Everything you need to know about Solidly, the latest project by Andre Cronje

Who is Andre Cronje?

Andre Cronje is a South African blockchain developer and one of the most famous people in DeFi. His biggest project is yearn.finance ($3B TVL as of mid-February 2022) – an automated yield optimizer. Users deposit liquidity into vaults (pools), and the funds are reallocated between different protocols to maximize gains.

Another of Andre Cronje’ projects is Keep3rV1 Network, a platform for projects that need keepers (third-party users or teams) to perform various tasks, such as off-chain data processing, initiating transactions, harvesting yield, triggering liquidations, etc.

Andre Cronje’s Twitter bio famously used to state, ‘I test in prod’. This means that he doesn’t use testnets to find and fix bugs. Instead, he launches his projects directly on the mainnet (in production mode, or prod) and fixes the issues as they arise. This is risky and shows Cronje’s confidence in his developer skills.

Andre Cronje. Credit: FXLeaders

Cronje’s biography is very interesting. He first got a degree in law and even worked as a lawyer, but his roommate studies computer science, and Cronje often gave him rides to college. Soon he himself became interested in coding and decided to start taking classes. It turned out that Cronje had a gift: he finished the 3-year programming course in just 5 months, and the college asked him to stay on as a lecturer.

In 2016, Andre Cronje joined the blockchain industry, though it took him 4 years to launch yearn.finance. Since then, he’s acquired a whole army of fans, and every new project he created attracts a lot of attention.

About Fantom

Fantom is a smart contract platform, just like Ethereum, BSC, Solana, Avalanche, etc. It uses the same smart contract language as Ethereum (Solidity) and supports the Ethereum Virtual Machine (EVM). However, it’s much faster and has much lower gas fees. A transaction needs just 1 confirmation to become final – as opposed to 12 on Ethereum.

By the way, EVM support is quite important when developing new smart contract platforms, because it allows to ‘port’ (migrate) Ethereum-based dApps onto other networks. Avalanche, Polygon, BSC, and Harmony all support EVM.

Here at Pontem Network, we are doing something similar with Polkadot/Kusama and the upcoming Diem blockchain, backed by Meta. We provide an incentivized testnet (experimentation platform) for Diem technology, and we were the first to introduce support for Diem’s MoveVM virtual machine on Substrate. You can read more about Pontem and our upcoming NOX crowdloan on Kusama here.

Going back to Fantom, perhaps the most interesting thing about this platform is that every dApp built on it runs on its own blockchain. These individual chains have independent governance and rules (like in Polkadot or Cosmos ) but share the same consensus engine, Lachesis. You can learn more from our detailed article on the Fantom ecosystem.

The Fantom ecosytem counts over 100 dApps

Fantom was created by the South Korean computer scientist and IT entrepreneur Dr. Ahn Byung Ik. The project is currently run by the Fantom Foundation, based in Seoul, and its CEO is Michael Kong.

The mysterious partnership between Andre Cronje and Daniele Sestagalli

In September 2018, Andre Cronje joined Fantom as a technical advisor (currently he’s listed on the website simply as ‘DeFi Architect’). However, it wasn’t until September 2020 that Cronje first hinted that he was building a project on Fantom. He tweeted that he was ‘setting up Uniswap Protocol on another chain’ and posted a curious logo: Uniswap’s unicorn with SushiSwap’s chef hat on its head and a tiny logo of Fantom in its eye. However, there is no way to say it was this idea that eventually evolved into Solidly.

On January 1, Andre Cronje tweeted that he was preparing a ‘new experiment on Fantom’. And on January 5, the really big news broke out – that Cronje was developing the protocol together with Daniele Sestagalli, the creator of Abracadabra.Money ($MIM) and Wonderland ($TIME). Sesta himself wrote about the collaboration on Twitter. Cronje even had a profile pic featuring the two of them for a while:

On January 15, the preliminary name of the new protocol was revealed through a new page on GitHub: Solidly. Andre Cronje also announced that its tokens would be distributed to the major DeFi protocols on Fantom via an airdrop. The snapshot for the airdrop was taken on January 23.

We will return to this airdrop and the so-called ‘vamp wars’ it triggered, but for now let’s look at how Solidly works and where it borrows its ideas from. Prepare to get a bit technical!

The inspiration: Curve Finance and vote-escrowed (ve) tokens

Solidly took a lot from another major DeFi protocol, Curve (CRV, $11B TVL as of February 2022). It’s an AMM where users can lock up CRV tokens in exchange for veCRV (‘vote-escrowed’). The longer the locking period, the more veCRV one gets. These ve tokens cannot be transferred, but they give a number of benefits to holders:

A share in the trading fees generated by the AMM (50% of the fees are distributed among the veCRV holders);
Up to a 150% boost on any CRV liquidity provider rewards;
Being able to vote on where CRV rewards will go.

The voted-escrow system solves an important problem in DeFi: the lack of inherent value in most governance tokens. Protocols like Compound ($COMP), Uniswap ($UNI), etc. distributed tokens that allowed their holders to vote on DAO proposals, but not much else. As a result, many would simply sell off their rewards. However, Curve’s model isn’t perfect – read on to find out why.

The 2 Curve problems Solidly aims to solve: TVL incentivization and asset dilution

Daniele Sesta noted that there is a problem with the voted-escrow model used by Curve: it incentivizes only TVL instead of activity. Those users who deposit most liquidity in trading pools earn the most CRV, get more veCRV by vesting, a larger share of the trading fees, etc. The level of trading activity in the pool doesn’t matter.

We could add that it’s the same with most AMMs: liquidity providers can earn yield farming rewards upwards of 100% even if the pool’s trading volume is really low. A token that brings little value to the AMM in terms of trading fees can have higher rewards than a token with great utility and high volume.

Another problem is dilution. If you vest your tokens for a long time and new tokens are constantly issued, then your holdings are diluted: you own a smaller and smaller share of the total token supply. Inflation (supply increase) often causes token prices to go down, so you risk seeing your assets lose value over time – and you can’t do anything about it without unstaking them.

Solidly takes a different approach: instead of TVL, it encourages fee generation, participation in governance, and long-term token holding. It also prevents dilution by redistributing part of the newly issued SOLID to lockers (those who vest their tokens).

How Solidly works

SOLID and veSOLID

SOLID is the native token of Solidly. Users can lock (vest) it and receive veSOLID (vote-escrowed SOLID), but the ratio isn’t 1:1 like in other protocols. Rather, it depends on the lock-up period:

6 months: get 0.125 veSOLID for 1 SOLID;
2 years: get 0.5 veSOLID for 1 SOLID;
4 years: get 0.1 veSOLID for 1 SOLID.

Other durations will be available, too, but they haven’t been announced as of the time of writing.

veSOLID holders get the following benefits:

all of the fees generated by the pools they vote for (see below);
a significant chunk of new SOLID emissions;
the right to vote on which AMM pools should be incentivized (this is actually more important than you think, so keep reading).

Note that Solidly isn’t a DAO: veSOLID holders will vote on certain matters, but they won’t run the project. The control will remain in the hands of the founders – a cautious move by Cronje, considering the risks of a hostile DAOs takeover - something that recently happened to Build Finance, for example.

Adjusted SOLID emission

Every week, up to 20,000,000 SOLID can be distributed, but...
...the actual emission rate changes depending on the percentage of SOLID that is locked. The formula is: (weekly SOLID emission) = 20,000,000*((total SOLID supply)-(locked SOLID supply)/(total SOLID supply)).

Examples

Let’s suppose that the total supply of SOLID is 300,000,000. If none of the tokens are locked, the protocol will issue 20,000,000 SOLID: 20,000,000*(300,000,000 – 0)/300,000,000. The supply will rise to 320,000,000, or by 6.25%.
If 150,000,000 (50%) of SOLID are locked, then we’ll get 20,000,000*(300,000,000 – 150,000,000)/300,000,000=10,000,000 SOLID emission for that week. The total supply will rise to 310,000,000, or by 3,125%.
If all of the 300 million tokens are vested, we’ll get 20,000,000*(300,000,000 – 300,000,000)/300,000,000=0 SOLID emission for that week. The supply won’t change.

SOLID emissions started on February 24, and soon veSOLID holders will be able to claim the first rewards.

20 million a week is a large number, but as you can see, the more people lock SOLID, the slower the emission. Besides, Cronje mentioned that the emission will slow down (‘decay’) as it gets close to a ‘cap’. He didn’t say what the maximum number of SOLID would be, or how fast the emission would decay, though an article by Solidex (a yield optimizer for Solidly) claimed that the decay rate will be 2% a week until Week 167.

Distribution of SOLID to lockers

The idea is that SOLID holders who lock their tokens shouldn’t suffer from dilution. If the total supply of SOLID grows, so should their holdings – and at the same rate.

Coming back to our example: if the supply is 30 million, out of which 15 million are locked, the weekly emission of 1 million SOLID increases the supply by 3,125%, out of which the lockers will get 15,000,000*0.03125=468,750 SOLID, or almost half of the emission. If you personally hold 1,000 veSOLID, you should receive 62.5 SOLID.

Solidly AMM

Solidly’s main element is an AMM (automated market maker) – in other words, a decentralized exchange like Uniswap or SushiSwap. Liquidity providers can deposit tokens into pools, while regular users swap one token for another. However, there are some interesting features:

All the fees from a pool go to those veSOLID lockers who voted for that pool.

Well, actually it’s a bit more complex than that: veSOLID lockers vote on liquidity gauges attached to pools. In Curve Finance and Solidly, a gauge is a sort of a reservoir where liquidity providers can stake LP tokens. The amount of LP tokens in a gauge measures the usage of a pool.

It’s not necessary for a pool to have a gauge, but any Solidly user can deploy one for any pool. Adding a gauge costs 0.5% of the circulating supply, though.

The AMM supports stablecoin swaps with almost no slippage thanks to a new price curve formula (x3y+y3x=k instead of x*y=k);
Liquidity providers are rewarded with SOLID - but receive none of the trading fees. If, however, a pool doesn’t have a gauge, then all the fees it generates go to its liquidity providers.
Antagonistic voting: veSOLID holders can vote to decrease SOLID incentives for a pool;
The fees are paid out in the pool’s base assets;
Projects can permissionlessly add new pools, incentives for liquidity providers, and bribes for lockers (see below for info on bribes).

Soon after of launch, the AMM counted 65 pools featuring tokens like WFTM (wrapped FTM), MIM, TOMB, BEETS, SCREAM, TAROT, USDC, DAI, etc.

You’ll find more info about the AMM on Andre Cronje’s Solidly GitHub page, but we have to warn you - it’s pretty dense.

Lock NFTzation

Locked SOLID tokens can be wrapped into special NFTs, called veNFTs. This is very important for two reasons:

1) NFTs allow the holder to remain liquid, even though they cannot use the vested SOLID. A veNFT can be sold in the secondary market – or even deposited in a future lending protocol as collateral. This makes locking even more attractive, because holders will have a way to exit a lock position without losing money.

2) Batches of locked tokens can be turned into separate veNFTs. One user (or, rather, address) can own multiple NFT-ized locks, meaning that if you want to sell a part of your token position, you can do so. At the same time, the balances of all the veNFTs held by a user are counted together to calculate the rewards.

Incentives for pools and bribes

We’ve discussed how SOLID lockers will get a significant portion of the weekly token emissions. The rest will go to AMM liquidity pools – and it’s the veSOLID holders who will decide which ones.

The mechanism looks as follows:

veSOLID holders receive the fees generated by the pools they vote for;
Thus, it’s in their interest to vote for pools that produce more fees – i.e. have a higher trading volume and add value to the protocol;
To encourage veSOLID holders to vote for them, pool creators can use so-called bribes – a concept introduced by Curve Finance. There’s nothing sinister about bribes in DeFi: they are simply rewards attached to a pool. The bribe is distributed among everyone who locks liquidity in that pool.

The introduction of bribes led to the so-called ‘Curve wars’ as projects scramble to provide the highest incentives. The winner so far is Convex Finance, which was the first to offer a bribe in the form of an airdrop (1% of its CVX tokens) to liquidity providers. Convex is a yield optimizer for Curve, offering the maximum boosts for all pools. We might see the same kind of bribe war on Solidly, so watch this space.

The big airdrop and the protocol-to-protocol approach

Andre Cronje stressed that he doesn’t want to compete for users and liquidity with other AMMs. Instead, he expects that DeFi projects will integrate Solidly and act as the main SOLID lockers.

Cronje’s first article about the project (still called ve(3,3)) has a section entitled ‘Building for protocols’, where he writes that ‘protocols are the new AMM users’. Essentially, Solidly should mostly deal with other protocols and not with individual DeFi users.

The next order of the day was the initial token distribution. The founders didn’t want to conduct an IDO or raise any funds – according to Cronje, because it ‘adds a lot of flags’ and ‘complications’. Instead, they chose to hold a massive airdrop.

On January 11, Cronje tweeted that Fantom’s top 20 DeFi protocols by TVL would receive locked SOLID in the form of veNFTs. Thus, the whole airdrop was to consist of just 20 veNFTs, though with different amounts in locked SOLID. The list would be compiled via a snapshot of the Fantom network, to be taken on January 23 using the Defillama aggregator website.

Link

The chosen 20 projects would own 25% of Solidly, with all the perks that came with that – so clearly, it was worth getting into that exclusive club. DeFi projects now had less than 2 weeks to try and make it into the top 20 or confirm their place there. The race for TVL had begun.

The vamp wars

How do you boost a protocol’s TVL in just 2 weeks? By offering a higher APY than other projects in order to lure in their users. As the competition for the Solidly airdrop heated up, several brand-new protocols popped up, offering yields upwards of 1,000%. The most notable were veDAO and 0xDAO.

The name ‘vamp wars’, or ‘vampire wars’, referred to their tactic of leeching off users from other protocols, a bit like a vampire sucks blood. These protocols targeted the so-called mercenary capital: DeFi users who constantly look for the highest APR, readily abandoning one opportunity for a more lucrative one.

VeDAO, launched on January 18, reached $1 billion in TVL in just 24 hours and was soon #2 on Fantom by TVL. Its MIM-WeVE pool was paying almost 3,000%. Meanwhile, 0xDAO had an APR of over 5,000% as of January 23.

There were even allegations that some projects faked their TVL to get the airdrop. For example, a Reddit user noticed that Multichain, the dominant project on Fantom, boasted $500 million in TVL for the POND token and $400 million worth of HND, though their actual market caps were 10 times and 15 times smaller than that, respectively.

Credit: u/Pacobrigado, Reddit

The same user expressed the concern that if projects were to get veNFTs in proportion to their TVL, Multichain would come to dominate Solidly. We’ll have to wait and see if this is the case. Multichain, 0xDAO, and veDAO all managed to get on the list of airdrop recipients, and 0xDAO even came in second. By the way, in the end 25 projects were chosen, and not 20, as expected.

As the urgent need for liquidity disappeared, veDAO turned off its more lucrative Pool 1 and cut the rewards in Pool 2 by 75%. It also fell out of the top-50 by TVL as the ‘mercenaries’ left to go and look for better APRs elsewhere. 0XDAO’s TVL fell by 99.7% from $4.3 billion to just $14.5 million.

Credit: Defillama

Fantom surges on the hype around Solidly

On December 15, 2020, Fantom’s DeFi TVL was around $3.7 billion. By the end of January 2022, it surged to $12.2 billion, putting Fantom in the 3rd place among all blockchains by the value locked in DeFi. The 1st and 2nd place were occupied by Ethereum and Terra.

Credit: Defillama

Solidly certainly played a role in this spectacular rise. According to Delphi Digital, starting from January 1, when the project was announced, massive amounts of liquidity started flowing into the Fantom ecosystem from Ethereum and BSC. On January 11 alone, there were $250 million in net deposits.

Credit: Delphi Digital & Tokenist.com

Between January 17 and 24 alone, the TVL of Fantom increased by 53%, while that of most other chains stagnated amid a general market correction. It even briefly overtook Ethereum in terms of daily transaction numbers. Meanwhile, the price of FTM itself soared by 100% between December 2021 and mid-January 2022.

The bombshell: Andre Cronje quits DeFi

On February 28, days after Solidly launched, Andre Cronje deleted his Twitter account. He also edited his Linkedin profile, moving his tenure at both Fantom and Yearn.finance to the past employment section. The community started to get worried.

The real blow came on March 6, when Cronje’s close collaborator Anton Nell tweeted that they both had decided to leave DeFi and ‘terminate’ all their projects, including Solidly.

After this shock announcement, all hell broke loose. The prices of FTM, YFI, K3PR tanked, while SOLID lost around 50% in a few hours. Solidly’s TVL went from $2.3 billion to $700 million.

Credit: DeFiLlama

Soon, however, a slow recovery started. Fantom Foundation CEO Michael Kong said that the community had misunderstood the message about ‘terminating’’ the dApps: Solidly and the other projects are open-source, and their existing teams can take over. Just because Andre Cronje is leaving doesn’t mean the projects will die.

What’s next for Solidly?

As we noted earlier, the Solidly AMM site is still working, though a warning appears when you enter, saying that the service will stop operating on April 3. Solidex (the yield optimizer for Solidly) is also live, and you can lock up LP tokens for pools like WFTM/TOMB and USDC/OXD.

Just after Cronje’s exit, the anonymous team of Solidex hinted that it would take care of the project from now on.

In fact, some have even suggested that none other than Andre himself is behind Solidex, since the domain https://solidexfinance.com/ was registered even before Cronje published the first description of Solidly (then called ve(3,3)).

Could it be that Andre Cronje will still pull the strings of the DeFi world - only anonymously? Perhaps he’s just tired of publicity and wants to focus on building? Only time will tell. For now the level of uncertainty remains high, and users should consider all the risks before putting any money into Solidly and/or Solidex.

What does ve(3,3) mean?

Finally, let’s look at the mysterious term ve(3,3). That’s how Andre Cronje called the project before the official name was announced to be Solidly.

The symbol (3,3) comes from game theory. It refers to a game matrix with 3 strategies and 2 players: the DeFi user and the protocol. The idea was introduced by OlympusDAO, where the user’s strategies are to stake, bond, or sell (read more about Olympus DAO in our article on DeFi 2.0).

In this matrix, the best result for each player is 3 points. The user gets 3 ‘satisfaction’ points when staking or bonding, but selling isn’t bad either (1 point), as long as others stake and the price goes up. For the protocol, however, it’s better when users stake (3 points), bonding is so-so (1 point), but selling is bad (-1 – you don’t want people to dump your token).

The best possible combination for everybody is when everyone stakes. Both the user and the protocol get 3 points – thus (3,3).

In Solidly, there is no bonding, but staking SOLID is once again the preferable strategy for both token holders and the protocol. The fact that incentives are tied to fees creates a positive feedback loop: more locked tokens means more liquidity and less slippage. Low slippage drives users to the DEX, generating more fees and more rewards, encouraging people to lock more tokens, and so on. Everyone wins - thus ve(3,3).

By early March, Fantom retraced to the 5th place with $6.6 billion in TVL. Will this chain have another moment of glory this year? Will Solidex/Solidly rise from the ashes? In blockchain, everything is possible, and the Fantom ecosystem definitely has great potential. We will keep you updated on the most interesting developments – follow Pontem Network on Twitter and Telegram and don’t miss our next in-depth analysis!