Lifinity
Lifinity is a decentralized market making protocol featuring concentrated liquidity pools that maximize yield along price curves.
- Code not reviewed by any experienced auditors
- Anonymous team reduces transparency
- No documented protocol hacks since launch
- Basic controls to prevent oracle price manipulation
- Core protocol launched in 2021; maturity less than a year increases technical risk as smart contracts are less battle-tested
- Bottom 80% by total value locked increases risk
- Governance decentralization is in the roadmap
- Several critical governance issues documented
- No concerns identified
How Lifinity works
Lifinity is a new automated market maker (AMM) built on Solana with an emphasis on improving capital efficiency and reducing impermanent loss. The AMM plans to achieve this through concentrated liquidity, proactively market making using an oracle, and implementing a rebalancing mechanism. Concentrated liquidity (pioneered by Uniswap V3) improves capital efficiency for liquidity providers (LPs) while reducing slippage for traders. However, concentrated liquidity comes with an increased risk of impermanent loss. To counter this, Lifinity implemented the use of Pyth oracles as the key pricing mechanism instead of relying on arbitragers to adjust the price. Lastly, the rebalancing mechanism ensures that the pool balance regresses to the bonding curve while generating a profit by delaying the rebalancing process. For example, when asset X comprises less than 50% of the pool's total value, the market maker will decrease liquidity for X and increase liquidity for sellers of X to rebalance the pool. Lifinity leveraged the idea of Protocol Owned Liquidity (POL) to attract liquidity without inflationary protocol emissions. The protocol plans to acquire liquidity through a bonding mechanism, which will sell discounted locked LFNTY (veLFNTY) for LP tokens of token pairs on the AMM. Users benefit from being able to purchase discounted LFNTY tokens, which allows governance participation and revenue share over the protocol. Bond buyers choose how long they want to lock their LFNTY, with longer lock periods receiving greater discounts (max discount for 4-year locking is 50%). Lifinity benefits from acquiring POL that it can put to work and earn revenue with.
How Lifinity makes money
Lifinity generates revenue from protocol fees, trading fees generated by POL, and the market making profit (MMP). The protocol charges a base trading fee for each pool that is manually set by the team to maximize profitability. The protocol currently retains 15% of all trading fees. Later, this percentage will fluctuate based on an algorithm to optimize profitability for LPs. MMP is the profit/loss from market making that compares the total value of a pool's assets (excluding trading fees) to their HODL value. Revenue is earned in additional LP tokens, comprised of a buyback and reward token. In the first year, all buyback tokens (generally stablecoins) are used to buy back LFNTY. Subsequently, 80% of buyback tokens will be used to buyback LFNTY and 20% will be used to fund ongoing protocol developments. Reward tokens are distributed proportionally to veLFNTY holders every month.
How you make money on Lifinity
You earn trading fees by providing liquidity to earn 85% of all trading fees. veLFNTY holders also benefit from deflationary forces and earn reward tokens which are distributed monthly.
