LeoBridge: The Future of the LEO Token Economy
A few days ago, we launched the CUB Kingdom. One of the most highly anticipated updates to the Cub Finance project underneath the LeoFinance umbrella. In this post, we'll focus on one of the most ambitious projects LeoFinance has ever pursued: LeoBridge:
- Our Development of the Bridge
- Progress We've Made in Updating and Enhancing the Bridge
- Scaling LeoBridge and the LEO Token Value
- Future Plans for LeoBridge
- The Incredible Benefits LeoBridge Delivers to the LEO Token Economy
Some users understand the application and implication of LeoBridge but many don't. For very specific reasons, we kept our initial launch of LeoBridge quiet and considered it a "soft launch".
If anyone decided to be a part of our "Live Beta" testing of LeoBridge, then you'll know that the first 2-3 weeks of usage was extremely difficult. 90% of Bridge TXs would get stuck en route (in part due to the bLEO wrapper failing from BSC node issues) and the ones that did go through were met with intense slippage and arbitrage.
Despite all of this, we spent months thinking about, designing and finally building LeoBridge. We believe that it is one the most ambitious projects we've taken on thusfar and the implications of this bridge-style token economy are profound.
A successful LeoBridge (success measured by Bridge Trading Volume) will lead to a great deal of value continuously flowing through the LEO token economy. This value will deepen the market incentives for Liquidity Providers on all LEO token pairs and provide another form of utility for buying and staking LEO tokens in various liquidity pools now and in the future.
What is LeoBridge?
In its current form, LeoBridge allows users to swap ERC20-based cryptocurrencies (Ethereum) into BEP20-based (Binance Smart Chain) cryptocurrencies.
There are a number of other bridge-style projects launching on various blockchains. The new buzz word of the crypto industry is "Interoperability" and building bridges to popular blockchains lies at the core of this.
LeoBridge is completely unique relative to these other bridge-style projects. This is because of the tri-token economy that lives at the center of LeoFinance:
- LEO - our native platform token that lives on the Hive blockchain and is distributed every single day through a decentralized blogging and curation economy
- Wrapped LEO (wLEO) - a wrapped version of LEO that lives on the Ethereum blockchain. Utilized for liquidity pooling on the ETH blockchain and served as our first extension to another blockchain
- BEP20 LEO (bLEO) - a wrapped version of LEO that lives on the Binance Smart Chain. Utilized to bridge the LEO token economy to BSC and launched alongside one of our DeFi projects (Cub Finance)
This unique token setup allows LeoBridge to swap ERC20s into wLEO, unwrap that wLEO into native LEO, rewrap into bLEO and swap bLEO for the selected BEP20 output.
Permissionless, cross-blockchain swaps via smart contracts are now possible through the LEO token economy.
Development Progress and Future Plans
Our progress in building both the Bridge and UI to handle it was slow and steady. Once we entered soft launch, we used the data we gathered from every initial Bridge swap to fix a wide number of issues. Today, the Bridge is operating smoothly and users can swap ERC20s for BEP20s with no centralized exchange as the middle man.
A Swap Cap was introduced in order to prevent large swaps from either getting stuck or being hit with high slippage. We've fixed the dozen or so issues that caused TXs to get "Stuck" and haven't had a stuck Bridge transaction in a few weeks.
The goal now is raising the Swap Cap. The Swap Cap is based on the available liquidity in both the wLEO-ETH (Ethereum) and bLEO-BNB (BSC) pools. In order for us to raise the Swap Cap, we need to see two things happen:
- More Liquidity Providers in WLEO-ETH and BLEO-BNB
- A Higher LEO Token Price
More liquidity providers is simple. That means more LEO, ETH and BNB in the liquidity pools which makes the pools deeper.
A higher LEO token price means that the USD value of the liquidity in those pools is greater. The greater the USD value of the liquidity, the less slippage there is on high value swaps.
Currently, $3,500-$5,000 per swap is the sweet spot for LeoBridge slippage. Our goal is obviously to improve this value as much as possible. LeoBridge's success hinges on being able to handle both high value and high volume swaps.
Our goal now is educating our existing userbase and potential LEO token hodlers about the value of buying and staking LEO in one of the 2 (and soon to be 3) liquidity pools available (WLEO-ETH, bLEO-BNB and soon pLEO-MATIC).
The APY for Staking WLEO-ETH on Ethereum is in the 25-50% range (fluctuating based on Trading Volume and WLEO Geyser Incentives).
The APY for Staking BLEO-BNB on BSC (via Cub Finance) is over 200% currently.
Our team is currently building a Polygon-based DeFi platform where users can discover various liquidity pools (i.e. MATIC-USDC, etc.) and stake assets to earn autocompounded yield. The setup is very similar to our CUB Kingdoms development merged with popular platforms like Yearn/Beefy-style financial contracts.
The relevance this has on LeoBridge is the upcoming Polygon LEO (pLEO) token that we're launching on the Polygon blockchain. This will be the 3rd wrapped token (4th token in total) that represents LEO on a different blockchain.
Similar to the Cub Finance launch, the new Polygon DeFi platform launch will coincide with the launch of a pLEO-MATIC pool. This liquidity pool will be hooked up to the LeoBridge and allow for cross-chain swaps from BSC -> Polygon.
LeoBridge for the Masses
Swapping from ERC20->BEP20 is great, but it does come with a few issues. Gas fees on Ethereum are extremely high: especially for users who want to swap with an amount under $1,000 at a time.
LeoBridge is equipped to handle any swap amount but if one of the blockchains has high gas fees, then the fees to use the bridge can ruin the viability of small swaps.
BEP20 -> Polygon changes this drastically. Fees on BSC are typically $0.09 - $0.12 per TX and fees on Polygon are even less (typically a fraction of a penny).
The Ethereum side of LeoBridge costs nearly $30-$90 in gas fees depending on the time of day you choose to utilize the bridge.
The BSC -> Polygon version of LeoBridge will likely cost somewhere between $0.15 -> $0.50 per LeoBridge TX.
For the first time ever, small swaps and a large volume of transactions per day will be possible with LeoBridge. At that point, depth of liquidity is the only thing holding back LeoBridge from handling thousands to millions of dollars in Daily Transaction Volume.
The expansion to Polygon is the major focus for LeoBridge right now. Our next focus is improving the UI.
If you are familiar with Polygon, then you're likely familiar with the most popular bridge to move assets from ETH -> Polygon. They've built a great UI for these swaps and we plan to take some of the aspects of that UI and build them into LeoBridge's UI. User Experience has always been extremely important to LeoFinance and the current LeoBridge UI can be daunting - especially for users who are unfamiliar with moving crypto assets.
In the long-run, we will continue to expand LeoBridge to popular blockchains. We believe that interoperability isn't just a buzz word. It's here to stay in the crypto industry.
LeoBridge positions the LEO token economy to tap into every major blockchain and serve as a bridge to seamlessly and permissionlessly swap assets from one blockchain to another. As LeoFinance continues to build new and exciting applications on various blockchains (like https://LeoFinance.io on Hive, https://CubDeFi.com on BSC and __ on Polygon), we'll also gain a great deal of value in being an initial interface for a wide range of users trying to move assets.
They'll come for the bridge and stay for the community and our applications.
The Incredible Benefits LeoBridge Delivers to the LEO Token Economy
This final section dives into the weeds of LeoBridge and how it impacts the LEO Token Economy. The math and mechanics at the end have been simplified. Stick with it and see how LeoBridge delivers Liquidity Black Hole Theory in a major way.
Many in the LeoFinance community are avid supporters and investors in Thorchain (RUNE). Thorchain is a cross-blockchain L1 (Layer 1) liquidity protocol. It allows users to pool native blockchain assets like BTC, ETH, etc. and earn LP rewards.
LeoBridge is a kind of "Layer 2" version of this. Allowing users to swap from one asset to another across various blockchains via smart contracts. Much of the design and ambition of LeoBridge is inspired by Thorchain's L1 swap mechanisms and tokenomics.
This being said, LeoBridge's implications on the LEO token economy are very similar to Thorchain L1 swaps on the RUNE token economy.
Liquidity Black Hole Theory is a concept frequently discussed by Thorchain community members.
In a nutshell, this theory states that liquidity pool incentives drive initial liquidity. That initial liquidity allows for trading volume. Trading volume deepens the incentive to provide liquidity (via automated swap fees). The deepening of incentives leads to greater depth of liquidity which allows for larger and larger trading volumes which kicks off the virtuous cycle of ever-deepening incentives.
LeoBridge brings liquidity black hole theory to the LEO token economy and all liquidity providers on each side of the bridge.
When a LeoBridge swap occurs, it creates an equivalent amount of trading volume on the originating blockchain pair (i.e. the WLEO-ETH pool).
Once swapped into wLEO, the Bridge contracts move that wLEO into bLEO and swap bLEO for the chosen output - this creates an equivalent amount of trading volume on the bLEO-BNB pool as well.
So far, we have a 1:2 ratio for LeoBridge swaps and trading volume (i.e. for every $1 swapped accross the bridge, $2 in total LEO-based trading volume is created - $1 on each side of the bridge).
When this swap occurs, the value of WLEO-ETH increases (since the originating asset was swapped for wLEO) and the value of bLEO-BNB decreases (since the newly wrapped bLEO was swapped for the user's chosen output cryptocurrency).
This creates a gap between the USD value of WLEO and BLEO. Since all LEOs are fungible with each other, anyone can buy bLEO (which is now cheaper than wLEO) and do the reverse of whatever LeoBridge just did - buy bLEO, unwrap to LEO, rewrap to wLEO and sell.
This is called exchange arbitrage. The same asset is available on multiple exchanges which have independent pricing mechanisms. By purchasing the asset on the cheaper exchange, you can migrate that same asset to the more expensive exchange and close the gap in price for a profit.
The arbitrager is now buying bLEO and then selling wLEO. Creating dual volume once again. For every $1 the arbitrager buys in bLEO, they are selling $1 of wLEO. This creates another 1:2 ratio event for trading volume on the WLEO and BLEO liquidity pools as the price reaches equilibrium once again.
- the initial LeoBridge Swap created a 1:2 ratio in terms of total LEO-based trading volume for our two liquidity pools
- the swap also caused a gap in the WLEO and BLEO prices
- an arbitrager (typically either an automated bot or a human) now has the opportunity to close that gap for a profit
- the arbitrager must buy bLEO, convert to wLEO and then sell wLEO. Creating another 1:2 ratio of trading volume for LEO-based liquidity pools
Let's illustrate this event with a real $$ value. Let's say User A swaps $1,000 (1,000 USDC) into $1,000 (1,000 BUSD) from ERC20 to BEP20 using LeoBridge.
This $1,000 swap creates $2,000 in total trading volume on wLEO-ETH and bLEO-BNB (remember: 1:2 ratio since wLEO is bought with $1,000 once and bLEO is sold with $1,000 once).
Since $1,000 was swapped into wLEO, the price increases.
Since $1,000 was swapped out of bLEO, the price decreases.
This causes a gap in the wLEO and bLEO prices. An arbitrager comes in and closes that gap for a profit. Let's say they factor in gas fees and slippage and decide to swap $500 in order to bring the gap closer together and make a profit.
The arbitrager buys $500 in cheaper bLEO and wraps that into wLEO. Then they sell that $500 worth of wLEO on Ethereum. Creating another 1:2 ratio event for trading volume ($500 swapped once on bLEO and $500 swapped once on wLEO).
In total, $3,000 in trading volume was generated in LEO-based liquidity pools. All of this trading volume originated from that $1,000 initial Bridge swap.
The magic happens when you consider the implications of this under the context of Liquidity Black Hole Theory.
To keep the math simple, let's assume that every LeoBridge Swap creates exactly a 1:3 ratio event for USD Trading Volume on LEO-based liquidity pools.
If $10,000 per day is swapped across LeoBridge, that's $30,000 per day in total trading volume generated. 0.3% of trading volume is distributed to liquidity providers in the form of LP Fees. That's $30 in LP Fees generated for every $10,000 of trading volume.
It might not seem like much, but this $30 per $10,000 in trading volume can add up quickly. Especially when the Liquidity Pools don't yet have significant depth and Trading Volume begins to ramp up.
$30,000 in total trading volume leads to a theoretical payout of $90 in LP fees. All of this trading volume originating from that first $10,000 Bridge Transaction.
As more bridge transactions occur, these LP fees continually add up and create a higher yield for liquidity providers. This higher yield for liquidity providers attracts new LPs to buy wLEO or bLEO and join either side of the liquidity pool to earn yield.
As these liquidity providers buy LEO, the price increases which creates deeper USD value of liquidity. As they add the newly purchased LEO to the liquidity pools, the pools naturally deepen as well.
The deeper these liquidity pools become, the greater the potential Swap Cap and potential LeoBridge volume grow.
🔁 The virtuous cycle of LeoBridge and Trading Volume:
- LeoBridge Volume Creates "1:3" Theoretical USD Trading Volume
- Increased Trading Volume = Increased LP Trading Fees
- Increased LP Trading Fees = Increased APY For Providing LEO Liquidity
- Increased APY = Increased Incentive to Buy LEO and Stake in an LP
- Buying and Staking LEO In an LP = Increased Liquidity Pool Depth
- Increased Liquidity Pool Depth = Increased Potential LeoBridge Volume
- Increased Potential LeoBridge Volume = Increase LP Trading Fees .... 🔁
The Reality of LeoBridge
A few days ago, LeoBridge handled $28,000 in volume in a 24 hour timeframe. This was one of the busiest days for the bridge. We tracked the trading volume on wLEO and bLEO and saw reality map closely to theory:
$28,000 was swapped cross the ERC20 -> BEP20 LeoBridge. This bridge volume led to one of the highest trading days for WLEO-ETH and bLEO-BNB we've ever seen. Again, this is that ratio mechanic mapping into reality.
One bridge TX generates trading volume for both WLEO and bLEO. This generates LP fees on both trading pairs at a 1:2 ratio.
That bridge TX creates a gap in the price of WLEO and bLEO (since WLEO is bought and bLEO is sold at an equivalent amount).
This gap was closed by arbitrage traders who bought the cheaper bLEO and sold the more expensive wLEO and closed the gap.
The net result is price equalizing to what it was prior to the swap but a high degree of trading volume on both pairs. This trading volume created swap fees for liquidity providers both on WLEO-ETH and BLEO-BNB which means the APR for providing LEO liquidity increased signifcantly.
As the bridge gains more volume, liquidity and extends to more blockchains, the incentive to become an LP will rapidly increase. This incentive will drive deeper and deeper liquidity and further increase incentives and the ability to swap larger amounts across LeoBridge.
LeoFinance.io: Major UI Updates Rolling Out
If you've been watching on Twitter, we've been rolling out some teasers about our major UI updates that are coming over the next few days and weeks.
Recently, a number of major bug fixes and general cleanup work was deployed to LeoFinance.io which has given us a better platform to build the future of blogging on the blockchain. We're back to our regularly scheduled programming of LeoFinance.io UI/UX improvements.
In the next few days, look out for a post from @leofinance about current and future updates. We'll also be calling on the community for ideas to drastically improve the UI and our roadmap for the future of LeoFinance's flagship product: https://leofinance.io.
LeoFinance is a blockchain-based social media community that builds innovative applications on the Hive, BSC and ETH blockchains. Our flagship application: LeoFinance.io allows users and creators to engage and share content on the blockchain while earning cryptocurrency rewards.
|DeFi Platform||Tokenized Blogging||Track Hive Data|
|Cub Finance||LeoFinance Beta||Hivestats|
|Native DEX||Wrapped LEO (ETH)||Hive Node|
|LeoDex||wLEO On Uniswap||Witness Vote|
Posted Using LeoFinance Beta