Fractal, an established trading firm, is pushing to expand into the world of decentralized finance with Tokemak, a project the team refers to as a “decentralized liquidity reactor” for DeFi.
The company announced on Tuesday a $4 million investment round led by Framework Ventures, a well-known DeFi investment fund known for its bets on Synthetix and Chainlink. Other major funds such as Electric Capital, Coinbase Ventures, North Island Ventures, Delphi Ventures and ConsenSys also joined the round.
The funding comes in preparation for Tokemak’s release, slated for late second quarter 2021, which will see its liquidity network deployed on the Ethereum mainnet.
In a nutshell, Tokemak provides a generalized liquidity aggregator for decentralized exchanges. Carson Cook, founder of Tokemak, explained to Cointelegraph that the project is a “network designed to generate sustainable liquidity for new and established DeFi protocols.”
For the liquidity provider, Tokemak works as a single-sided yield platform where they can deposit reserve assets — for example, Ether (ETH), USD Coin (USDC) and Dai — as well as tokens for the projects using Tokemak. The Tokemak platform will then direct the liquidity into automated market maker pools and other market-making opportunities. Key to this concept are TOKE holders, who act as “liquidity directors,” expressing their preference on where the liquidity should be sent.
The primary need that Tokemak aims to solve is bootstrapping liquidity for new projects. In most cases, they must commit a significant amount of resources and effort to bolster liquidity for their token’s market, including yield farming incentives. Tokemak enables them to commit liquidity through a single-sided offering — for example, devoting a portion of their tokens to the Token reactor pools. Tokemak’s liquidity pool could then be directed to their token’s market automatically, though this depends on the wishes of the liquidity directors. TOKE holders may wish to incentivize certain pools over others, as the token grants fractional control over Tokemak reserves.
As Cook explained, one class of Tokemak users may lead the way in generating the highest profit for the protocol:
“Market-makers are able to access Tokemak to increase trading capital and generate trading returns. Market makers will likely act in the following roles: Pricers, providing pricing for assets in professional markets such as order-book markets, RFQ systems, etc. and Liquidity Directors, who use TOKE to direct liquidity to markets where they can be most efficient with trading capital.”
Tokemak is expected to be useful to “humble farmers” as well, Cook said, given that TOKE will be distributed through liquidity mining. Exchanges may also see the platform as a way to increase their market depth.
The protocol is building an innovative aggregator for exchange liquidity, with a somewhat similar role to Yearn.finance and other yield farming protocols that constantly search for the most profitable strategies for users’ assets. Given the importance of TOKE, a sensible distribution of the token is likely to be key to its success.