up $1M in Protocol Owned Liquidity over a period of 5-6 months, which will ensure that the protocol has a deep tranche of dependable liquidity for ticketing operations on Polygon.
The POL system will only be deployed on Polygon for now, as time goes on we will assess the system to decide if an Ethereum rollout will benefit the protocol.
So what happens to the current LP rewards?
LP Rewards on Ethereum will remain the same, with a twice-monthly distribution of 6,000 $GET rewarded to LP providers.
For Polygon, there will be a gradual reduction of rewards, with a linear schedule plan as follows:
Until End of February: No Change - 12,000 $GET/mo rate
Until End of March: 10,000 $GET/mo
Until End of April: 8,000 $GET/mo
Until End of May: 6,000 $GET/mo
Until End of June: 4,000 $GET/mo
Until End of July: 2,000 $GET/mo
Until End of August: 0 $GET /mo
At this point in time we expect that the protocol will own the majority of all GET-ETH liquidity on Polygon.
We will be working closely with the Olympus team to ensure effectiveness of the program and to continually monitor parameters.
Stay tuned for further resources on using the Olympus Pro system as we lead up to the release on the 17th and if you have any burning questions, you can head to our discord where we’ve created a #protocol-owned-liquidity channel under the ‘Liquidity Providing’ category.
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