Introducing Rift: The Problem

In a three-part series, we introduce Rift Finance. This is the second part: The Problem.

Introducing Rift: The Problem

This is the second post in the “Introducing Rift” Series, parts one and three can be located here:

Introducing Rift: The Vision | Introduction Rift: The Future

Starting an effective DAO today is incredibly difficult. DAOs run on governance tokens, and one of the core challenges these organizations face is the liquidity of these tokens. People need to be able to buy tokens to participate in a community, and in order to do that the token needs to be sufficiently liquid.

Today DAOs have resorted to just handing away their governance tokens for temporary liquidity provided by third-party actors who later sell these tokens to realize a profit in ETH. This does nothing to support the long-term growth of a DAO; in practice, this actually hinders it in multiple dimensions. This shrinks the DAO treasury as they forfeit ownership of tokens to people who are solely profit-motivated. As these people are not aligned with the community mission, they sell the tokens which applies downward price pressure, hurting the community members who actually care about the vision that the DAO was created to achieve.

This is all ironically paired with the fact that a majority of DAOs have a significant amount of their wealth stored in their own governance tokens, which are often sitting idle. What we need to unlock the next stage of DAO growth is a way for DAOs to achieve sustainable liquidity for their tokens without giving up ownership.

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Credit: Messari's Crypto Theses for 2022

Enter the Rift

The parasitic dynamic of how DAOs achieve liquidity today is not an economic necessity – it is simply the result of primitive financial tooling. Using Rift, DAOs can work collaboratively with liquidity providers to sustainably achieve token liquidity without giving up ownership of their tokens.

DAOs are liquidity-motivated. Liquidity providers are profit-motivated. Leveraging this incentive asymmetry, the Rift protocol restructures the risk and reward dynamics of providing liquidity on decentralized exchanges so that these parties can work collaboratively to achieve their goals in a way that they would not be able to alone. This enables liquidity providers to earn double rewards and DAOs to achieve their much-needed liquidity without having to give up ownership of their tokens.

Private Beta

Rift ran a $50M TVL capped private beta with several partner DAOs on Ethereum. These DAOs include Fantom, Injective, Unilend, Parsiq, Marlin, and Ramp. Through this private beta, we were able to confirm that not only were we solving the right problem but that our solution achieved success in a sustainable way. We’re grateful to our earliest DAO partners and plan to continue working with each one! We are now finalizing the second version of our protocol, which provides an even stronger alignment between DAOs and liquidity providers.

How to Participate

DAOs that are relying on antiquated methods like liquidity mining can indicate interest in joining the Rift by submitting this form.

Liquidity providers seeking access to the uniquely high returns available through DAO collaboration can sign up for early access to Rift here.

Introducing Rift

In this three-part series, we will introduce Rift Finance. This is the second part: The Problem. To learn more about Rift and sign up for the waitlist, visit our website.

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