Flywheels… very much a buzzword in the crypto and DeFi space but what does it even mean? Well, without getting too technical about it, a flywheel creates a self-sufficient perpetual cycle of positive benefits to a protocol or token.
We all know of the Curve ecosystem flywheel and if not here is a quick recap or you can read our article on Redacted Cartel and BTRFLY.
Curve is a stableswap DEX that has extremely deep liquidity and thus highly efficient swaps. How does Curve attract and maintain that liquidity? Well, it does so by allowing vote-escrowed CRV holders (veCRV – locked CRV) to decide on where the next series of CRV emissions should be directed to.
Let’s say you have a stablecoin and you deploy it on Curve, you want a shit tonne of veCRV holders to vote to direct emissions towards your pool… why? Well, increased incentives naturally create a desire for LPs to deposit their liquidity there and earn those said incentives.
But, those veCRV holders aren’t going to waste their vote on your new stablecoin pool for no good reason… they want to be paid, to do so.
Protocols can bribe veCRV holders i.e. paying them in another token to have their vote. It is very much DeFi lobbying in full effect. I’m surprised Elizabeth Warren doesn’t love this shit. If only she knew.
Another way for your new stablecoin to get a lot of votes and thus emissions would be to buy a shit tonne of CRV yourself and use your own votes to direct liquidity incentives to your pool.
You can see how this quickly generates a perpetual demand for CRV whilst also feeding more and more CRV into the vote-escrow contract, effectively taking it off the market for years.
That is just one tiny aspect of the flywheel that propagates… when you have additional protocols building in or around the Curve protocol and the CRV token things get really spinny (if that is even a word)…
Convex decided very early on to provide a liquid wrapper to CRV (cvxCRV) this said “Hey CRV holder, lock your CRV with us instead and you can still have all the benefits of CRV voting rights and you can even sell your cvxCRV position to CRV on Curve if you want”… this resulted in Convex owning around 50% of all locked CRV and thus 50% of all voting rights… So, Convex controls Curve, people begin to bribe CVX holders and all the while CRV gets additional demand, utility, fees, liquidity, builds a moat and perpetually keeps spinning… CRV holders laugh all the way to the bank even in a bear market.
Similar things are happening with GMX right now but in its own way… I think GMX will churn out its V2 pretty soon but they have built such a colossal flywheel off the back of the GLP and GMX token they don’t immediately need to push a new product.
JonesDAO, GMD, Plutus, Pendle and a million other protocols are tapping into the GLP liquidity and scooping up esGMX as a revenue source for its holders and the protocol itself.
What happens here is esGMX emissions are put in the hands of these long-term thinkers and result in vested GMX being restaked. Competitors of these protocols have to adapt and build their own products around GMX or get left behind and leave money on the table. This results in increased demand, utility, liquidity and increasing amounts of GMX being staked taking supply off of the market for at least a year.
The two above examples of CRV and GMX are their own flywheels… What I want to get into today is the very beginnings of the HXRO flywheel beginning to take place albeit from a very unexpected project… Bonk. Don’t let the meme coin of Solana fool you, we dug a little deeper to figure out what was really going on. The clash of Hxro and Bonk piqued our interest enough to explore what was actually happening here and we think we have uncovered something very interesting indeed.
Note: Before we get into this I have 0 BONK I do have HXRO locked until I’m like 89 years old or something so do with that information what you will.
If you need a quick recap on the HXRO token you can head to our guide here.
What is Happening with Hxro and Bonk?
If you missed it recently there was a product released called BonkorBust. This basically allows you to speculate on the price of SOL in the next minute or five minutes. So, will it go up (Bonk) or will it go down (bust)? Pretty simple… the key here is that you need to pay this bet in BONK or USDC and therefore the bet is settled in BONK or USDC.
There is a 5% BonkorBust Fee which is distributed in the following way:
- 3% is paid directly to HxroNetwork
- 1% to Bonkswap
- 0.5% buys HXRO and max stakes it the rewards are then directed to future BONK stakers…
- 0.5% buys BONK and directs it to BONK stakers
This is a win, win, win for Hxro stakers…
What is BonkSwap?
More recently, the announcement of BonkSwap got announced which appears to be a Pancake Swap style spot-DEX. There is a 0.5% fee on each spot trade which will be distributed in the following way:
0.25% – Bonkswap Liquidity
0.15% – Rewards
0.05% – Bonkswap Foundation
0.05% – Bonkswap Development Partners
A tweet from the BonkSwap page states that “In the coming months we will integrate incredible, rewarding Bonk-powered games, add innovative trading features like options, perpetual futures powered by @HxroNetwork, and expand liquidity to make trading Bonk easier than any other token in Solana.”
So, understanding BonkorBust it looks like additional fee capture and revenue share will be distributed to HXRO stakers through BonkPerps. Bonk perpetual futures powered by Hxro will add additional rotations to the Hxro flywheel as apes like to ape… more volume, more fees, and more rewards all around for Hxro Stakers.
This means all swaps on BonkPerps will contribute to distributing fees to Hxro stakers which is great but more importantly, it looks like the Bonk protocol will begin to buy HXRO and max lock it (as with BonkorBust) taking additional supply off the market to earn fees for its own BONK stakers…
What I am envisioning here is that protocols that have a standard product and want to expand their product offering in any vertical whether that be spot, options, perps, sports betting, DeFi casinos etc. will all need the infrastructure to be able to do it. Are they gonna spend years and potentially millions of dollars to do so? No. They can quite easily tap into Hxro’s already established and built infra… and when they do, I’ll be sitting collecting fees from each additional layer built on top of it.
Yes, Bonk is a meme coin but it has 374,308 holders… yes, you read that correctly.
To put that into context GMX has 281,679 holders and around 4,402 on Avalanche…
Tapping into 1% of that holder base could be nearly 10x the HXRO token holders…
Additionally, if you hadn’t noticed the Degen Ape Academy has recently begun to rally around Hxro… make of that what you will… After that, it will be another project and another and another… this is how these things work.
More on this collab that is close to my heart in the next article…
If you don’t care about any of the above and just want to know why this is important to your staked HXRO then let me recap.
More protocols use the Hxro Network -> More fees captured -> More fees distributed to HXRO stakers -> More market buying of HXRO and locking it in perpetuity from protocols looking for additional revenue -> Less HXRO on the open market -> supply shocks -> Me doing victory laps… and the cycle starts again, hence… the flywheel.