Lessons from the Permafrost

tl;dr It didn’t shoot the lights out, but given the downturn in both DeFi and our token price, the permafrost sale did very well and we now know how to spend $1 on Twitter and raise $2+

The permafrost has been set!
I’m happy to report that the permafrost sale concluded successfully! Herewith what I think we can learn from the experiment.

It did not have a positive price feedback loop which some hoped for.
While not an explicit goal of the test, the hope was to a lesser extent that the permafrost sale would set off a virtuous cycle where users would purchase FRY to supply as liquidity and then sell to the sale. It is possible that, if given longer buckets and a longer time frame, this might have begun.

It definitely increased the liquidity
One third of all $FRY liquidity is now locked up with the 0x01 Ethereum address. This means we will forever have a market to buy and sell FRY from.

Had the permafrost sale been available during the two rallies liquidity would be far higher today
The permafrost ran during a relative lull in both the DeFi market and the hype cycle for $FRY. Had selling liquidity for $FRY been an option during our rally to $0.20, the liquidity would likely have deepened significantly and would logically still be available today.

Balancer is hard to use
Because I wanted the permafrost to be able to protect itself against scalping, we went with a Balancer pool with 10% fees. However in the production of the education videos it became clear that the Balancer liquidity management tool can benefit from some UX improvements. Perhaps building a custom UX or conducting the sale in a Uniswap pool would have pulled in a slightly higher number of participants.

A minimum price is now established
Thanks to the mechanics of AMMs, $FRY now has a minimum price it will never be able to go beneath. There is around 4.35 ETH and 402K $FRY locked in the permafrost, meaning that at 100M $FRY, the minimum the price could go to is 0.00000017487 ETH/FRY. This may be a very low number but it was accomplished by a short term experiment. We could use a similar sale in the future to lift that floor price.

We have discovered at least one paid for revenue avenue that is definitely cash flow positive
We’ve been experimenting with several forms of content creation and marketing to increase traffic to the sale. We’ve had some sporadic success but in the process of running the Permafrost sale we did discover that Twitter actually allows much of our promotional material through as paid for advertising. Not only do they allow for it, but Crypto Twitter is proving to have a positive conversion rate, yielding more than 100% ROI to the treasury. If we learned nothing else during the experiment, this alone would be valuable enough to justify the entire cost of the experiment.

Yield farming has very different incentives to a sale
After being kind enough to take the time to answer some of my questions, a DeFi legend shared this nugget; Yield farming attracts more capital (albeit transient) than ICOs because with a sale the potential downside is not perceived as being locked in, with a sale, the potential for loss feels more concrete. This is useful for what I want to bring to you next wrt yield farming.

Permanently locking liquidity might not be the ideal
The problem with permanently locking liquidity away is that it might fracture the liquidity when better AMM protocols are released, exposing traders to more slippage. Permanently locked liquidity is great but can’t be moved.

Foundry is the one entity that has the most incentive to ignore impermanent loss and hold it’s own liquidity
If we think about the incentives of different actors to hold a DAO’s liquidity, the DAO itself is actually very well positioned to do so. The DAO has a reason to see a large pool of liquidity, because from it’s perspective it should always be “long” on itself if it wishes to survive. It can therefore ignore the potential impermanent losses of AMMs. It could also possibly gain an income from holding its own liquidity. The permafrost for instance has the fee set to 10%, this means that if Foundry outright owned the liquidity it could generate a small income providing its owners with a guaranteed market place.

Stay tuned, soon I’ll be posting about the next thing I want to drag us into :wink:

Pretty damn neat. Don’t think any other project can say this?

Looking forward to this

But wouldn’t the income only be realised by removing liquidity?

It would be realised by removing the fees accumulated on the liquidity