Objective:
Breaching $1B TVL on chain in 2022.
Brief Background:
At the date of reporting, Harmony ranks 20th in TVL across all chains, and 11th amongst EVM chains at $481m.
The majority of TVL is participating in GameFi products such as DFK and Defira as well as Compound-fork Tranquil, which attracts ONE validator delegators with their stONE product. Note the position of Curve and the CRV product StakeDAO
Note the position of Curve and the CRV product StakeDAO in the Harmony ecosystem compared to positioning of Curve and Convex in the broader DeFi ecosystem. This indicates a capital inefficiency on the Harmony chain.
The DEXs on Harmony are functional with deepest liquidity in DeFi Kingdoms (DFK) and Tranquil (via Defira). The trading pairs in DFK are only accessible in-game.
ViperSwap has the traditional DEX tooling with incentivized pools. FoxSwap and Hermes are emerging with promises of additional functionality. SushiSwap is a household name that works as intended. However, liquidity is still relatively lacking across the traditional DEXes compared to other chains.
A DeFi Hypothesis
The ability to earn yield on the movement of capital is DeFi’s gift to the masses. However, we still live in a world where most goods are priced in fiat. In order to embrace crypto and the accompanying volatility, stablecoins are a necessary tool to connect traditional finance with the innovations on-chain. Stablecoins are the foyer where capital is parked ready to enter or exit the building. The first thing a healthy DeFi ecosystem should have is a strong stablecoin infrastructure that provides a competitive yield.
Currently, the center of the stablecoin universe is Curve, and all of DeFi revolves around it. Curve’s gauge voting and the composability of veTokens (for Curve and other protocols) is what fuels the flywheel of TVL across the board. In layman's speak, when people can compete for rewards, they’re willing to spend more resources.
The second thing a healthy DeFi ecosystem should have is yield aggregators. These are places we can park veTokens and earn more yield, while maintaining the ability to withdraw our initial investment. These are platforms like Yearn, Convex and StakeDAO.
The third tool would be DEXes with deep liquidity. DEXes must incentivize liquidity with rewards that have a good chance of outpacing any impermanent loss users may face. This is a challenge across DeFi but protocols like Bancor’s V3 look to provide promising solutions. The fourth tool would be money markets and staked assets. Users can deposit assets and borrow against them and/or stake assets and use their liquid derivatives elsewhere. After this, the opportunities expand- particularly into seigniorage projects where investors use arbitrage to keep stable or synthetic tokens at peg. The ingredients above provide a viable world where capital doesn’t need to leave the chain unless it needs to be converted to fiat.
Strategies for Harmony
Harmony’s ace-in-the-hole is the speed and transaction fees that can scale. This combination is a DeFi yield farmer’s dream, allowing compounding to occur more frequently.
Don’t reinvent the wheel - bring the top performing protocols in DeFi to Harmony, or incentivize others to build native (but not necessarily novel) solutions. The image below shows the current top TVL protocols across the industry.
- Lean in to existing partnerships/protocols.
- Work with Curve to enable Factory abilities on Harmony, to create pools and incentivize liquidity deployment.
- If possible, deploy capital to Votium to bribe vlCVX holders to consistently make Harmony pools attractive.
- Work intimately with FRAX to enable veFXS capabilities and staking. Frax dominates the CRV gauges and will continue to build deep liquidity. The more Harmony integrates with FRAX, the more liquidity they should lure on chain with bribe programs like Votium or Hidden Hand.
- Bridge or bring over the top performing DeFi protocols. Again - this is the playbook:
- Bring Lido to Harmony. Their staking assets would be in competition with Tranquil’s stONE, but Lido has all the existing capital and eyeballs.
- The bridge to Anchor protocol will be huge once it is implemented.
- Bridge or integrate with Yearn and Convex to maximize the functionality of CRV on chain.
- Bring Balancer to Harmony to allow investors to keep their desired portfolio allocations on-chain while earning additional yield.
- Investigate if it’s possible to add support for BancorV3 and utilizing their innovations on instant permanent loss protections.
- Aggressively pursue a Tokemak reactor via the C.o.R.E. voting process using bribes for the ability to direct liquidity to the Harmony chain. Competitors for this ability include NEAR and FTM.
- Bring gOHM to the Harmony chain via their Proteus program. Olympus is looking to build the reserve currency for DeFi, has a vibrant community and developing ecosystem, and would bring a lot of utility to the chain.
- Pursue CowSwap integration to give traders on the Harmony chain more tools and confidence to defend against MEV attacks.
- Integrate with FEI protocol to utilize their Liquidity as a Service for DAOs using censorship resistant stablecoins and isolated lending markets via Rari Fuse pools for tailored leverage and unique yield opportunities.
- Cultivate native solutions.
- If the protocols above can’t be easily integrated or bridged, grants for DeFi projects should be reserved for projects imitating/forking the protocols above. Once these battle-tested solutions are deployed, then novel innovations would become more attractive. Liquidity first, then break new ground.
- Nurture or nudge existing protocols on Harmony to add some of the capabilities above. For example, VenomDAO has an ambitious roadmap that would bring a lot of utility but the devs seem to be in stealth mode.
- Revamped Harmony Explorer with detailed .csv export that can easily integrate with tax software.
- This would bring tremendous confidence to capital looking to transact heavily on-chain.
c. Boost liquidity on the HND/WONE pair for Hundred Finance to encourage users to utilize their attractive money market as a safe haven. HND is used to gauge vote where emissions go for these pools. Deeper liquidity for the HND pair would allow more capital to incentivize these pools via buying and locking HND. Hundred Finance is a great place to park stables and earn an attractive yield while the Curve/ve ecosystem is being developed.
In Closing
Harmony has a distinct advantage with the affordability and convenience of transactions which has flexed its muscles with the massive GameFi adoption on chain. This same advantage can be realized with increased compounding potential for smaller investors if they have the tools and liquidity to utilize and keep their capital on chain.