Mitosis Narrative - A New Primitive for Open Liquidity Marketplace

The Liquidity Conundrum

In the world of decentralized finance (DeFi), on-chain liquidity serves as the lifeblood of the ecosystem. Without sufficient liquidity, DeFi platforms struggle to offer competitive rates, execute trades efficiently, and attract users. Yet, the liquidity that should power these ecosystems often remains locked or moves off-chain, causing blockchains to compete in a zero-sum game. This competition often leads to private deals between DeFi protocols and large liquidity providers, or "whales." These negotiations compromise transparency and equitable access and further stifle the ecosystem’s potential.

Mitosis: A New Model for Liquidity Allocation

Mitosis introduces a novel approach to managing and distributing on-chain liquidity by creating a marketplace embedded directly within each blockchain. The Mitosis Chain acts as the central hub where liquidity supply and demand are matched, while Mitosis Vaults on individual chains hold and allocate liquidity to decentralized applications (dApps) based on real-time market decisions. The interplay between the Mitosis Chain and Mitosis Vaults ensures that liquidity flows to where it is most needed, optimizing resource use across the DeFi landscape.

Onboarding Liquidity Providers to Mitosis

Liquidity providers (LPs) play a crucial role in the Mitosis ecosystem. To participate, LPs deposit their assets into Mitosis Vaults on various chains and receive representative assets on the Mitosis Chain in return. For example, if LPs deposit ETH into a Mitosis Vault on Arbitrum, they receive ETH on the Mitosis Chain as a representation of their deposit.

These LPs can then choose to become Ecosystem-Owned Liquidity (EOL) LPs by depositing their representative assets into the EOL Vault on the Mitosis Chain. In return, they receive miAssets, which provide exposure to the yield and risk profile determined by the liquidity marketplace. The ecosystem-owned portion of the Mitosis Vaults liquidity on each chain is allocated to dApps within their respective ecosystems to generate yield for miAsset holders.

Capturing Market Sentiment: The Role of miAssets

Mitosis Vaults allocate EOL based on periodic gauge votes, where miAsset holders determine the distribution ratio of EOL to each dApp. These gauge votes are carried out for each chain and asset combination, with voting power proportional to the number of miAssets held. While direct voting by LPs provides the most straightforward reflection of market sentiment, it’s impractical to expect full participation from all LPs. To address this, Mitosis converts the overall ecosystem’s activity involving miAssets into EOL allocation ratios, effectively crowdsourcing liquidity decisions.

Direct Voting and Delegation Mechanisms

LPs holding miAssets can vote directly on how to allocate liquidity on supported chains. For example, an LP holding 3% of all miweETH can decide how to allocate 3% of the ecosystem-owned weETH in Mitosis Vaults on various chains, regardless of the chain where they initially deposited their assets. If there are 10M ecosystem-owned weETH in Scroll Mitosis Vault and 20M on Arbitrum, this LP can decide where to deposit 0.3M (3% of 10M) of Scroll weETH and 0.6M (3% of 20M) of Arbitrum weETH.

However, LPs can also delegate their voting power to dApps. When LPs deposit their miAssets into dApps, the dApps gain the right to use the voting power of those miAssets. Even so, LPs retain the ability to reclaim and exercise their voting power at any time while maintaining their deposit in the dApps. This delegation mechanism enables dApps to wield significant influence over liquidity allocation, particularly if a substantial portion of miAssets is deposited into them.

Facilitating Network Expansion with miAssets

In the multi-chain era, expanding across multiple blockchains is a common strategy for dApp developers seeking to capture a larger market share. However, securing initial liquidity for new network deployments is often a significant challenge. Mitosis mitigates this by allowing builders to leverage miAssets to secure the necessary liquidity for expansion.

For instance, if a dApp like Aave holds 20% of all miweETH, it can utilize this voting power to deposit ecosystem-owned weETH to its new launch on different chains. This initial liquidity allows Aave to offer competitive weETH borrowing rates from day one on a new network. Thus, the voting power of miAssets not only reduces the resources required for liquidity bootstrapping but also secures tqwqhe upper hand from the start, making it invaluable for dApp builders looking to scale across multiple networks.

Mitosis Ecosystem: A Marketplace for Liquidity

The Mitosis ecosystem operates as a transparent, on-chain marketplace where multi-chain dApp builders compete for miAsset deposits while LPs decide their use of miAssets based on yield potential, security, reputation, and user experience. Imagine Aave offering a share of the yield generated from their new launch on Scroll to those who delegate their voting power to Aave on the Mitosis Chain. This organic market-driven approach ensures that the liquidity allocation strategy reflects the collective sentiment of the ecosystem’s participants.

Diverse LP Profiles in Mitosis

The Mitosis ecosystem accommodates different types of LPs:

1. Active LPs: These LPs vote directly to participate in the ecosystem’s EOL allocation decisions.
2. Delegating LPs: These LPs delegate their voting power to dApps, allowing the dApps to reflect the LPs’ intentions.
3. Passive LPs: These LPs simply hold miAssets, gaining exposure to the EOL’s risk and reward profile without influencing allocation decisions.

Through active and delegating LPs, the ecosystem captures the market sentiment in a decentralized manner while minimizing the impact of voter apathy. Mitosis also allows passive participants to benefit from an ecosystem-driven liquidity strategy.

Implications for the Broader Blockchain Landscape

Mitosis enables the liquidity of even passive participants to remain dynamic and responsive to market sentiment. This inclusivity strengthens the growth and resilience of the chains integrating the Mitosis liquidity marketplace by vitalizing the DeFi market within these ecosystems. Ultimately, Mitosis aims to establish a fair market value for liquidity. Through fair pricing, the DeFi landscape will evolve in both maturity and efficiency.

Conclusion

Mitosis presents a new approach to liquidity management in DeFi by establishing an on-chain marketplace that spans multiple blockchains. By promoting transparency, fair pricing, and efficient liquidity allocation, Mitosis enhances the vitality of on-chain liquidity and supports the growth of the DeFi ecosystem as a whole.