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Why Tetrad Protocol Matters
"The End of Ponzinomics:" A look at decentralized finance from our CIO Alexander Pearson
DeFi hit the public stage in early 2020. Hundreds of protocols were launched, all of which vied for success. Three years later, we see that the ultimate differentiator between successful and unsuccessful protocols was their tokenomics.
Protocols that rewarded their tokens holders with inflation all collapsed, as their business model relied on robbing Peter to pay Paul.
Protocols that were successful showcased a viable business model that generated real returns and a steady income stream.
In other words, protocols that actually make money can consistently reward their tokens holders, creating an incentive for token holders to hold and new investors to invest.
While protocols that used inflationary mechanics to reward token holders were really relying on a modern Ponzi scheme, a subsidy paid for by token holders that ultimately resulted in the dilution and devaluation of their investments.
We have seen many experimental tokenomic models rise and fall in the intervening years, often at a fevered pace.
The DeFi formula from 2020 until 2022 = immense downward - significant downward = LP (liquidity provider)
Uniswap originally featured no token (the token still does nothing) and LPs received trading fees only. SushiSwap's inflationary reward model became wildly popular and emulated in an effort to defray Impermanent Loss for LPs, but it has proven to cause immense downward price pressure that punishes long term token holders.
Curve followed and added utility for holders in the ability to direct the inflationary rewards towards particular liquidity pools when their tokens are locked. Velodrome (as a Solidly fork) has continued to iterate with the addition of anti-dilutionary vesting for tokens locked in fNFTs. The market is clear: the more utility you provide and profit you flow to token holders, the more successful your protocol's tokenomic model will be.
It is our intent to create a hybrid tokenomic model that combines the successful properties of previous protocols and our multi-tiered growth strategy.
Tetrad is designed to protect token holders and flow profits from the protocol back to them without constant inflationary pressure diluting their token value.
We're not promising number go up, we're promising that we have the best way to ensure number don't go down while capturing value along the way.
The following pages will describe the design and function of Tetrad, where profit comes from, where it goes, and how token holders and the protocol benefit at each step.