^{Omnichain Money Markets: TapiocaDAO vs. Radiant.}

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Today our resident duck Ali gives his unbiased view on TapiocaDAO and Radiant. Who comes out on top? Read on to find out…

TL;DR

• Both Radiant and TapiocaDAO are omnichain money markets that use LayerZero to provide lending and borrowing functionality across chains

• Radiant has been live since July 2022, TapiocaDAO is in beta but tentatively planned to launch late April

• Radiant uses liquidity mining to incentivize user activity - users boost rewards significantly by locking a small amount of $RDNT LP tokens

• TapiocaDAO uses a new model called DAO Share Options, where users must supply USD0, their native stablecoin, in order to receive rewards. These rewards are in the form of weekly call options against $TAP so users can purchase at a discount, providing the protocol with additional liquidity it can own.

📬 Today’s Send

📢 Introduction

I’m bullish on LayerZero (L0) and general messaging as an approach to solving the interoperability problems that have plagued crypto since it’s inception. The infrastructure that something like LayerZero provides would make certain usecases no-brainers - specifically with regards to existing DeFi primitives. Most of the top existing DeFi primitives would become more liquid, rewarding, and useful with L0 integration - in theory at this point it’s just a race to see who is best positioned to take advantage once L0 infrastructure can sufficiently scale. Two protocols have decided to tackle the challenge of creating omnichain money markets via L0, while also introducing new design principles of their own.

The two protocols in question are Radiant and Tapioca DAO. There are a couple of key differences between the two projects - and for now neither can really claim the title of winner in this race. Radiant does have the first-mover advantage under it’s belt, but Tapioca offers novel and promising features that make it just as interesting of a project to watch develop.

Let’s take a closer look at how both of these protocols work and some of the nuances that separate them.

🟢 Radiant

Incentivizing liquidity is always a challenge, so both of these projects have taken novel approaches to create opportunities for liquidity to stick around for the long haul. The Radiant team recognized after a couple months that their current emissions model was unsustainable. Lots of mercenary capital was moving in and out of their pools, the token was too inflationary, and they didn’t believe they could achieve their long term vision given runway concerns with the current model. Radiant v2 was introduced to address these concerns specifically.

$RDNT Emissions

Two cash flow streams contribute to liquidity incentivization on Radiant v2 (like most DeFi protocols!): $RDNT emissions and protocol fees. $RDNT emissions are fairly simple, 54% of the token supply is allocated to protocol incentives, unlocked over a period of 5 years. Users can receive these emissions in two* key ways

1. Vested for 3 months, then claimed in full

   1. *May be claimed early for an exit penalty to receive 10-75% of rewards, scaling linearly with time. 90% of these exit fees are sent to the DAO, 10% are burned

2. Immediately zapped into dLP tokens

Protocol Fees

dLP tokens are part of a new system in v2 to support protocol fee distribution. In v1, protocol fees were initially split equally between RDNT lockers and lenders. The protocol fee split (denominated in tokens of all markets $RDNT offers) in v2 is described as follows:

The “lockers” referred to as receiving 60%, are users who lock dLP tokens in excess of 5% of their total deposits in USD terms. So if you lend 100 $DAI, you can only receive the bulk of protocol fees by locking at least $5 worth of dLP. dLP tokens are just approved LP tokens from other DeFi protocols locked on Radiant. The current options include:

• Arbitrum: Balancer 80/20 composition RDNT/ETH LP

• BNB: Pancakeswap 50/50 RDNT/BNB

This makes up the bulk of a user’s rewards when using Radiant, the base market rate without locking dLP is multiples lower than the boosted rate in all markets. Users can also receive a multiplier on protocol fees by locking for longer periods of time, up to a year. dLP positions that fall under the 5% threshold can be disqualified by other users for a bounty to maintain protocol rewards flowing to active users.

Radiant v2 - Summary

In summation, users receive $RDNT emissions and protocol fees in the different assets the protocol supports for using Radiant. It’s easy to see that it’s essentially pointless to deposit in Radiant without also supporting your position with dLP, which creates a clever little loop that allows $RDNT to be more liquid throughout all of DeFi. If the intended goal in the long run is to have protocol fees exceed $RDNT emissions - I don’t know that this model is enough to reach that goal. I do like the way they’re supporting $RDNT liquidity with the dLP mechanism, but beyond that this doesn’t seem to be anything more than a basic lending/borrowing protocol with omnichain support, and we all know how well DeFi tokens have held up since launch. In summation, it’s a slight variation on an existing model - but we’ve come too far for the bar not to be set higher for new protocols.

🟣 TapiocaDAO

Now for the more exciting option. while TapiocaDAO still has yet to launch, I think the components that set it apart will make for a much more interesting case study than most DeFi protocols. Not necessarily better, but their token design and supporting stablecoin will almost certainly break some things and give us some interesting insights in the field of tokenomics. The $TAP token boasts one of the more complex token design systems I’ve seen - I’ll try to break down each specific component. Note that understanding this system requires prerequisite knowledge of a couple of different concepts, so don’t beat yourself up if you don’t understand at first read-through - I’ve included some additional resources at the end to help fill in some gaps and maybe fall down a rabbit hole or 2.

It’s all just NFTs?

Let’s lay out some definitions really quick:

• $TAP - (OFT-20 standard) main token of Tapioca DAO.

• $twTAP - (ONFT-721 standard) Time-Weighted Escrowed TAP. Created when a user escrows TAP for a specific time duration.

  • twAML - Time Weighted Escrowing and Average Magnitude Lock. Flattens decay of $TAP by incentivizing users and the free market to ensure the protocol is constantly offering optimal rewards.

• $oTAP - (ONFT-721 standard) American-style TAP call option. American-style options can be exercised at any time prior to expiry.

• USD0 - (OFT-20 standard) Tapioca DAO’s stablecoin, (could be) the first stable coin to boast omnichain status.

So we’ve got 4 tokens (2 NFTs, 2 fungible), now let’s get into how they all work together. One key thing to keep in mind is that TapiocaDAO is trying to incentivize liquidity without the use of liquidity mining programs. Their approach relies on all (public) tokens being emitted in the form of options instead of liquid or vested tokens.

$TAP Emissions

Liquidity mining incentives can be thought of as a liquidity provider exercising call options against the underlying protocol asset, at a strike price of $0, with no expiry. If this is the case - what happens when a protocol sets an actual strike and expiry for that process?

Protocol Fees

Protocol fee distribution is fairly straightforward - all protocol fees (and 50% of fees from a DAO owned LP on Uni v3) are distributed to $twTAP owners

There’s also a stablecoin

I’ll try and keep this one brief as it’s a bit more tried. USD0 is a decentralized, multi-collateral, overcollateralized stablecoin. It’s minted via CDPs similar to DAI, except the CDPs are generally against blue-chip assets. Some of the assets mentioned are: ETH, MATIC, AVAX, ETH LSDs, and their respective LP positions. The price on Tapioca is always hard-pegged to $1, so users are incentivized to arbitrage any price differences by selling on the open market when USD0 is above $1 and using it to repay debt positions at a discount when USD0 is below $1. There’s a couple of additional caveats and support systems to help USD0 maintain its peg, but none wildly different from anything that already exists.

In my opinion, this stablecoin is a nice bonus if Tapioca proves to be sufficiently liquid as a protocol, but not something to view as a significant value-add just yet. As a stablecoin I don’t expect it to take even a top 5 spot, but having the omnichain label and having part of Tapioca rewards rely on exposure to USD0 could make for a nice, decentralized, and stable store of value at best (very skeptical on it’s ability to scale to top 5 status though).

🤔 What now?

To be quite honest - I’d heard about all the hype surrounding Radiant for weeks up until I actually took the time to dive in (at which point the token was up something like 15x from the lows). The promise of an existing omnichain money market was really exciting knowing how big of a need something like this is. I was severely disappointed to discover that Radiant is nothing more than a lending protocol with misaligned incentives which has led so many similar siloed protocols to their death in the past. I think people are distracted by the “omnichain” buzzword and the fact that the protocol has been absolutely printing fees as of recent.

What is Radiant doing that’s different to validate these fees continuing to trend upwards - and to one day exceed $RDNT emissions? V2 was a welcome step forward, but a bet on Radiant is a bet on the team to iterate this product into something special (or a bet on the first omnichain money market) - not at all a bet on what it is now. This is a frustrating thesis for me because despite all we’ve been through as a community with mercenary capital Radiant seems to ignore the core of the actual issue despite having such vast ambitions. In my opinion, barring any large changes to Radiant in v3, we’ll see the same cycle continue where users eventually flock to a better yield source as the price of $RDNT comes back to earth.

The biggest thing I like about TapiocaDAO is a creative attempt to solve the problems with liquidity incentivization that other Defi protocols don’t give enough attention to. I can’t say for sure that the DSO model will be better for creating sticky liquidity or POL for Tapioca, but the system is certainly cued up to do so. The one thing that’s certain about Tapioca is that such an experiment can do no worse than pushing the envelope further with regards to token design systems.

Useful Resources

• R.I.P. Liquidity Mining by TapiocaDAO

• On twAML by TapiocaDAO

• Options basics from Investopedia

• Radiant Docs

• Tapioca Docs

Thankyou for reading our first project deep-dive!

If you enjoyed Ali’s analysis, he co-hosts a new podcast called Exit Liquidity - the show where Ali and Cedo show you how to not be exit liquidity 👇

If you’d like to venture even further into the world of Omnichain Stablecoins, check out our episode with Yama Finance 👇

Until next time,

Sending Alpha 🥂

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