Beta Finance explains its Minimum Liquidity Provision (MLP)


Beta Finance

Beta Finance will be pursuing a new minimum liquidity provision strategy. This means for each Beta Verified Market, Beta Finance will directly own a minimum amount of liquidity, allowing for market activity to begin independently and immediately, without relying on mercenary capital or liquidity mining of BETA tokens. They have a number of exciting partnerships coming up that will onboard new markets and facilitate the new strategy.

These will be important next steps to establish Beta Finance as an enduring protocol in DeFi — a product that will be able to continue to grow and be used in perpetuity, be that 1 year later, 10 years later, or 100 years later. They have a lot of exciting thoughts and ideas on details for this transition in the protocol’s development with some shared below!

Their motivations
From operating Beta Finance these past few months, they have been actively monitoring activity, experimenting with various growth strategies, and engaging with their users to understand pain points. With all the information they have gathered, they have identified the main issues that affect Beta Finance:
  • 2-Sided Market and the Chicken-Egg problem. They operate a 2-sided market, requiring token holders to deposit liquidity in order for traders to borrow this liquidity for leverage or hedging activities. This forces us to them liquidity mining incentives to kick-start lending, and since they target newer protocols that often have native token staking they are forced to emit high APRs, incurring sell pressure on BETA.
  • Non-sticky Rented Liquidity. Hedging and short selling is an opportunistic trading strategy that is dependent on market conditions and sentiment, resulting in shorter borrow durations compared with stablecoin borrowing. Incentives from just interest rates are difficult to ensure sticky liquidity, as there are sudden alternations between periods of heavy utilization and low utilization leading to capital inefficiency.

Minimum Liquidity Provision (MLP)
With minimum liquidity provision, Beta Verified Markets will be guaranteed to have liquidity at all times. Rather than renting capital, the protocol itself will now be responsible for seeding a minimum amount of liquidity into approved Beta Verified Markets, e.g. the protocol will supply 1000 AVAX of liquidity into the AVAX money market. The amount of capital owned for each market will vary depending on the robustness of the market and token. They believe shifting to this new model of purchasing tokens of Beta Verified Markets will result in Beta Finance becoming a more robust, capital-efficient protocol by having:
  • Low dependency on liquidity mining incentives. Since they supply their protocol-owned liquidity, they are able to meet the demand of traders at any time, irrespective of liquidity mining incentives. This will result in fewer BETA tokens being distributed to mercenary capital, and ensure BETA is in the hands of strong holders.
  • Higher fees and earnings. By owning the liquidity, they will have a greater allocation of the fees that are generated from activity on Beta Finance. These fees will go directly to the Treasury and eventually be distributed to BETA holders.
  • Stakeholder in the Web3 Ecosystem. Rather than being subject to strong reflexivity, Beta Finance, by owning these assets, will become a stakeholder in the strongest DeFi/GameFi/Web3 projects and major cryptocurrencies. They believe in the paradigm shift of Web3 and will be long-term holders of assets in our treasury.
  • Multichain scaling. With low dependency on liquidity mining incentives, native token bridging becomes less crucial to operate their markets on other L1/L2’s. Beta Finance will be able to immediately support activity without token bridging through minimum liquidity provision of the Beta Verified Markets. Fees from these chains will be converted and bridged back to one main chain for fee distribution for BETA in the future.

Initiating MLP starting with BETA Market on Avalanche
They will initiate their new strategy of deploying protocol-owned liquidity on Beta Verified Markets first on Avalanche, starting with the BETA market on Avalanche on March 24, 2022.

The BETA market will be the first market seeded with protocol-owned liquidity. This allows:
  • Users can immediately begin lending and borrowing from the BETA market
  • Low transaction fees for borrowing BETA on Avalanche

For other exciting partnerships and tokens that will follow, the team will be responsible for partnering with other protocols to acquire tokens that will be used to fund initial liquidity within new Beta Verified Markets. This allows them to:
  • Establish a robust process for evaluating which projects Beta Finance partners with for Beta Verified Markets and acquire tokens from
  • Enables Beta Finance to operate sustainably, reducing token emissions of BETA and generating greater fees from borrowing activity
  • Provides strong financial alignment between Beta Finance and projects in the Web3 ecosystem.

As they are transitioning into the new growth phase of Beta Finance pursuing a new minimum liquidity provision strategy, they will support liquidity mining incentives for all their existing markets on Avalanche for 1 more month, and transition out of liquidity mining incentives on Avalanche on April 22, 2022.

All existing functionality on Beta Finance will remain unaffected. Users will still be able to lend, borrow, and short sell tokens as they have done so previously. Beta Finance will continue to maintain liquidity mining incentives for Beta Verified Markets on Ethereum.

Additionally, they are actively working on exciting partnerships with other protocols to onboard their markets on Beta Finance. They are excited to bring more markets for long-tail assets on Avalanche and facilitate greater activity!

They are hiring!
Beta Finance is looking to expand their team and is actively hiring. If you are passionate about DeFi and excited to build the next generation of infrastructure for DeFi, they’d love the chance to learn more about you! Please see 👉their job opportunities here.

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