PALM vs. Liquidity Mining vs. Bonding

These 3 mechanisms offer different ways to make tokens liquid. Ultimately, what they attempt to solve is the inventory problem.

The Inventory Problem

In order for a trading pair like UNI/USDC to become liquid, someone has to provide a sufficiently large inventory of the base asset (USDC) and the quote asset (e.g. UNI). This is called "The Inventory Problem".

Each mechanism tackles this problem in from a unique angle:

1) Liquidity Mining

Protocols rent liquidity from investors that are willing to deposit capital into an AMM in exchange for token rewards for a short period of time.

2) Bonding

Protocols sell their own tokens at a discount for LP tokens in one or multiple OTC deals.

3) Arrakis PALM

Using PALM, the base asset inventory is acquired by market making on Uniswap V3. For example, imagine a scenario where the Uniswap Foundation provides Arrakis with 100% UNI and 0% USDC. Arrakis vaults using PALM will actively manage the inventory to transition the 100:0 ratio to roughly 50:50, without ever directly swapping any assets itself on the DEX. It achieves this by only changing the allocation of the base and quote asset respectively that it provides into the market. This means neither red candles nor negative price impact will ever be caused by using PALM, as opposed to LM and Bonding, since PALM will only provide liquidity and never actively sell the quote asset.

Once a 50:50 asset composition is reached, any market making strategy can be utilized to maintain the desired inventory target composition and keep the market as liquid as possible.

Evaluation