ETH Rio 24 - Proof Of Liquidity: Bottom-up Rewards to Grow and Ecosystem - Cami Ramos

Transcript

[Laughter] um now we are um we're going to talk so we discussed some Trends some um innovations that are coming things that are coming and I guess that one of the biggest um trends that we have been seeing is airdrops right it has been happening for a while um communities um have been growing and and been made um by these air drop um and there is one case that is very interesting um that is the better chain case they started literally as a a meme and nft and it from the bottom up they created a full um a full chain with a

new protocol the proof of liquidity so I would like to invite here comei to talk about better chain and its proof of liquidity innovation [Applause] okay good afternoon so I'm Colombian my Portuguese is very very bad but I'm gonna do a small part in Portuguese one because I want to practice and two because of an ethos that I have of you know if you're going to someone else's country I live in Colombia there's always a lot of Gringos that come and they're like oh you everyone should speak English why don't you guys speak

English and it's kind of a just a a pet peeve that I have so I've also been trying to learn Portuguese for like two years so now that I'm here I'm going to give you guys a small piece in Portuguese and then the the talk is going to be in English but I do need my phone okay okay developer evangelism and bear chain [Music] sporing

[Music] for Twitter you guys understand me okay she doesn't even speak portuges liar okay okay

okay so today we're going to be talking about proof of liquidity which I'll get into in this talk but kind of the basis of it there's two parts so there's a part that's kind of a more technical overview of the consensus mechanism of the protocol itself and we're going to touch on that but the part that I'm going to focus more on is about how you can use proof of liquidity both as a user and as a developer to grow an ecosystem and you know the intro that was given was great you know bear chain started literally as an nft project it kind of grew into this like internet culture internet meme and they've used these kind of incentives to reward their early Community which is now I think what we see is the result of like all of that time and you know the community

that's really strong is a result of these kinds of like incentives and now it's been kind of cemented at the protocol level so that's what we're going to talk about uh okay my name is Camila Ramos I lead developer evangelism at bar chain and my whole job is to basically bring new awareness about bear chain find interesting teams find interesting developers and get them to understand kind of what the what the value proposition of bear chain is both for Builders and for protocols so bear chain is the first layer one using proof of liquidity consensus and we'll get into what that means in a second but this quote I really like a lot and I actually found this quote just on Twitter searching the word liquidity because I wanted to kind

of help people understand what it really means because I don't come from a very defi heavy background I come from a pretty like vanilla engineering kind of crypto background so when I started working at bechain I had to kind of do all the work to catch up on the defi side so when was thinking like how do you explain liquidity to someone in a way that's more than like oh it's for you to make swaps for you to make trades this quote really stood out to me because when we think of liquidity right we think of like coins in a pool that let you do swaps that let you do trades but if you like kind of think a level deeper liquidity has to come from somewhere and it comes from people so liquidity is actually a really interesting measure of how active a community is how and it's kind of a

signal for like how interested people are in the ecosystem that you're building in if you have a chain in ecosystem that has very low liquidity very low tvl it's not always a onetoone direct correlation right but it's kind of a signal that it's not that popping whereas if you look at a chain or ecosystem that has high tvl that their Dex has a lot of liquidity it's usually a signal that there's a lot of interest a lot of ecosystem Builders Etc so I know you guys have all seen kind of the new points meta and what I like to say is that proof of liquidity is points but better so everyone knows what I'm talking about when I say points yes okay so I I found these tweets and I'll just let you guys read them while I while I speak a little bit but basically

the points meta is you as a user you bridge over your tvl you use their decks you do whatever you think is going to get you points right sometimes it's clear sometimes it's not sometimes they have like very specific quests and sometimes they're just like oh you get points for using the ecosystem and the idea behind this is that eventually maybe you'll be rewarded you'll get points and maybe these will translate into an air draw maybe this will translate into some sort of like retro pgf maybe it'll happen in one month maybe it'll happen in six months maybe it'll happen in a year but the point is that you don't know and when we talk about points I know you know in recent times there's been a few airdrops there's one air drop specifically that happened recently that a lot of people kind of voiced their opinion about it

and they said hey we bridged over all of this eth we gave you guys cryptoeconomic security you're able to show your investors you know whoever that you're getting a lot of traction that you're getting a lot of users that you're getting a lot of use and in the end we're not being kind of sufficiently um like paid and and you know given the incentive for the liquidity that we provided and when you think about points I think some people think like oh those are just airdrop Farmers that are entitled they shouldn't get anything but I don't really agree with that because when you're bringing your liquidity your eth you're that's what makes the ecosystem valuable right we just talked if you look at some random chain with like you know very low tvl it's not a valuable chain their valuation is reflective of that it's a

chain with half a billion you know valuation which is totally different than like you know Dimension and these other chains that are launching at 10 billion and it has everything to do with the liquidity so we're the ones that bring the liquidity and with points with the points meta it's like maybe you'll get rewarded maybe you won't maybe it'll happen in six months maybe it'll happen in a year maybe it'll be locked for six months you know there's a lot of different things that there purely speculative and you have no idea what's coming so approval liquidity is points but mechanized into a very transparent way so first let's talk about liquidity the goal of any ecosystem at any given time regardless of what they say on the website they want to onboard a billion developers or you know they want to offer cryptoeconomic Security in a new

way their bottom line is attracting as much liquidity as they can not just because for vanity but because they need it for something and usually the two things that you need it for are either cryptoeconomic security they rent your liquidity out to you know to other protocols or to other teams or whatever it is right that their infrastructure but they rent out your liquidity that's what they need it for or they use for actual like liquidity in their decks liquidity in their per liquidity in their in their lending protocol whatever so any ecosystem needs liquidity mostly for these two things I think there's other things out there too but this makes up the the vast majority of things so again you as a user you lock up your capital for x amount of time in the hopes of some reward the protocol is able to boast good numbers show traction

and attracts users developers attention with this and now again this isn't like some free like oh airdrop right okay there are airdrop Farmers right people who are in the Discord and they type GM every morning and like they're just like actually air drop farming but I'm talking about people who are bringing their liquidity I I think of those as two separate people there's something called right opportunity cost opportunity cost describes the cost of you not doing something or the cost of you doing something so if I let you borrow $10 and with those $10 I could have bought I don't know 10 chickens that each were going to have 10 babies and I could sell each chicken for $5 the opportunity cost of me giving you my $10 is whatever whatever money I missed out

on the chickens you know what I mean so there's an opportunity cost associated with you locking up your Capital so it's not that you're like oh these entitled air drop Farmers no there's a financial um formula to this right you're locking up your Capital there's some there's some um like Risk here and there's some way that you have to think about what makes sense in your risk portfolio and what you're expecting Etc so this is kind of the picture that I'm trying to paint here so now there's kind of a meme that okay when I say meme I mostly mean like in my head but I'm going to make it a meme on Twitter at some point about upside down blockchain so other blockchains focus on rewarding validators first through block rewards right so if the way that blockchains work if you're a validator mostly this

is mostly how they work I think there's you know differences in some blockchains but the vast majority you're a validator you somehow earn the right to be a validator on ethereum you stake 32 eth um on you know proof of work you you perform some work to validate a block or to to build a block and you validate all blocks by building a new block and by validating other other blocks that other people build you receive a reward these are called block rewards and this is the way that most blockchains work they reward their validators directly and then there's an arrow down that's like you know maybe users will get air drops maybe users will be able to tap into some like the liquidity that's here who knows but the meta is not like super established and bear chain actually rewards from the bottom up using proof

of liquidity so we'll talk about how specifically in a second but rewards start with those contributing the most to the ecosystem which is their liquidity liquidity providers are the first people that get rewarded in the ecosystem and then it kind of flows upwards to developers to protocols and then to validators distributed through various P mechanics so let's talk about what is p what is proof of liquidity so proof of liquidity is a mechanism that systemically rewards liquidity with emissions from the chain so when I say systemically rewards I mean it's not this like speculative thing that you're wondering about it's it's built into the chain you know it's it's mechanized inside of the consensus mechanism so it's something that happens

automatically via Smart contracts it's something that happens automatically like via the chain and when we talk about emissions from the chain specifically we're talking about bgt which is the governance token of bear chain and we'll talk specifically what that means so again 99% of successful onchain apps need liquidity even if you're building a gaming thing even if you're building you know an AI thing anything that uses crypto has a token element right there's some element of CP cryptoeconomic security whether it just be for prize pools whether you're building some sort of game where you know users can stake your native token and like maybe win a prize pool like pull together there's some form of liquidity that you need because let's say Esther is you know building a protocol and she launches Esther coin

but Esther coin has no liquidity then it's worthless right if there's no one who's willing to help you buy and sell and trade your token then then it's worthless you know right it's like if you have this like vintage Chanel bag but no one cares about Chanel anymore it's like it can be worth a million dollars but if no one wants to buy it then it's not worth a million dollars you know it's worth zero dollars so no matter what you're building you need liquidity because there has to be someone that thinks your token is valuable enough to give liquidity so that other people can make trades on your token so really quick what do I mean exactly when I say liquidity it's a measure of how easily assets can be swapped for other assets without significantly impacting the price so this is what I mean so maybe raise your

hand just to give me an idea and and don't be shy if you're like not 100% sure what I mean when I say liquidity talking about like someone has to provide liquidity for you to trade if you're not really 100% clear on that okay so everyone's super clear on that okay so I won't explain it again okay so an ecosystem with deep liquidity means you can trade at the best price there's minimal slippage just to kind of pain an example if there's low liquidity let's say I'm you know the liquidity provider for a pool that's like usdc or no I don't know Camy token and eth and there's 1,000 Cami token 1,000 eth this is the this is the the available liquidity for someone to trade and if say let's say a whale like Louisa comes and she has 3,000 Camy token and she wants to cash that in for eth but

there's only 1,000 there's only 1,000 of Cami coins she's not going to be able to make that trade okay but let's say fine I'll just trade most of you know all of the liquidity I'll trade it at 1,000 1,000 of my Camy coin she'll crash the price completely because there's like the the slippage will just be crazy because there's not going to be any liquidity after she does her trade and when there's a lack of liquidity this means there's volatile changes in price it'll affect every time someone does a swap the price will change that's kind of what you see when you like are doing a swap and you see the price impact little note that comes up and you know if you've ever traded mem coins or shitcoins you know that it'll sometimes you'll get a message from Dex as being like you know try swapping and smaller

increments so that you don't affect the price so much okay and like just to kind of cover the last Bas what do we mean when we say consensus p is a consensus mechanism what exactly do we mean when we say consensus it's the mechanism by which nodes come to an agreement about the state of the ledger so when an a transaction gets approved it's marked as valid and it updates the global state of the chain that's what we mean when we say consensus so a lot of people like kind of misunderstand consensus and think it's like you know I don't know they think of they think of proof of work they think of proof of stake and they have these kind of like Notions about consensus but really consensus like if you zoom out it's just the notion of how do you agree about the new

state of the chain and be chain uses proof of liquidity so we'll talk about exactly how that means so users stake bar you have to have some minimum threshold of Bara just like an eth you need 32 eth you stake it now you earn the right to be a validator only once you've staked Bara now you have the right to build blocks now you have the right to earn the fees from when you build a block and from when you validate blocks that other people have built and you as a delegator can get bgt delegated to you and the more bgt that you have delegated to you the better your rewards are when you build a block so like what does this mean exactly and what does this mean for a user so users in order to start their journey of getting bgt and being part of P you have to provide

liquidity that's the that's the like gate kept action you have to provide liquidity in other ecosystems right you just stake your token you you buy it you get it from some exchange and you stake it and the thesis of p is like you have to provide something that's valuable to the ecosystem which in this case is liquidity and put it to work so you can only get bgt the only way is to provide liquidity to one of the Native daps which which is uh the decks The Lending protocol perss that's the only way and bgt is non-transferable you can't send it to anyone you can't sell it to anyone there's no way for anyone to get bgt that has not performed this action of giving liquidity to the ecosystem what you can do with that if you're like okay I have bgt you can one way burn it for

Bara which is the gas token but you can't you can't do it the other way around you can only have bgt and go to Bara but you can't have Bara and go to bgt so once you once you've uh provided liquidity you get an LP token this this proves that you know you've you've provided liquidity and if you go stake this LP token you start earning bgt this is the bgt that's nontransferable now with this you can delegate it to a validator based on your like Risk tolerance based on your investment strategy based on you know a bunch of things that we're going to look at in a second and finally once you've done this you have the right to tap into the rewards mechanism of p and specifically what I mean is you get fees all bgt holders all stakers get fees from the core daps so the lending

protocol call perss and decks anytime any user uses it there's a you know 0.1% um like extra fee that's added that goes directly to bgt holders and distributed throughout all of us that's the first thing the second thing is you get the lp fees so if you LP into a pool that's like Camy token to eth anytime someone does a trade you're going to get a piece of the lp fees like traditionally happens and the bgt block rewards also go to LP so anytime a block gets built there's a portion of it that are rewards in bgt and there's a portion of it that gets distributed to all LPS all of us and there's this thing called validator incentives which are you know optional and happen sometimes which we'll talk about in a second but

basically what it means is that in the PO ecosystem you as a protocol can incentivize validators to push bgt to your pool to incentivize your token in exchange for your native token or for some other token we'll talk about that in a second and finally you as a bgt holder get to decide which protocols which tokens are eligible for these emissions so you can say oh I'm launching a new uh protocol called Camy we have Camy token and I'm going to go to Bear chain governance and say hey I think you guys should whitelist my pool and what Whit list my pool means is that now anytime um someone does a swap there's they're getting extra rewarded right and like this incentivizes me as an LP okay if I have to choose between a whitelisted one and

a nonwhite listed one the Whit listed one gives me more rewards I'm going to choose the wh listed one so you can go to governance and Say Hey I want you guys to whitelist my pool incentivize people to LP into it so us as bgt holders we're the ones that look at the project and say um is this project long-term aligned does this make sense are they providing value to the ecosystem I'll vote Yes or I'll vote no and only bgt holders can do that so here's what I mean by LP fees if you are trading on the Dex you'll see this message that says additional fee of 0.10% will be added to each pool to be redirected to bgt stakers um the core D fees also go to bgt stakers and block rewards get sent to bgt stakers and these are the validator incentives that we're going to talk

about just now but before we get there let's talk about what po means as a protocol if you're a protocol that's building and you're like I want to think of you know what ecosystem should I build on what are the considerations that I should take one thing that I always tell developers is that in P you can have a way to bootstrap your liquidity at a much lower cost and kind of reach escape velocity a lot faster because P has a built-in way for protocols to tap into P via these incentives which is a Marketplace for Network emissions so what happens is you say okay I am you know Camy project I have Camy token I want validators to push you know validators they get bgt emissions from every block they build right so they have these rewards and they can distribute them how they want

to they can say oh I I hold you know ILP Louisa token so I want to incentivize people to go there because I have investment there so I want to incentivize bgt I want to give them more rewards I want to push uh Network emissions to them because of whatever reason right it might be that I have bags there it might be that I like the team it might be that I'm friends with them it could be a lot of different reasons but obviously primarily it'll be Financial incent alignment and what happens is you say Okay I want to incentivize my pool I'm going to offer 10 Camy tokens for one bgt token and it goes into this marketplace where any validator can fill that request so it's like an order book you guys are all validators and I say hey I'm offering 10 Cami tokens for one bgt who wants it and

you guys based on your own thesis on your own Strate you can say uh Camy token I think it's going to go down I think the project is not that strong so I'm not going to take that incentive someone else can say oh I know Camy token I know you know she's really smart and I think she's going to do something cool I'm going to take that incentive because I think in three months Camy token will be worth more than what it is now so I'm going to take those 10 Camy tokens and give her one bgt and now you guys as delegators to those validators can get a piece of that of those incentives so if you're like okay I'm delegating to coinbase Cloud validator for example they're probably going to be a more risk risk off um validator right they're probably not going to accept

ship coins they're probably not going to accept these other things so that's one strategy or you can say I want a really risk on validator and so you can delegate to them and get a piece of these rewards so again appr of liquidity is points but better points are a liquid they're speculative they're given for performing work bgt is redeemable and they offer utility in their IL liquid state and they can become liquid at any point that you wish so p is a protocol you would stop liquidity lower the barrier to to kind of like reaching escape velocity and it kicks off this really interesting flywheel of actions that happen so you provide liquidity then you can earn bgt then you earn rewards this creates deeper liquidity when there's more liquidity there's more teams that want

to come there's more users that want to come and when there's more users that come they want to get rewards too so they're going to provide liquidity because they want to earn bgt and they want to earn rewards too and they want to decide who gets so it gets this interesting flywheel where you're actually incentivizing sticky liquidity which is not really the case in a lot of other ecosystems so this is the tldr um here's a resource if you want to kind of get the crash course on bear chain um I've tweeted these out before and I can tweet it again so it's like actually clickable and that's it thank [Applause] you if you would like to reserve a shirt just chat with me here and we have a side event tomorrow that's listed in the

events page in you know Etho Luma so just go there and register if you haven't already y