Bringing Additional Value to Smaller-Cap Gems

XFai’s DEX Liquidity Protocol (DLO) will create rails for smaller cap projects allowing them to have a level playing field amongst high-cap tokens.

Large-cap tokens benefit from DeFi as they can be used to generate yield mainly because all major lending protocols support them. This creates a gap between large-cap and smaller-cap tokens that have no such financial utility. XFai seeks to solve this issue by creating single-asset liquidity pools that leverage staked assets via the DLO to generate APY for any token, no matter the cap.

The current state of play for smaller-cap tokens

Smaller-cap tokens are stuck on Centralized Exchanges (CEXs) where the CEX hidden market makers deploy their liquidity without returning any rewards to the token holders themselves.

Hidden CEX market makers dampen or even crash the tokens’ price. This happens because exchanges can use the liquidity provided by their users for market making on their exchange without ever having to pay liquidity providers a fee. By doing so, they make fees denominated in both the tokens as well as USD. The Exchanges, however, do not want to hold an active position in the tokens and therefore immediately sell the token against USD, effectively continuously applying downward price pressure on the token against USD.

Today, smaller-cap tokens liquidity is stuck on CEXs, as all price discovery is happening there, leading potential liquidity providers on Decentralized Exchanges (DEXs) to be reluctant to put their tokens in DEXs due to the lack of liquidity.

Smaller-Cap Gems’ Time to Shine with our DLO

With the DLO, smaller-cap token holders can finally earn returns on their tokens. By holding tokens on CEXs, the small-cap tokens are contained by a ‘firewall’ that stops these tokens from interacting with the decentralized network. Therefore, users do not realize the full potential of their tokens.

Once users hold tokens with their own keys on-chain, the CEX firewall breaks down, and the tokens can start to prosper. With XFai’s DLO-Brick feature providing liquidity on-chain, it becomes accessible for other DeFi projects to retrieve information and price feeds on these smaller tokens from DEXs.

By helping move the liquidity that is “trapped” on centralized exchanges on-chain, the DLO unlocks these tokens for further utility in DeFi, as other DeFi protocols such as Maker or Aave can now gather more reliable information and price feeds on these DEXs to engage these smaller tokens and results in network effects.

This creates a positive feedback ripple effect as more DeFi related use cases open up for DLO-supported tokens, which also results in growing DEX volume, benefitting the DLO as a liquidity provider, and in turn the DLO single-asset staking pools

Finally, XFai makes holding smaller-cap tokens profitable similar to how liquidity pools have made larger tokens profitable to hold, creating a catalytic effect in the positive returns loop for the smaller-cap token holders and projects alike.

This is the dream of all smaller-cap tokens and projects: to play in the same league as the bigger ones, create a fairer playing field, have a chance to perform, and make smaller-cap tokens more attractive.

About XFai

XFai develops tooling for the DeFi space — we graph the DeFi space to build game-changing products. Starting with the DLO: the DEX Liquidity Oracle

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XFai develops tooling for the DeFi space – we graph the DeFi space to build game-changing products. Starting with the DLO: the DEX Liquidity Oracle