Before Uniswap came along, DEX and DeFi were a pipe dream.
For this reason, regardless of the direction of DeFi and crypto evolution, Uniswap will occupy a slot as one of the sphere’s shapers. And for good reasons.
The Age of AMMs and Liquidity Provider (LP) Tokens
Out of Uniswap’s innovative Automated Market Maker (AMM) model came the idea of community and, yes, another innovation, liquidity providers tokens.
AMM enabled DEXes to grow its liquidity from the community, often in return for the protocol’s share of the revenue. Rewards are distributed in the DEX’s native token.
How much a user receives from the protocol is determined by the liquidity provider tokens—simply, LP tokens.
LP tokens represent your share of the pool and expected revenue for every swapping activity on the pool.
Remember, DEXes using the AMM model thrive from the community, with each provider providing different amounts. LP tokens being representatives, therefore, are valuable.
What is Warp Finance?
Warp Finance provides LP token holders with a new use-case: collateralizing stablecoin loans, effectively unlocking more value for DeFi traders.
The decision to use LP tokens to access loans—and thus unlocking value–is only necessary.
DeFi, as we know, is now a multi-billion juggernaut attracting millions of users across the globe. That means millions of free-floating LP tokens that can now be channeled to Warp Finance for stablecoin loans.
In Uniswap, the world’s largest DEX, over $6.9 billion of assets are under management. This presents immense value to holders and, by extension, Warp Finance.
And accessing loans is pretty much straightforward. What a user needs to do is provide liquidity on any of Uniswap’s pools.
From the earned LP tokens, a DeFi user deposits them on Warp Finance in return for a stablecoin loan that’s overcollateralized by the LP token.
Presently, supported LP tokens on Uniswap are from the WBTC- ETH, ETH-USDC, ETH-USDT, and ETH-DAI pairs.
Also, the overcollateralization ratio is 150 percent meaning a user who wants to borrow $1k must deposit $1.5k worth of these LP tokens.
Loans are dispersed in DAI, USDC, or USDT at rates determined by the availability of the desired stablecoin. The more on-demand the stablecoin is, therefore, the higher the interest rate—and vice versa.
Provision for Lenders and Borrowers
Since loans have to be disbursed, the Warp Finance protocol allows for lenders.
These are users who can supply stablecoins– DAI, USDC, and USDT–on Warp Finance.
Every deposit means the user received wDAI, wUSDC, or wUSDT tokens which are interest-bearing on the Warp Finance protocol.
On redeeming these coins, the user receives the initial deposited amount and the interest rate earned for the duration of the lent period.
Warp Finance would charge a five percent fee on all interest accrued and store it in their treasury.
These funds will be used as a reserve and for continuous platform development.
However, once governance is activated—that is 50 percent of the total supply distributed– as complete decentralization kicks in, WARP token holders will decide what to do with funds accumulated.
Transforming DeFi, Expanding Use-Case for LPs
In this arrangement, the benefits are multi-fold.
On the one hand, the user will continue receiving a share of the 0.30 percent transaction fees on Uniswap. Also, on the other, because of loans acquired, the DeFi trader can unlock the value tied to the pool by re-staking or farming stablecoins received while also recouping the LP tokens once the liquidity provision period ends.
On receipt of LP tokens, Warp Finance will put them to work. They plan to utilize them in simplified yield farming strategies on other DeFi platforms like SushiSwap, Balancer, and more, allowing for negative interest rates on stablecoin loans for their borrowers.
This way, Warp Finance somewhat levels up the LP token field, creating more benefits to the DeFi trader.
Notably, since the DeFi trader retains the control of LP tokens while receiving over-collateralized loans from Warp Finance, they may eventually receive a profit from their rotation. The stablecoin loan received could be staked for even more returns, meaning the DeFi trader would be net positive, making money.
Out of this, Warp Finance—by providing extra revenue streams for the LP token holder—is helping solve the impermanent loss problem.
This occurs because Uniswap—the protocol—cannot compensate for the depreciation of the individual value of assets that make up the pair of the liquidity pool.
However, with Warp Finance in the picture, they hope to resolve this by increasing the use case of Warp Finance tokens allowing holders to create multiple sustainable yield streams.
This transformation of under-utilized liquidity worth billions into a diverse, multi-dimensional state allowing for greater potential in yield is what truly gives Warp Finance an edge.
Warp Finance Tokenomics and ROI
No WARP tokens were sold.
Instead, they were fairly distributed depending on the level of participation.
Early adopters of the protocol can compete to earn WARP tokens and receive limited-edition Warp Finance’s Non-Fungible Tokens (NFT).
WARP tokens are primarily utility in nature. However, Warp Finance has stated that their utility will increase as more features are added.
Following the revamp of their token model, Warp Finance said users could lock their WARP tokens for veWARP.
This way, they will have control over the governance of WARP emissions to lending pairs and vote on lending pairs.
In total, there are 150k WARP governance tokens.
There are 26,865 WARP tokens in circulation, each trading at around $188 for a market cap of $5.2 million.
- 38.5 percent of WARP is allocated to the Personal Rewards Curve program, where token distribution will be linearly distributed for at least 1.5 years. This is a longer-term stablecoin liquidity provision incentive mechanism that’s individual to each user that considers the number of stablecoins provided and the time taken before redemption of rewarded WARP. The PRC is now active following the activation of the Blacksmith.
- 17.5 percent is for the team. There will be a three-month cliff after launch and, after that, a one-year linear distribution.
- 8.5 percent is set aside for the community fund—which won’t be part of the initial circulation. However, they will be minted during the TGE. The $25k of WARP that will be allocated for the WARP/ETH pool on Uniswap comes from the community fund.
As of writing in mid-October, Warp Finance has a TVL of over $6.2 million.
Trading at $188, the WARP token ROI is <1.
The token is available for trading at Uniswap, where it is paired versus wETH.
Warp Finance Short-Term Catalysts
- Warp Finance is a unique project mitigating the impermanent loss risk and giving users more value for their LPs. Uniswap alone manages over $6.9 billion in assets at the time of writing and is growing as DeFi grows.
- On launch, WARP prices rose to over $2.4k before contracting to spot rates. This highlights the potential of the project. At spot rates, there appears to be an undervaluation of the token.
- Warp Finance continues to build. With the launch of Warp Finance v2 and the activation of PRC via the Blacksmith Upgrade, the demand for network interaction would be high, driving WARP prices higher. The activation of this new upgrade also saw the project launch with the Element Finance principal and liquidity provider tokens. Besides, the introduction of Chisel—a Liquidity Vault on Warp Finance will allow lenders to provide digital assets for many Warp Finance lending pools at once
- There is vesting and locking of WARP tokens meaning release is gradual over the next few months. This presents an opportunity for investors to accumulate at spot rates, expecting a supply shock that would lift the coin higher.
- Warp Finance is extending its liquidity mining program—Liquidity Rush– for one more year. This would support WARP tokens during this period, allowing easy trading of the WARP/ETH pair on Uniswap.
- The ability of users to stake WARP tokens for veWARP tokens, which earn a yield, incentivizes the HODLing of the token. In turn, this is also a net positive for the trader’s PRC—a program encouraging liquidity provision and holding of WARP.
Warp Finance Long-Term Catalysts
- There are only 150k WARP tokens in total supply, and less than 23k are in circulation. WARP looks attractive considering the low coin supply and how the team is setting its sights on transforming the $6.2 billion LP scene in Uniswap.
- Owning the WARP token is safe since its distribution is fair without any token sale. The developing team prioritizes development and interaction over risks of VC capture and timeline demands. Their gradual and measured approach, coupled with their determination, would help the project firm up in the months ahead.
- Warp Finance smart contracts have been audited by Trail of Bits, a leading blockchain security firm.
- Warp Finance will eventually be a decentralized project where holders of WARP tokens would determine its trajectory. Complete decentralization would happen once 75k WARP tokens have been distributed to holders.
- In the weeks ahead, the project plans to support the Layer-2 solution, saving on Gas fees. Additionally, this also paves the way for Warp Finance to use L2 assets as collateral on the mainnet.