Liquidity Nodes

Maya obtains super powered capital efficiency for LPs. We seek to attract liquidity without compromising security, Now nodes can also bond LP units.

Key takeaways

  • Liquidity Nodes are one of the pillars of Maya. They secure the network without penalizing capital efficiency by allowing Node Operators to become Liquidity Providers simultaneously.
  • Increased Capital Efficiency means increased average yield for all the ecosystem players. Node operators earn both, LP and Node rewards.
  • When churn-in mechanisms create Bonds Wars among node candidates they also incentivize deeper Liquidity Pools. Deeper pools result in better and cheaper swaps.

Traditionally, to secure a place as a node in a pure Proof of Bond (PoB) blockchain - like Thorchain’s - you need to buy and stake (“bond”) a big amount of assets. You deploy this capital in order to provide security to the network and gain “Node Rewards” in return.

Liquidity Nodes are one of the main features of Maya. They are not only the foundation that buttresses the security of the protocol, but also a mechanism that allows greater capital efficiency than the previous model.

What makes the Liquidity Node model different

In Maya Protocol, nodes buy and bond big amounts of $CACAO, but these stakes can be represented inside our Liquidity Pools, paired with other native assets and can thus facilitate liquidity for users and traders. Any capital bonded by Maya node operators can participate in the fees generated by the pools in which they are deposited, making the use of capital much more efficient.

This feature means that Maya node operators can supercharge their invested capital efficiency by earning both Liquidity Provider (LP) rewards plus their regular Node Rewards. Capital efficiency is no longer inversely proportional to Security!

Tokenomic Implications

Node operators becoming Liquidity Providers (LP’s) simultaneously has several economic and tokenomic implications:

The efficiency of the capital employed (ie. bonded) to obtain a place in the nodes’ list is enhanced considerably when compared to a traditional PoB model — where the bondable native token is being used solely as an economic guarantee and is not generating any type of yield on its own.

Not all assets will be bondable. Only relatively low volatile external assets such as stablecoins, BTC or ETH will be, although other Bond Pools can later be added, with a 67% nodes’ consensus. 

The Incentive Curve : A Security Flywheel

The Liquidity Nodes feature results in adjustments to the pure PoB model security policies, which were tailored to accomplish three important things:

  1. More than 67% of capital should be bonded by Maya nodes, to keep them honest. In fact, closer to 85% is preferred.
  2. The capital balance must be found by rational market forces (ie. supply and demand).
  3. Incentivize decentralization through a high node count.

Our resulting model is called “The Incentive Curve and it works by algorithmically balancing the nodes’ and markets’ incentives to either provide more liquidity or bigger bonds. It does so by increasing or decreasing the participants’ rewards on each of these sides, periodically.

A screenshot of a computerDescription automatically generated with medium confidence

It also creates a liquidity flywheel, where:

  • At a moderately highly bonded state, there is an incentive for new capital to be added via LP’ing. Liquidity can be added this way much more rapidly than nodes’ can churn in or out.
  • If too much liquidity is provided by LP’s then the network would tip into an unsafe state, which would incentivize the nodes to bond more capital, benefiting our depth and volume in the process again.
  • Liquidity is bonded by the nodes that brought the most liquidity on the next churn, and the system comes back to or above balance.
  • Notice that TVL is increased when the incentive mechanism pulls in either direction.
  • Nodes never risk earning less returns per dollar invested than LPs do. This means that it is much more likely that more LPs join when reaching these overbonding levels than Nodes leaving, given they are still getting an attractive return on their investment.
  • Standby Nodes earn yield while they wait to win the Bond War and churn-in, making it less risky to compete.
  • Nodes only need 50% exposure to $CACAO, making it more likely that Institutional Investors will opt-in as Nodes.

Liquidity Nodes is one big innovation and addition to the THORChain’s current architecture and, we believe, an important step to help us complement the DeFi ecosystem in the best ways we can. You can learn all the details about this feature in Chapter 3 of our official Whitepaper. Dont forget to join our community through our official Twitter account and our Discord server. Read you soon!