DeFi Revelations - Possum Labs

In this episode of DeFi Revelations which took place on August 31, 2024, Kirk from Revelo Intel hosted Alex from Possum Labs to discuss Possum Labs’ ecosystem, including its upfront yield portals, Nexus project, and innovative DEX model, and more! Read our notes below to learn more.

Background

Kirk (Host) – Head of Business Development at Revelo Intel

Alex (Guest) – Founder of Possum Labs

Possum Labs – a DeFi platform that builds innovative financial products, including upfront yield portals and capital-efficient DEX models

Overview: A Deep Dive into Possum Labs with Founder Alex

Kirk highlights that they will talk about Possum Labs’ Portals, which allow users to get yield upfront, and their new project called Nexus.
Kirk notes that Alex and his team have a good focus on competing in areas where they believe they can excel, particularly in addressing problems with DEXes in the space. He mentions that while many are focused on concentrated liquidity, Possum Labs is thoughtfully solving pairing problems and capital efficiency issues for full range liquidity.
Alex explains his background in traditional finance, including derivative trading and institutional asset management. He describes how he became interested in crypto in 2017, first learning about Bitcoin and being fascinated by its potential to address inflation issues.
Alex says that shortly after discovering Bitcoin, he learned about Ethereum and realized its potential to redefine finance through smart contracts. He expresses his excitement about the early spirit of DeFi and crypto to disrupt the traditional financial system and create more efficient, equal-opportunity markets.
Alex discusses his personal philosophy, describing himself as having a libertarian mindset that believes in the power of free markets. He makes a distinction between capitalism and free markets, noting that capitalism can sometimes lead to monopolies that destroy free markets.
Alex explains how he progressed from investing in crypto to contributing to DeFi projects, particularly in mechanism design. He mentions that he left a previous project in early 2023 due to philosophical differences regarding the immutability of smart contracts.
Kirk asks Alex about his views on the balance between immutability and adaptability in DeFi projects, noting that the industry seems to be trending towards more flexibility.
Alex agrees that there are instances where adaptability makes sense but highlights the importance of having certain immutable building blocks. He suggests a modular approach where fundamental elements of finance, like asset exchange and lending markets, should be immutable and not controlled by any entity.
When asked about Possum Labs and its current products, Alex explains that they initially planned to build a product on top of Uniswap v3 for single-sided liquidity provision. However, they encountered challenges and realized the concept needed reworking.
Alex describes how he learned Solidity while on vacation and developed the concept for their product Portals as a training exercise. This product, an optimized upfront yield system, became their first offering due to a shift in product strategy.
Alex mentions that the development of Portals was influenced by his previous work on yield swaps and upfront yield with another project. He notes that when that team moved on to a different project, it created an opportunity for Possum Labs in that market segment.

Addressing Deficiencies in Current DEX Models: How Possum Labs’ Nexus Innovates for Growth

Kirk asks Alex to walk through the deficiencies of current DEX models that Possum Labs noticed, and how their new product, Nexus, addresses these issues.
Alex explains that complexity is often used as a “smoke and mirrors” strategy in traditional finance, but simplicity can be more effective. He notes that Uniswap and other early DEXes used the constant product formula for full range liquidity providing, which is surprisingly efficient and intuitive to understand. Alex states that this formula is the most efficient market-making strategy when there are no assumptions about possible prices.
Alex discusses Uniswap v3, saying that while it’s more capital efficient in terms of fees for price deviation, it also amplifies impermanent loss risk to the same extent. He argues that for passive market makers, full range liquidity providing can be more efficient than concentrated liquidity positions.
Alex criticizes the trend in DeFi, including Uniswap, of moving away from revolutionizing finance and embracing traditional monetization models like protocol fees. He explains that these fees create misaligned incentives between users and investors, and can be a centralizing factor, especially when a DAO decides how fees are used.
Alex states that Possum Labs products will never have protocol fees, instead capturing value through the $PSM token as an ecosystem currency. He highlights that this approach aligns with incentives and interests.
Kirk says that the value accrues to the $PSM token, benefiting both the treasury and token holders. Kirk mentions the debate around Uniswap’s fee switch, noting that turning it on could disincentivize LPs and potentially lead to a death spiral for the protocol.
Alex responds that such systems build up brand value, and turning on fee switches monetizes that value at the expense of growth. He concludes by stating that Possum Labs designs mechanisms and incentives to propel growth rather than hinder it.

Benefits of Using $PSM as the Base Pairing Asset on Possum Labs’ DEX

Kirk asks Alex to explain the benefits of using the PSM token as the base pairing asset on their DEX and how it solves some issues.
Alex explains that $PSM is a fixed supply token, and as the base currency, growth in TVL will eventually lead to price growth. He highlights that this aligns incentives with the ecosystem as a whole.
Alex describes the DEX as the heart of the Possum Labs ecosystem, noting its importance for asset exchange and as a liquidity backstop for various DeFi functions like lending markets and liquidations.
Alex outlines some innovations in their DEX model. Fees are only charged on the input token if it’s not $PSM, making dual hop trades more efficient. Liquidity providers earn fees only in the non-PSM token, which is beneficial for users who prefer to receive fees in specific tokens like stablecoins.
Kirk interjects to highlight the importance of this fee structure for institutional players like hedge funds, who have strict requirements about what they can hold on their balance sheets.
Alex continues by explaining that their DEX design maintains the fungibility of liquidity pool tokens while separating fees as a single-token cash flow. This approach offers advantages for passive income seekers and improves composability for developers.
Alex teases a future product called “liquidity bonds,” which will allow single-sided liquidity providing with an interest rate.
Kirk asks how Possum Labs plans to offset potential selling pressure from operational expenses.
Alex responds by explaining that the project currently has very low expenses, he personally is not selling his tokens, and there are no permanent partners receiving significant amounts of $PSM. He assumes that if people see potential in the project, they will buy the token, which should cover operational expenses. The main expense in stable coins will be for smart contract audits, which Alex is not concerned about if there’s resonance for the project.

Possum Labs’ Growth Strategy and Upcoming Developments in the DeFi Space

Kirk asks Alex about Possum Labs’ growth strategy and how they plan to compete in the highly competitive DEX environment.
Alex explains that their DEX has distinct characteristics that provide value for certain users, including the ability for LPs to collectively adjust trading fees within a hard-coded range.
Alex states that they don’t see themselves competing directly with cutting-edge protocols focused on concentrated liquidity. Instead, they aim to provide a simple, efficient DEX for full range liquidity.
Alex mentions they are partnering with Ramses Exchange on Arbitrum and sees potential for synergies rather than competition with other DEXes. Alex discusses their go-to-market strategy, which involves partnering with protocols to immediately have liquidity for different tokens, leveraging their treasury of $PSM tokens.
Kirk asks about the governance aspect of Possum, called “core,” and Alex explains the upcoming launch of their first iteration of decentralized treasury decisions.
Alex describes the staking system where users stake $PSM tokens to accrue “core fragments” which can be distributed to whitelisted addresses, earning $PSM tokens in return.
Alex discusses future plans to decentralize the whitelisting process, potentially using NFTs for reputation-based governance.
When Kirk asks about delegation, Alex expresses his preference for individual participation in governance rather than delegation to avoid centralizing decision-making processes.
Kirk asks about upcoming developments for Possum Labs. Alex highlights the imminent launch of the “core” system as a starting point for user involvement and earning $PSM tokens.
Alex mentions the Nexus as their first major product that will put them “on the map” in a significant DeFi vertical.
Alex reminds listeners about the existing Possum Portals product, which allows users to earn $PSM tokens through upfront yield without influencing the market price.

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Show Information

Medium: YouTube (Video)
Show: Revelo Intel – DeFi Revelations
Show Title: Possum Labs – An Ecosystem Realigning Incentives in DeFi
Show Date: August 31, 2024