Background
*This was an ecosystem overview given on early 2022. We've launched the mentioned protocols by 2023, and now planning new products further strengthening the DeFi ecosystem on Flow.
Increment Labs is building several DeFi protocols on Flow blockchain, with the vision to become the liquidity & yield engine for the Flow ecosystem.
Flow blockchain has been well-known for NFTs and the team behind it, i.e. Dapper Labs, creator of CryptoKitties and ERC721 standard, with a bunch of successful projects like NBA TopShot, Rarible, ChainMonsters, Blocto, Flovatar, etc. launched on mainnet in 2021.
Beyond digital assets and NFTs, as Flow being a generalized public blockchain, we do see the demand for decentralized financial products is growing but still the infrastructure is missing.
Problems
With more assets and fungible tokens launching on Flow (like My, USDC), a permissionless decentralized exchange is a must-have to bootstrap liquidity pools, trading volumes and on-chain economy. Moreover, DEX will serve as one of the instant-exit strategies for stFlow.
Currently, there’s no way for flow holders to lend out their leisure flow tokens for some yields, or to borrow stablecoin assets while still maintaining their fungible token position.
Although staking flow tokens help secure the network and generate staking rewards, the staked tokens will be illiquid for at least two epochs (~14 days) before being transferrable again.
Solutions
Increment Labs is building 3 major DeFi protocols on Flow to solve the above-mentioned problems and missing infrastructures.
Permisionless DEX (AMM Swap)
Blocto has built an DEX on Flow (i.e. BloctoSwap), however, it has certain restrictions on tokens, users, projects and devs:
Limited tokenlist: Users cannot search or import any arbitrary fungible token on Flow.
Centralized pool management: Trading pairs can only be created by Blocto team, and the pair must be paired with tUSDT (which USDT bridged from ETH to Flow, still centralized and fully-custodied by Blocto), so it's not optimal for Market Makers as liquidity is pivoted around tUSDT.
Rudimentary routing algo: Swap output is not the optimal to users
Missing on-chain price oracle
We anticipate more fungible tokens and projects will be launched on Flow, as well as assets bridged from other chains such as ceWBTC by Celer. So a purely permissionless DEX will be beneficial to all users, community, projects and Flow's onchain economy as a whole.
Last but not least, AMM will also serve as an instant-exit strategy for stFlow (see below) holders.
Decentralized Money Market
Lending is the cornerstone of any financial system, which has also been proven as one of the catalysts of the DeFi boomer. The potential and total addressable market size of lending is large enough: according to defillama’s data, total value locked (TVL) in the decentralized lending platforms is almost 50 billion USD by December 2021.
Lending generates yield for leisure capital, powers the on-chain economy with more leverage and assets. Lending platforms itself also capture a significant portion of value in terms of protocol revenue and P/S ratio.
So the first product we’ve been developing and will launch soon is a decentralized money market for fungible tokens on Flow.
First batch of supported markets include: Flow, FUSD, USDC
Second batch of markets to support soon: BloctoToken, Teleported-USDT, stFlow
Explore DAO-based governance to list new FungibleToken assets as well as adjust per-market risk parameters like collateralization ratio, market borrow cap, interest rate model, etc.
Non-Custodial Liquid Staking
It’s nice to enjoy a 8.3% staking APR, however, it comes at the cost of locking flow tokens for 2 epochs. Essentially every Proof-of-Stake blockchain faces the same problem, Ethereum 2.0, Terra, and Solana, etc. are solving it by introducing non-custodial liquid staking service like Lido, a.k.a. staking derivative.
We tackle the problem in a similar approach: A staking contract accepts user deposit of flow tokens, mint and return stFlow (staked flow) tokens back to users at the rate of 1:1, the staking contract then stakes the deposited funds to DAO-selected node operators.
stFlow token holds the following rights:
To redeem the underlying staked flow along with earned staking rewards.
stFlow can be used as collaterals in Increment.Fi decentralized money market.
stFlow holders looking for instant redemption can exit through flow <=> stFlow liquidity pool through DEX.
Summary
These products work independently and each of them tackles one problem to try to solve it well. Unified together, we’re expecting Increment.Fi to become an interest earning and capital efficient DeFi liquidity engine for the benefit of all Flow users and ecosystem as a whole.
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