Tokemak Decentralized AMM Hits $1B TVL — And It's Not Even Fully Launched Yet

There’s another piece of evidence that the “DeFi 2.0” movement is gaining steam.

Tokemak, a project that bills itself as a decentralized market making protocol, has hit $1B in total value locked, less than two months after unveiling what it calls “reactors.”

Reactors are a pooled combination of a protocol’s token, like Sushiswap’s SUSHI and Tokemak’s TOKE. And TOKE’s role in the reactor is to direct the form its paired token takes. So for example, users with TOKE in the SUSHI reactor would vote on whether to pair it with ETH or DAI, and which exchange to deposit the pair to.

Hitting the $1B mark is a major sign of momentum for a project that hasn’t fully launched all its functionality yet. Tokemak aims to facilitate liquidity provisioning for protocols’ tokens instead of the projects doing it themselves. That functionality is set to go live in December.

For now reactors, as well as some other pools, like ETH and USDC which are meant to be matched with tokens like SUSHI, are attracting all $1B plus of Tokemak’s locked value.

“Tokemak is gearing up for a different way, kind of like a meta-layer liquidity distribution, for protocols to get deep liquidity by creating this decentralized market making platform,” the pseudonymous end0xiii, who works on community and product at Tokemak, told The Defiant. “DAOs can utilize Tokemak’s aggregated capital from users more keen on providing assets as liquidity with less risk and less capital than traditional 50/50 liquidity provision.”

Tokenmak offers users rewards for ETH and USDC deposits which then holders of the protocol’s TOKE tokens will be able to pair with assets of specific projects and deposit those pairs in decentralized exchanges.

For example, TOKE holders will be able to pair SushiSwap SUSHI tokens with USDC, and deposit the two in Uniswap as a SUSHI-USDC liquidity position.

This contrasts with current models, where protocols are forced to dilute their own token supply by using their tokens to incentivize liquidity provision.

A Belief and a Need

Passing the $1B TVL mark before TOKE holders start directing liquidity is a testament to the power of incentives, and perhaps also to the belief in Tokemak and the need for new models of providing liquidity.

“It’s been difficult to procure deep and consistent liquidity in DeFi, especially for new projects,” end0xiii said. “Oftentimes liquidity mining is utilized as a means to generate some initial liquidity at a great cost to some of these projects.”

end0xiii underscored this problem, saying that many DeFi projects have watered down their token supply through incentives intended to increase liquidity.

This dilution has given rise to DeFi 2.0 projects which aim to take on the problem of the liquidity provision from other protocols.

What’s There to Unlock?

With over $500M of the Tokemak TVL locked in ETH and USDC and set to pair with other assets in the reactors, Tokemak’s TOKE holders will have a lot of liquidity to deploy come December.

Tokemak currently has four reactors live and is accepting deposits. So far Frax Finance’s FXS, Alchemix’s ALCX, TracerDAO’s TCR and OlympusDAOs OHM have reactors taking deposits. SushiSwap’s SUSHI is slated to be the final reactor of the first cohort.

The two biggest contributors to TVL aren’t the reactors, but ETH and USDC pools, which contribute 49% of Tokemak’s total locked value as of Oct. 27, according to the protocol’s site. For now, users can still earn 11% on a single-sided ETH pool and 23% on a single-sided USDC pool in the form of TOKE rewards.

Tokemak will launch more reactors in November and soon users will be able to vote on the next tokens to be added to the platform, according to a medium post.

“Very eager to get the liquidity show on the road,” End0xiii, the pseudonymous contributor said via Discord.