History of DeFi
DeFi emerged with the birth of Uniswap in 2019, while Sushiswap revolutionized it with LP liquidity mining in 2020. Platforms like AAVE, Compound, and YFI laid the foundation for the first generation of DeFi. Blockchain has proven its worth with DeFi, as its advantages of decentralization, trustlessness, no intermediaries, full records, and non-tampering are now widely acknowledged by the public. It is not an overstatement to say that DeFi is the most advanced and successful application of blockchain technology.
As we move into 2021, a new wave of DeFi protocols has emerged to address the liquidity construction and retention issues in DeFi. One of the most notable examples is the OlympusDAO protocol on the ETH chain, which features a groundbreaking protocol treasury minting mechanism, a liquidity strategy, and a high-yield model for single currency pledge compound interest. This protocol has rapidly become a leader in the DeFi industry, attracting significant attention due to its Greek myth-inspired branding. Within a few months, the Olympus treasury accumulated over $1 billion worth of blue-chip encrypted assets, and the token's value rose by hundreds of times.
While OlympusDAO experienced rapid growth, it also faced a crisis due to over $1 billion worth of idle treasury assets. This led to a weak value capture ability of its governance token OHM, and ultimately, the token's value plummeted. The development history of OlympusDAO provides important insights. If the protocol had utilized the assets in its treasury to continuously create value and provide stronger support for OHM tokens, it may have been able to compete with Curve, a major player in the DeFi industry.
A Brief History of Themis Protocol
The BSC-based DeFi2.0 protocol, Themis V1, was launched in April 2022. It incorporated the benefits of the Olympus protocol and introduced new features such as the protocol contribution token $SC and a dual currency model. This made it easier to control the inflation of the native token $THS, resulting in a more stable protocol development. After several months of community experimentation, by October 2022, the Themis protocol vault had accumulated over $6.4 million in assets, including $1.8 million in USDT and $4.6 million in THS-USDT LP. The experimental process not only verified the contract's reliability but also confirmed the mechanism's feasibility, leading to initial success.
The Themis V1 protocol is currently in operation, but the team is also contemplating ways to address the issue of the Olympus protocol's inability to generate value for the protocol through its treasury funds. Various DeFi applications, such as DEX, lending, and yield aggregators, can create genuine value. DEX can be divided into spot trading platforms and derivatives trading platforms. Spot trading platforms such as Uniswap and Sushiswap on the ETH chain, Pancakeswap on the BSC chain, and Sunswap on the TRON chain have mature products on various public chains. A pure spot trading platform, regardless of which public chain it operates on, faces tough competition, and profitability is severely limited when the TVL is insufficient to support significant transactions.
In contrast, decentralized derivatives trading is a nascent field with only a few products, such as DYDX on the ETH chain and GMX on the Arbtrium chain, that are set to rise significantly in 2022. In terms of profitability alone, derivatives (contract) trading outperforms lending, income aggregators, and spot trading. GMX, which is expected to launch in July 2022, has generated nearly $100 million in revenue in just six months. Decentralized derivatives trading is a blue ocean market with significant revenue potential, making it an excellent option for leveraging the value of treasury assets.
Towards the end of 2022, the world's second largest centralized cryptocurrency exchange, FTX, with a market value of $50 billion, went bankrupt, leading to a growing realization among people that decentralized finance (DeFi) is the future. The Themis team carried out extensive research and demonstrated that DeFi is the future, and decided to migrate the Themis protocol from the BSC chain to the public chain FVM of the Filcoin ecosystem, which will be launched on March 14, 2023. They also upgraded the protocol to Themis Pro and developed a decentralized spot and derivatives trading platform based on the ve(3,3) model on FVM.
The unique operating mechanism of Themis Pro
1. The minting model builds the Themis treasury fund pool
To create the Themis treasury fund pool, the minting model is used instead of traditional DEX and CEX mechanisms. The vault fund pool consists of a basket of popular cryptocurrencies and stable coins, such as BTC, ETH, FIL, and USDT, which cater to the spot and contract trading needs of users. The treasury fund pool maintains a 50/50 ratio of risk assets and stable currency assets and fluctuates around 5%. Initially, the focus is on attracting enough funds into the treasury fund pool to support a larger transaction volume. The protocol adjusts the preferential ratio of $THS minted by various assets, including risk assets like BTC and FIL, stable currency assets like USDT and USDC, and $THS-USDT LP assets to incentivize users to mint $THS in the treasury. This helps to grow the treasury fund pool over time.
2. Themis treasury fund pool asset adjustment mechanism
To create a balanced ratio of tokens in the Themis Pro treasury fund pool, different tokens have different prices for minting $THS. The prices are adjusted according to the target weight set by the agreement. For example, if FIL accounts for 20% of the capital pool, and the total value of FIL tokens in the fund pool falls below the 20% target weight, the agreement will lower the price of FIL minted $THS, providing a higher discount compared to the $THS transaction price. This attracts users to use FIL to mint $THS and promote the proportion of FIL in the treasury fund pool to gradually approach the 20% set by the agreement. When users buy or sell a certain asset, short or long a certain asset, the stock of different tokens in the pool changes accordingly.
If the total value of FIL tokens in the fund pool exceeds the 20% target weight set by the agreement, there is no need to replenish FIL in the treasury fund pool. The agreement will then increase the price of FIL minted $THS automatically, either by reducing the discount relative to the $THS transaction price, or even offering no discount, or even a negative discount. This change makes the arbitrage space for FIL minting $THS smaller or even nonexistent, which reduces user interest in minting $THS with FIL. This automatic adjustment helps to prevent FIL from entering the treasury fund pool.
3. Acquisition of Themis Pro token transaction price
Instead of relying on the AMM market-making model, Themis Pro uses the Themis treasury fund pool along with Chainlink oracle quotes that gather data from Binance and Coinbase to determine the "true price" of tokens. Themis Pro is an oracle-based decentralized trading platform for asset exchange. The following are the advantages of using this model:
Realize zero slippage spot and contract transactions
When compared to the traditional AMM model, the transaction slippage becomes worse for the user's trading experience when the amount of a single transaction is larger relative to the fund pool. On the other hand, with Themis Pro's model, no matter how large the transaction volume is, there is no slippage for the total amount of one token as long as the single transaction does not exceed a certain amount of the fund pool. This improves the user's experience in trading encrypted assets on DEX significantly.
The Themis treasury fund pool is being used more effectively, thanks to the zero-slip trading experience that enables the pool to accommodate large-value transactions. This is particularly beneficial when the treasury holds a large amount of stablecoins. As a result, Themis Pro is very appealing to users interested in stablecoin transactions. Compared to traditional DEX platforms with similar TVL, Themis Pro is more profitable and generates more revenue, which contributes to the better performance and increased repurchasing of the platform's token, $THS.
Overview of Themis Pro trading platform models
5. Summary of the advantages of Themis Pro
This passage lists several advantages of Themis Pro as a decentralized trading platform:
It offers zero slippage in transactions, which is particularly beneficial for large and stablecoin transactions;
It charges lower transaction fees compared to traditional DEX and CEX;
The utilization rate of funds is high, leading to stronger profitability for the platform;
The platform runs on the entire chain, eliminating false transactions and black-box operations;
There is a significant market opportunity in the decentralized derivatives trading market, with few competitors and Themis Pro having a first-mover advantage.
The article focuses on the history of the Themis protocol and the benefits of Themis Pro, and future articles will explore the Ve (3,3) model of Themis Pro as well as the token economics of its platform token $THS and protocol contribution value token $SC.