1. Introduction
2. Market Overview
3. What is Fluidity?
4. Product features and use cases
5. Tokenomics
6. Accomplishments & Roadmap
7. Conclusion

Introduction

Decentralized finance offerings currently in place encourages leaving interest-bearing products “idle,” or in an account accumulating interest. The vast majority of people on the planet struggle to make ends meet and cannot afford to leave their money in an inaccessible account. These tools cannot help this group of people escape poverty, and they are unable to participate in the financial system beyond basic banking.

This group is exposed to decentralized finance using Fluid Assets. The reward pool and yield generating process of Fluidity Money works like a “no-loss lottery,” which was invented by earlier products like PoolTogether [Poo]. The money is subsequently lent via a yield-generating technology after users swap primary tokens for 1-to-1 backed Fluid Assets. The reward pool to which users are exposed on each transfer of their wrapped (Fluid Asset) token is made up of this accumulated yield. Due to the fact that Fluid Assets can always be redeemed for their principal without incurring any fees, this reward mechanism encourages the use of Fluid Assets over their non-Fluid equivalent.

Tokens issued by Fluidity Money (also known as “Fluid Assets”) expose owners to significant dividend payments that are delivered at random. According to a drawing mechanism held on each transaction of their fluid assets, dividends are given out. The total yield created by all primary tokens deposited and lent on money markets is used to calculate dividends.

Market Overview

In the current DeFi ecosystem, it appears like incentives are not aligned. 

While NFTs and cryptocurrencies are popular, they are being used for speculative purposes rather than for their intended purpose. Users tend to stick onto their cryptocurrency assets due to the growth potential because their speculative worth is much bigger than that of transient purchases. 

In the user’s eyes, it would be more like selling a section of their home to pay for pizza than a disposable and interchangeable asset type.

The below example illustrates the core differentiation that Fluidity offers in the market and how it is different from the current DeFi offerings.

A client has $1000 in USDC that he intends to use for a variety of transactions, including NFTs and retail purchases. Although it is debatable, he could retain your USDC in lending protocols and withdraw it whenever he needs to spend some of it. However, the rewards would probably be calculated in pennies, and depending on the costs and petrol, they would probably be less than the cost of deposits and withdrawals. 

If that item were to be used in a transaction by being swapped into a Fluid version of the base asset, the user would then be subject to a potential reward and have the option to swap back to their base asset at any moment. 

Hence, the opportunity cost for a DeFi user to switch to Fluidity is extremely low.

It is crucial to note that a user who holds a liquid asset would have an even lower opportunity cost for taking part because they are more inclined to transact because of the mechanism offered to them.

The novelty is that Fluidity now offers a system that rewards users for transacting with the Fluid version of the base assets for various use cases like NFT, Gaming etc. Which is exactly opposite in the current use cases of DeFi like staking etc.

What is Fluidity?

Fluid Assets, which yield when used, are the foundation of fluidity. 

A wrapped standard (ERC-20, SPL) token that stands in for an underlying primary token is referred to as a fluid asset. 

The utilization of Fluid Assets exposes consumers to yield or randomly paid prizes, which is a novel feature (sent or received). 

One Fluid USDC (USDC), as an illustration, would just be a USDC token deposited into the Fluidity Protocol. It is always redeemable for the underlying collateral and has the same value as the underlying principal. 

A yield-bearing asset is distinct from a fluid asset. A fluid asset pays yield when used, as opposed to a yield-bearing asset, which pays yield when it is held in your possession, like cUSDC or aUSDC.

This creates an incentive to utilize cryptocurrencies instead of holding on to them.

Product features and use cases

With Fluid Assets, utility is how yield is increased. The potential yield for the user increases as they use their assets more frequently. 

Decentralized finance currently in place encourages leaving interest-bearing products “idle,” or in an account accumulating interest. Fluidity successfully gives utility to tokens that would otherwise be static by encapsulating a range of assets with Fluid functionality. 

Fluidity benefits both senders and receivers of the fluid version of the base asset.

Senders get rewarded for doing what they already do with Fluidity. Any on-chain value transfer utilizing Fluid Assets can be yield-bearing, at no additional cost, whether it involves using a preferred DEX, repaying a friend, or buying an NFT. 

For receivers, If a transaction that is eligible for a reward succeeds, both the sender and the recipient will receive the reward amount. Just by accepting a payment, you could make a sum of money that would change your life. As a result, a counterparty is motivated to accept a Fluid Asset.

Buying a Fluid asset

Fluidity Web App allows one to exchange a supported token for a Fluid counterpart in order to create a Fluid asset. Stablecoins will be supported initially on Fluidity, however any asset can be wrapped in a fluid asset as long as it has a money market with enough liquidity. 

For instance, you can mint 1 fUSDC by exchanging 1 USDC. 

At any time, you can always exchange 1 fUSDC coin for 1 USDC coin. 

Fluid assets will be accessible from a variety of venues, including NFT marketplaces, AMMs or DEXs like (Uniswap, Sushiswap, 0x) in the future.

Reward payout mechanism

Only those who use a particular Fluid asset have access to the reward pool, which Fluidity creates from the yield generated on the USDC token that has been deposited while minting the Fluid version of the same.

The principal asset is lent into DeFi protocols like Compound or Solend to create the yield, or it is used in yield-generating schemes. The contract removes the tokens from the Defi Protocol when a Fluid Asset is traded back for the principal. 

This allows the user of Fluid assets to do what they do while earning great yield generated from various DeFi protocols without ever having to lock their funds anywhere.

The payout distribution is driven by the Transfer Reward Function (TRF) that uses a drawing mechanism for calculating the probability vector, and Elastic Sigmoid Curve for reward multiplier effect. 

The Transfer Reward Function (TRF) takes the following variables as inputs to calculate how often and how large the rewards need to be given out.

1. The Total Value Locked (TVL)
2. The yield earned on the TVL (APY)
3. The annual number of txs as moving average (ATX)
4. The gas fee or fee paid to do a transaction (g)
5. The number of reward tiers (m)

For a high transaction fee chain, Fluidity gives the following figures as an illustration for a $50 million reward pool with 80,000 daily fluid transactions, an average gas price of $3, and six reward tiers:

The benefits are split 80/20 between the sending and receiving parties.

For low transaction fee chains and operating on top of it, the probabilities remain similar under the assumption of performing lower low value transactions by the users.

Ensuring security

The Optimistic Solution is Fluidity’s approach to stopping spam assaults on the protocol by using gas fees as a defense mechanism, making sure that attackers would always pay more in fees than they would gain in rewards. The predicted value for each user is calculated, and that variable is then added to the Transfer Reward Function.

Illustrating the same with an example below,

Consider an attacker transferring Fluid USDC (USDC) 1000 times back and forth, costing $5,000 in gas. ($5/tx). if the attacker received a yield of $2,500 or less rather than $5,000. Over time, the attacker will become bankrupt. This is the so-called Optimistic Solution.

Utility mining

In order to distribute their Governance Tokens to end users and entice new users to their protocols, protocols can make use of Fluidity’s “Utility Mining” feature.

In the Fluidity ecosystem, “Utility Mining” pays users for taking specific on-chain actions with governance tokens and other incentives, such as increased yield. 

Using a Fluid Asset, for instance, carrying out a particular protocol activity (Swapping a certain pair, transacting a certain amount, etc.). 

Users that exchange on an AMM, for instance, can use Fluidity to receive supplemental yield in native tokens. enabling the targeting of users, income, and liquidity by an AMM.

An example to demonstrate the governance mechanisms at play on the Fluidity ecosystem is as follows,

Users of Fluid Assets on Sushiswap may, for instance, experience higher expected outcomes and payouts than users of Uniswap as a result of Fluidity Governance. When they trade using Fluid Assets, this leads to potential users of Fluid Assets on Uniswap transferring to Sushiswap in order to capture more emissions and yield. 

The choices can be applied to various chains and dApps such as NFT Marketplaces, or games similarly. 

Tokenomics

1,000,000,000 Fluid Governance tokens are available in total, and they won’t start to circulate fully until four years after the Token Generation Event (TGE).

The token is distributed among various stakeholders as follows,

The allocation of governance tokens aims to maximize user diversity while encouraging the ecosystem’s ecosystem to create positive value. To encourage long-term growth, the protocol’s development must be financially supported and incentives must be offered. A concentrated and limited number of entities obtain and disperse a large portion of the cash needed to establish and advance the protocol. If these organizations control the majority of the governance tokens in circulation, they might be able to influence governance decisions in a way that favors their interests over those of the larger ecosystem. By dispersing the bulk of the float within the community via its innovative Transfer Reward Function distribution, Fluidity will minimize and control for this negative behavior.

Accomplishments & Roadmap

Fluidity mission progress is on track and doing great.

Ahead of the mainnet launch in late September or early October, Fluidity has been able to gather enough data and experience thanks to the successful testnet and devnet deployments as well as the overwhelming community support, input, and involvement. Solana and Ethereum will both be included in the mainnet launch one week later to enable testing and the implementation of backup procedures in case of an emergency.

Key checkpoints

1. Fluidity Mainnet Launch: A New Primitive to incentivise utility and participation
2. Fluidity DAO
   1. DAO Framework
   2. Fluid Token
3. Utility Mining & Fluidity Wars
   1. Utility Gauges
   2. Governance and protocol/user participation
4. The Incentive Layer: Fluidity as a chain agnostic incentive middle layer
5. Security and Decentralisation
   1. Randomness
   2. System Architecture
6. Ambassador program and Fluidity Ecosystem Fund
7. Web2 – Web3 and retail: Bridging adoption
8. (🌊 ,💸 ) Join The Movement

Goals for 2023

• $20M Wrapped
• Retail onboarding through fiat onramp
• Retail adoption of crypto on some use cases – e.g. instant checkout technologies
• NFT and Digital Art accessibility promotion through Fluid Assets

Conclusion

The majority of the world’s population lives paycheck-to-paycheck and cannot afford to leave their money in an inaccessible account. 

This demographic can access Decentralized finance using Fluid Assets. The reward pool and yield generating process of Fluidity Money works like a “no-loss lottery”. The money is subsequently lent via a yield-generating technology after users swap primary tokens for 1-to-1 backed Fluid Assets. The reward pool to which users are exposed on each transfer of their wrapped (Fluid Asset) token is made up of this accumulated yield. Due to the fact that Fluid Assets can always be redeemed for their principal without incurring any fees, this reward mechanism encourages the use of Fluid Assets over their non-Fluid equivalent.

Utilizing the Transfer Reward Function’s distinctive architecture, the system is modeled to be sound. Utility mining, a revolutionary strategy that is similar to liquidity mining, is used to distribute governance tokens. This innovative method of provisioning tokens encourages platform use. 

Fluidity Money’s design is built to be careful and is supported by well-intentioned economics modeling. The platform is resilient enough to withstand abuse from malicious actors while providing enough utility to be deemed useful.

Fluidity is ideally placed to provide access and benefits of the DeFi world to the masses who cannot afford to leave their assets locked in protocols to generate higher yield. This is a significant change in how the DeFi industry works currently. With fluidity, any user can now earn DeFi yields while performing various on-chain activities without having to lock any of their funds at all. We are happy to contribute to their mission.