How to maintain liquidity in protocols? A quick look at the time-bound token protocol Hourglass

Maintaining liquidity in protocols with Hourglass, a time-bound token protocol.

LP sets the locking time for liquidity in the protocol to obtain higher returns.

Author: Babywhale, Foresight News

On the evening of May 16th Beijing time, Hourglass, a time-bound tokens infrastructure, announced the completion of a $4.2 million seed round of financing. Electric Capital led the round, with participation from Coinbase Ventures, Circle Ventures, Tribe Capital, and Hack VC.

Hourglass allows users to lock liquidity in the protocol for a fixed period of time to receive more liquidity incentives, and also enables the protocol to better attract and coordinate liquidity. In addition, Hourglass is another new attempt in the DeFi+NFT field.

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Hourglass Mechanism Design

Hourglass allows users to lock liquidity for a fixed time (currently the protocol supports units of months) and obtain an ERC-1155 format time-bound token that includes the user’s locked liquidity time. Before the expiration, users cannot redeem their LP tokens.

Currently, Hourglass supports liquidity for the frxETH/ETH trading pair on Curve, and because the Frax Finance protocol logic is already on-chain, Hourglass can set up a mechanism for increasing rewards above the locking time.

In addition, Hourglass has set up a trading market for users who need to cash out during the locking period. Users can sell or buy ERC-1155 tokens representing a certain time at a certain discount (because buyers need to bear opportunity costs and time costs). The order book formed by the buy and sell orders is actually a game between the two parties in terms of discount.

Such mechanism settings can allow users to obtain higher returns using existing liquidity and enable the protocol to better manage liquidity. For example, when the protocol has sufficient preparation for how much fixed liquidity will be available in the next month and how much liquidity will leave the protocol, it can timely inform users of some short-term fluctuations in returns or lending rates that may occur. In addition, the predictability of protocol revenue enables the protocol to better allocate funds in daily operations and not be affected by sudden withdrawal of liquidity in terms of expenditure plans.

Additionally, Hourglass will support the use of Lido for trading NFTs for withdrawals, allowing users who have applied for withdrawals but are waiting for them to be processed to cash out at a discount. However, it will take some time to confirm the contract’s security. Overall, Hourglass is a platform that helps users and protocols manage liquidity and monetize illiquid assets.

Attempting DeFi+NFT

Hourglass is a project that combines DeFi and NFT that the author has been looking forward to. NFTs, due to their programmability, can be used to represent certain positions, such as LP or some investment exposure. However, there is currently no good solution for the transactions and liquidity of these financial NFTs. In fact, Lido’s stETH solution is similar to this idea, but it converts the staked ETH directly into ERC-20 tokens in a 1:1 ratio. However, NFTs with time locks, such as Uniswap LP or Hourglass protocols, cannot be divided and can only be traded as a whole.

There may be more solutions for NFT liquidity in the future, but how to set up the transaction or liquidity mechanism for such NFTs, and how to stimulate the outbreak of such demand through usability, are still issues that the market needs to consider.

Note: Blocking all articles only represents the author’s point of view and does not constitute investment advice.

Original article link: https://www.bitpush.news/articles/4395766

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