Partying with Platypuses

Image from TraderJoe

Why would anyone want to party with a platypus?

Platypuses are notoriously aggressive and territorial animals, and males have venomous spikes on their feet. Why would anyone want to party with them? Jokes aside, Platypus is a Curve-style stable-swap AMM, with notable unique features such as single-sided liquidity and boosting percentage accrued by staking over time for vote-escrow platypus token (vePTP) instead of a lock up. One of the most interesting stories in Decentralized Finance (DeFi) are the well documented Curve-Wars, which was ultimately won by the Curve focused yield aggregator Convex. I am not going to get too much into it, but low fee, low slippage stable swaps are the oil that greases the engine of DeFi. Control over the huge total value locked (TVL) and rewards in AMMs like Curve is highly lucrative. Similar competition has recently been heating up on Avalanche with Platypus Finance. While the term “war” was used to describe the competition to control veCRV, the Platypus team prefers to use the term “party” with the tag #PTParty. Three yield aggregating protocols, Vector Finance, Echidna Finance and Yield Yak have been whitelisted by the Platypus team. These protocols will stake PTP token to accrue vePTP and offer immediate high yields plus their own reward tokens to users depositing platypus LP or stable coins. I will mostly focus on Vector and Echidna in this report, as Yield Yak seems to be similar to what Yearn Finance was in the Curve Wars.

Echidna (ECD), named after a monotreme like the platypus, and Vector (VTX), an offshoot of the Ohm fork Magnet DAO, are incredibly similar products and are currently engaged head-to-head in their respective token generation events (TGE) at Trader Joe. Both have great teams (shout out to Raimonji & Dexx), both are audited by Omniscia (who also audited Platypus) and even their token distribution (below) is almost indistinguishable. With both protocols planning to launch sometime next week, the question arises as to what is the difference. Marketing and website for Echidna launched early and this may give them an edge in attracting users (good marketing can make or break protocols, kudos to the Echidna team). From my perspective the two primary differences between these two protocols lies in 1) the flywheel effect and 2) token emissions.

From the teams and copied by 1stWhisper

Flywheels are fun!

Convex’s Flywheel from Delphi Digital

At the heart of what makes Convex (and Curve) so successful is The Flywheel Effect (above). Convex incentivizes CRV holders to stake with them by providing a 1:1 yield generating liquid staking token (Convex locks CRV up forever) and a portion of the protocol fees paid in CRV and liquidity mining rewards paid in CVX, which in turn can be staked for veCVX and additional share of protocol fees. And with the rewards the flywheel restarts and compounds into itself. Both Echidna and Vector have similar flywheel incentive mechanisms with their own ecdPTP and xPTP liquid staking tokens, respectively. Both protocols will max out the vePTP in their protocols and provide stable coin/LP providers max boost in rewards.

There is however a critical difference between the two. Both Convex and Vector provide liquidity mining rewards (ie: CVX and VTX) to their LP/Stable coin providers, while Echidna does not (seen below). So why is this important? 1) Echidna provides ~80% of all PTP earned back to the LP/Stable coin providers. This will likely be much higher than individuals who stake on platypus alone and collect 100% of their PTP at a lower boost rate. However, vector will provide that ~80% of all PTP collected+liquidity mining rewards in VTX token, making it more appealing to yield seekers. 2) By directly giving VTX to LP/stablecoin providers, they now have a lower barrier of entry to veVTX/voting and the rewards from staking VTX. For Echidna LPs they have to take the extra step in staking PTP earned to enter their flywheel. 3) While both protocols are incredibly focused on getting PTP for the boost, they need the stable coin LPs to generate income for the protocol. Optimal boost has been shown to be 1:1 value of stables to PTP. Imbalance in this structure will lead to the protocol running at sub-optimal efficiency. It is possible that the focus on collecting PTP and not stables may be to provide runway for future scalability. But then again, it hurts the earning potential of PTP in the meantime.

Echidna’s token model

With great emissions comes great dangers.

While I have been critical of Echidna’s strategy for LPs, I will say they have put a lot of thought into how to control inflation of their native token. Vector provides mining rewards to PTP stakers, platypus LP/stable coin providers and PTP-xPTP and VTX-AVAX LP providers. Furthermore, a portion of the team fund will be distributed (with timed unlocks) to Magnet DAO. These avenues of emissions to the general public doesn’t exist in Echidna, allowing it to focus its rewards on accruing more PTP. Both protocols plan to have protocol owned liquidity. Allowing liquidity to be controlled outside of the protocol provides some risk that whoever controls the liquidity can exit and tank the price.

Concluding thoughts.

Modeling tokenomics, distribution and flywheel mechanics is a give and take process. There is no such thing as a perfect protocol. Both Echidna and Vector are so similar that the points I’ve highlighted here may have limited effect in who comes out on top in the platypus party. With all things being the same, I personally see Vector securing huge TVL early, but having high volatility in their token price. Echidna in my opinion will have a more stable growth in token price, with a relatively slower TVL growth.

Feel free to comment on my twitter @CanuckLink with your thoughts and corrections. Always happy to engage in conversation and change my mind.

Update: Corrected some minor typos and removed the part about the airdrop as it was not entirely accurate. These projects are rapidly changing prior to their launch so do your own research.

Disclosures: I have financial interests in Platypus Finance and the Avalanche ecosystem. I am currently participating in the TGE for both Vector Finance and Echidna Finance. I am also active in their discords.

Originally published at https://canoecapital.substack.com on February 26, 2022.

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