Platypus Wars: Echidna Finance
Platypus Finance has started a new gold rush for yield on Avalanche
In this post, we will talk about:
Platypus Finance and the Platypus Wars
Echidna Finance and the ECD Token
Why Platforms Such as Echidna and Vector Will Accrue More Value Than Platypus Itself
If you wanted to farm for some yield on your stablecoins, the typical way to do it would be to open up an AMM platform on your browser, find a pair of tokens that you like, and provide liquidity to earn some rewards. This concept of yield farming is still relatively new, and traditional finance hasn’t even caught up yet.
However, if you live in crypto land where 2 years is equivalent to 20 in the real world, the concept of providing liquidity to a stable-token pair is already starting to become yesterday. Users demand something more innovative and something that is even easier to use.
Platypus Finance, an AMM built on the Avalanche network, provides this solution. Platypus is unique in that you only need to lock up a single stablecoin asset instead of a pair, like in most typical AMMs. By just staking some popular stablecoins, such as USDC and Tether, you can start earning APRs of anywhere between 2-4% today.
If you are a crypto native who believes in digital decentralized assets, then this is a nice way of earning returns on tokens that you might have already owned. After all, most bank savings accounts are paying just 0.5% today. Oh, and providing liquidity to these stablecoins also earns you some native PTP tokens on Platypus. That’s a nice little cherry on top.
However, if your goal is to maximize returns, then the 2-4% yield is not enough for you. So, here is what you do instead: as you get your PTP token rewards, you also stake these on the Platypus platform. Doing this will earn you vePTP, and the larger your ratio of vePTP to stablecoins, the higher your APR can be. Right now, the median boosted APRs range anywhere between 8-11%.
Much better. But there are some drawbacks to this model…
Getting the best returns on Platypus requires a 50:50 ratio of PTP and stablecoins. Half of your staked holdings has to come in the form of a native token and you are forced to take on more platform risk. If Platypus Finance or their token PTP doesn’t succeed, it directly impacts your holdings.
The mechanism also contains penalties where your PTP needs to remain staked at all times in order to keep earning vePTP. If you ever decide that you want to un-stake or sell a portion of your PTP tokens, then you lose all your vePTP. Want boosted returns again? Too bad, you have to start all over from scratch.
This is what has led to the Platypus Wars, with secondary protocols such as Echidna and Vector Finance all competing to bring more functionality onto the base layer of Platypus.
Enter Echidna Finance
Let’s say you just learned about Platypus Finance after reading this post, and are now interested in becoming a user of the platform. It would take you way too long to accrue enough vePTP to maximize your APRs. Maybe you already own some PTP today but don’t necessarily want to lock it up forever. For regular investors, these represent barriers to entry in getting involved with Platypus.
The goal of Echidna Finance is to solve these issues by eliminating the drawbacks associated with Platypus. Echidna goes out and pools a bunch of PTP tokens together from individual holders, and stakes these to permanently accrue vePTP over time.
The more vePTP Echidna has in their treasury, the more they are able to boost their APRs on Platypus and earn a higher yield. Essentially, by pooling the tokens together, Echidna can turn them into better yield generating assets.
From the user’s point-of-view, contributing PTP to the Echidna platform gives them ecdPTP in a 1:1 ratio. The ecdPTP can then be staked directly on the platform, with the staking rewards coming in the form of the ECD native token. The yield on staking ecdPTP is ~86% today.
However, recall what I said before. In crypto land, nobody is satisfied with earning any yield when you can simply earn more. So here’s what you can do: you can take your ECD tokens that you received from staking ecdPTP, and lock it up for 2 years in exchange for veECD instead.
Having veECD gives you the opportunity to earn anywhere between 5-10% of Echidna’s platform revenue, with the APR being close to 78%. Holding veECD also gives you some governance rights on the platform, where you can vote on the future of Echidna and how liquidity mining rewards should be allocated. Both the APR amount and the governance votes depreciate over time as the lock-up period comes to an end.
At any point, you can simply just stake more ECD or increase the lock-up time on your current ECD to maximize APY and votes.
Platypus LP tokens can also be staked through Echidna, where users can take advantage of the platform’s massive vePTP holdings. Nearly 80% of all PTP earned by Echidna is paid out to LP token holders and a zap feature gives users the ability to directly deposit stablecoins into Platypus.
To summarize, the reward structure for Echidna Finance is as follows:
Stablecoin LPs receive APR through PTP tokens
PTP contributors receive ecdPTP and staking rewards are received in ECD
ECD lockers receive rewards in veECD which gives access to the platform’s revenue in PTP tokens
Why the value will accrue on Echidna, not Platypus
So now that we have covered both Platypus and Echidna, I will provide some of my opinions as to why the secondary layers and native tokens may actually become more valuable than the primary layer of Platypus and PTP.
First, let’s establish what the value of the PTP token is. Since you can deposit stablecoins without requiring PTP on the platform, the native token itself doesn’t actually carry any value. Just owning PTP without any of the stablecoins doesn’t earn you any return through Platypus.
Knowing this, we can model out the value of PTP.
If we use a base principal of $10,000 and current APRs (normal and boosted) on the Platypus platform, we can visually see the value of depositing PTP alongside your stablecoin. A USDT.e deposit without PTP becomes $10,171.33 in 1-year, while the same deposit will become $10,765.62 through the boost.
Shifting gears to Echidna, the native token ECD can be converted to veECD to earn governance rights and revenue share of the platform. As a result, the value of the ECD token is very directly related to the success of the Echidna platform.
As of today, Echidna controls nearly 4.1 million PTP, which is 13.4% of the total circulating supply. Through veECD governance votes, the holders of the native token ECD will directly control what happens to the PTP and vePTP treasury. Essentially, ECD holders have a lot of say on where the liquidity mining incentives will be on Platypus.
If history is any guide, stablecoin providers are sure to take notice of this. After all, if ECD holders will control what the liquidity mining incentives will be for their stablecoins, they will want to control a portion of the ECD supply. This means that massive amounts of capital will likely be allocated towards ECD in the form of “bribes”.
Convex and Curve have already created a template that shows why value generally tends to accrue on these secondary layers. As of today, the Convex Finance (CVX) token has a market capitalization of $1.4 billion, while Curve (CRV) has a market cap of $959 million. Since Echidna is just a Convex fork built on top of Platypus, we can imagine very similar dynamics playing out for the PTP and ECD tokens.
Comparing PTP and ECD reminds me a lot of the 1849 California Gold Rush. If you are a history-nut like me, you know that it wasn’t actually the gold miners who became rich during this time. Rather, it was the people selling the picks and shovels to the miners.
In the case of the Platypus Wars, the yield on Platypus represents the gold, Echidna represents the shovel for retrieving the gold, and you are the individual who gets to decide which of these businesses you want to be in.
Astroport Finance, The State of Avalanche, Optimism Airdrops, Vector Finance