Liquidity emerging as a service (LaaS) in DeFi Industry.

Liquidity is an important asset in a decentralized finance (DeFi) industry. The liquidity of crypto is the ability to be easily marketable and converted into cash or other assets. Over time, there have been liquidity mining schemes set up and proven to be an accountable method to bootstrap and attract liquidity to protocols.

Liquidity mining allocates tokens (often governance tokens) across different ecosystems, to use this activity to bootstrap protocol growth. However, the yield farmers who are the primary liquidity providers, are economically incentivized to sell often in order to lock earnings. This increases sell pressure, erodes treasury buying power, and decreases the token value for long term holders of the protocol. And so millions of dollars are spent week in and out on incentives to find liquidity for their projects. 

The liquidity as a service (LaaS) industry is quickly catching steam, attracting $5B TVL in less than a quarter by offering greater liquidity depth and higher capital efficiency. This nascent sector is being shaped by strategies such as Curve Bribes (vote buying), Olympus Pro, Tokemak, and UMA to increase liquidity depth and create a marketplace in which liquidity providers can buy back their liquidity without having to pay enormous fees to the liquidity pools, and also trade their LP tokens in exchange for tokens such as governance tokens or other tokens.

LaaS is a rapidly emerging crypto infrastructure market with strong demand because every protocol needs liquidity. And not all protocols are employing the most capital-efficient approach to long-term liquidity sourcing, as most of them try to overrule the inevitable LaaS services backlog. But as DeFi continues to grow, LaaS will continue to flourish and will create the DeFi industry legos necessary to support future DeFi sectors.

Thank you for reading

Victorfela.