Hello everyone.
In the span of three weeks, Fluidity and all Fluid Assets will be undergoing a transformation as the team renews its focus on the Superposition ecosystem and the FLY token. We’re super thankful for the community’s support over the years, and this post contains our thoughts on the journey of the last half a decade, as well as what’s next for Fluidity.
Fluidity was started by friends and business partners Shahmeer and Alex (Bayge) during a period of rapid defi experimentation during 2021. Stablecoins were exciting and (still) fresh, and Fluidity was born with the simple question of “what if we found ways to reward people who couldn’t afford to already save by gamifying yield?” in mind.
The analogy we liked to use was to ask regular people if they cared about the rates their banks were offering, and to ask them “does it matter to you that you’re earning this much?” The answer, unless they were of higher net worth, was that they didn’t care. Most people we spoke to would rather gamify their earning experience and earn a lot, or earn nothing at all. After these conversations, we wanted to leverage this psychology for good, by making it possible for people living paycheck to paycheck to save money when they couldn’t. We wanted to revisit the concept of earning yield on a fundamental level. We were aware of projects like Pool Together, and were wondering how we could do better with a social twist.
We discussed distribution and how stablecoins were a perfect venue for experimentation of this kind. We wanted a system where it was possible to run a constantly ongoing auction, and to design it in a way where it was no-loss lottery. To do this, we designed a new model in collaboration with Australian university RMIT.
We built a model where yield earned on a principal asset would be redistributed to users when they made a transaction. We came up with a system where you would earn less than the opportunity cost if you were to leave your assets idle. We created a system where users would only benefit from the stablecoin if they were deriving real world utility from it, assuming actors acting efficiently would choose intelligently. It was a perfect system in the sense that we felt we’d solved the abuse problem, by making intrinsic incentives unrewarding.
The team found traction by finding users who were attracted to the gamified on-chain experience, then winning a grant from Compound, AAVE, and then Solana, who eventually became our seed investors alongside Multicoin, Lemniscap, Circle, and more.
The team weathered several crypto winters, having a deal blow up, and several partners go down for different reasons. We experimented a lot, trying to find a chain where we could make deals with protocols to accept our stablecoin, in exchange for a share of the yield we were making on behalf of users. We settled on Arbitrum, which remains our home and close partner to this date. We are very proud of what we accomplished during this period. We discovered new designs, even what we felt was a solution for the fee problem several protocols were experiencing by simply redirecting a part of the yield we were paying.
We discovered that even though the stablecoin idea was compelling, the friction for protocols and users was too much in some cases. We found that most users, despite the yield opportunities, were not willing to visit a website and wrap their assets, then eventually unwrap when they hit a protocol that didn’t take our asset. This became a negative spiral, where a platform would not accept us, so users would unwrap, and when users would unwrap, it would hurt our TVL, which would kill our adoption, leading to less protocols supporting us. We also didn’t have an asset that would pay you to simply hold it at the time, so we couldn’t find a way for users to keep their assets there. Looking back, if we’d come up with a platform that had a toggle feature or something similar, it would’ve been better. But the team was naive and immature, and we didn’t learn the experiences that we’d go through later. We now have a lot more experience and are capable of quickly shipping different ideas.
It didn’t help that we designed more of a “showy” website that made using the platform tougher than it had to be. We found that even though we could pay protocols, some of them on a fundamental level did not understand how the product worked, and were reluctant to integrate it, with their understanding of fees being based on deals made with us. We didn’t feel that the product was struggling to find fit however (we were too optimistic about our airdrop farming community), and we worked hard to find deals and integrations where we could. We hoped that the next big integration would lead to widespread adoption.
Most teams were benchmarking success by TVL, but we benchmarked according to our volume. The market was good and we were pushing consistent adoption. When we felt we were in a good place, we started our formal airdrop program, and we attracted almost 3 billion dollars of volume in the span of a few months. We were very pleased, and made 5 to 6 figures for our partners in fees. Despite this, most were still reluctant to make a deep integration, with their teams only understanding the language of fees and benefits upfront. We didn’t find the penetration we were looking for with a mainstream protocol.
When we launched, we launched the token with a hot platform at the time. They were our launchpad that brought us many users. It was really exciting for the team doing a raise on the platform, we sold out in almost two minutes. We had issues finding a market maker, we had plenty of options but didn’t close a deal in time that would’ve led to a listing on a tier 1 exchange. The opportunity would’ve provided our airdrop users, seed investors and the team a serious windfall that we were very much forward looking forward to.
We had the misfortune of being somewhat forced into a deal with a market maker by the launchpad that we felt didn’t treat us very fairly, and we observed them struggle to perform basic market making functions for other teams at the time. We saw frustration from users and felt frustration ourselves.
They acted in a way we felt was very shady, moving money around to different places and misusing funds we’d given them. Our biggest mistake here was fumbling agreements with established and trustworthy market makers who were prepared to support us by being too greedy and letting deals expire then fall apart. To this day, the market maker we worked with holds a portion of the FLY token and are essentially holding us hostage. We won’t name who they were, but they’re a popular KOL on crypto X and continue to treat other projects the same way from what we understand.
The token launch dumped in a bad way, it was sad for the team. They’d worked very hard for years. I’m very proud of the team in the way that no-one sold, we all held conviction at the time with the product and what we were doing. With the token’s poor performance on our backs, we lost leverage in deals we were making to support fUSDC and the other Fluid Assets with different protocols. We didn’t spend the money we’d raised to buy deals with teams for integrations, we preferred a system of discovering organic integration on the back of the unique way we were supporting revenue for teams at the time.