Trader Joe ($JOE) - deep research
If you don't know Joe, then I don't know where you've been living. Launched on the 4th of July, its the blue collar DEX 🚜 soon to be on all your favourite chains including launching to BSC in Q1
Project: Trader Joe / Token: Joe / Docs
Messari + Token Terminal + Defi Llama + Dune (Avax) / (Arb) + Nansen + Gecko + Debank
Preface:
Joe is a multi utility governance token with a multi chain DEX, which launched on Avalanche 2 years ago. The protocol provides all of the defi classics: Trade, Pool, Stake, Farm & Lend and has further added an NFT marketplace to their offerings.
Last November Trader Joe launched their “Liquidity Book (LB)” as an AMM innovation alternative to Uniswap’s V3.
Below I will explain how it works from a high level perspective, the pros/cons and whether it is likely to help Joe eat into its competitions’ market share.
Tokenomics: [ as of 01/23/23 ]
Token Distribution:
I like the tokenomics; no pre-sales, private sales or pre-listing allocations of the JOE token; we appreciate a fair community launch. The emissions are decreasing until fully circulating in Jan 2024. I also like that the team is truly committed to innovating the protocol and making necessary updates to keep JOE’s tokenomics relevant.
UDPATE: Tokens were raised during a seed round and have fully vested 🚜
Quick history:
rJOE Rocket Pool: Deprecation of the rJOE token is ongoing
Rocket Pool protocol is however being set aside for future repurposing
rJOE NFTs awarded to previous holders
Totals according to Token Terminal =
$6.7B in volume
$270M in fees
Fast future:
LB revenue share to be turned on; meaning more earnings for sJOE stakers
Recent Tokenomics revamp = expected in Q1 🚜
JOE multichain token
sJOE available for Arb + BNB
veJOE earning boosted rewards from LB program
Limit Orders
SteakHut Finance for automated and optimized concentrated liquidity
Launching to Binance Smart Chain in Q1 🚜
How it works / What it does:
AMM
Swaps
Stake JOE for sJOE to earn share of trading fees
Yield Farm
Stake JOE for veJOE to earn boosted yield
Supply + Borrow - Banker Joe
NFTs - Joepegs
Marketplace, minting & launchpad
Liquidity Book (LB) 🚜:
The Trader Joe team studied Uniswap’s V3 innovations and created ‘LB’ to innovate on and make for a better user experience. Here is a curated list of liquidity strategies.
The Good:
Makes use of bins, which allows traders to decide the volatility preference of the LP they stake in, decreasing fees. This is done via “discretization”… don’t ask just follow the link.
The bins can be compared to Order Books where the positions are waiting to be filled or removed by the LPer.
Greater control of positions
JOE Governance decides which pools get added
Can have increased capital efficiency & less slippage; depends on the users ability to manage effectively
Price impact is reduced for traders when the buying and selling occurs within a single bin; as the slippage only occurs when bins change.
Utilizes a token standard similar to ERC1155 which allows for increased operability of pool tokens and an ability to build features on top.
ie SteakHut Finance’s dApp for LP management.
Employs what is referred to as constant sum vs Uni’s constant product, which allows for the following benefits 🚜 =
Allows for placing any % ratio between LP pairs (V3 is 50/50)
Less price effect vs constant product; which makes it more capital efficient
Less vulnerable to impermanent loss.
Volatility accumulator for incentivizing liquidity provisioning during periods of increased volatility.
The Bad:
MEV exploits & toxic/informed order flows (ie bots arbitraging price spreads or front-running users’ swap transactions) still exist, helping the LPs to lose money.
ERC1155 position minting is less gas efficient than Uni V3’s model
Though the case could be made that over time it is more efficient, as individual V3 NFT positions will need to be managed more frequently.
Tiered fees are not permission-less and are dependant on the core team; likely a good decision in the short term.
Finances:
Fees
Swaps: 0.3%
0.25% sent to liquidity pools as fee for LPs
0.05% of all trades paid to sJOE staking pool
Staking deposit fee:
1% to sJOE
Treasury
Multi Sig Wallets located here, combined they hold around $22M worth of JOE, around $1.6M of stablecoins and $2M of blue chips (Avax, Eth & Btc). Debank was used to find contents and this was confirmed with discord community.
Protocol will earn revenue from the Liquidity Book when fee share is turned on; because treasury holds sJOE.
Wallet Inspection:
Largest Holders are fairly well distributed
Team:
Founders = Anon
Hiring = Graphic Design
Investors = Avalanche Foundation, Defiance Capital, Delphi Digital, Genesis Block Ventures, Mechanism Capital & 3AC
Developer Activity = [ Github ]
14+ Devs
Audit(s):
Paladin, Hashex, ABDK Consulting (Liquidity Book) etc
Competition:
These DEX’s are also on Arbitrum & Avax and represent the bulk of DEX activity within the space.
Uniswap V3 is an innovation to the original AMM model (x*y=z) by facilitating concentrated liquidity.
Pros
Controls a vast majority of the marketshare with regards to TVL & Volume
Concentrated model is more gas efficient
A more decentralized approach to pool creation; though this does lead to manipulation and deceit
First movers advantage with more products in the pipeline (wallet, NFTs etc)
Cons
MEV Toxic flow, comes in many forms, like price symmetry arbitraging, front-running or sandwiching, & JIT ‘attacks’; these have taken about 25% of the supply side fee earnings from LPers (source).
Utilizes an ERC721 standard which creates an NFT as an LP token. Not as composable as Joe’s ERC1155 🚜
Curve;
super well positioned in the stablecoin / LSD wars and frequently used for token swaps. It is the defacto stablecoin king maker. I like.
undergoing serious tokenomics overhauls in an attempt to revamp the protocol and reward users. I like.
Not as well known as the other 3 but still a large multichain contender TVL not as impacted from the highs as Trader Joe. Is an aggregator. I hardly know.
Socials [ as of 01/21/23 ]
Twitter: 260k
Discord: 45k
Bullish:
Twitter =
DevilK on Joe bear building
ExcelBaller on Joe meme’s returning and performance to come post chain launches
Not many bad things being said about Joe on Twitter
Q1 tokenomics update
JOE to be bridged to Arbitrum & BNB once the DEX is live 🚜
Liquidity V2 launch in Feb =
sJOE fee share; stake-able on either avax, arb, or BNB
Fees accrual will apply to the chain they’re staked on
veJOE to acquire boosted rewards with V2 upgrade
Ranks very high on the cryptofees.info page 🚜
LB innovations
Also, the Liquidity Book has allowed Trader Joe to become a sustainable emissions free ecosystem
Very gud UI/UX
Multichain future
Great set of investors (except 3AC)
Partnerships popping up all over (look closely at the characters below 👀)
Bearish:
Twitter =
Avax Oshi on LP fees; (Note: why LPing isn’t for everyone)
veJOE only on Avalanche (for now)
Anon team; though well known with large followings
AMMs suffer from toxic (informed) flows + MEV bots, which leads to liquidity providers losing money when the strategies are not well defined.
TVL at ATH was $3B; substantial decline; though most protocols have suffered similar fates
LB being less gas efficient that Uni V3; overtime could prove the opposite
Financial information, including treasury allocations, is not easy to find. Had to manually search the multi-sig wallets for instance.
Further the treasury is mostly composed of the native token.
Conclusion
Trader Joe has created a unique innovation to the AMM model with their Liquidity Book, which has allowed for a more profitable liquidity providing experience and has allowed the protocol to better incentivize adoption without the need for token emissions. Fee sharing is set to go live, which will increase the APY of staked JOE, benefiting both the users and the treasury.
Further the use of the token standard ERC1155 vs Uniswap’s ERC721 has allowed for protocols to begin developing on top of Trader Joe, which seems like a vital step towards pleb liquidity management (don’t worry we are all plebs). I should think we will begin to see more protocols doing the same. JOE flywheel engaged! 🚜
While executing a profitable liquidity providing strategy is not as simple as some retail users would like, it is at least made possible with the innovations provided by the protocol. The use of bins, variable fees and deployable strategies are at least tools available at your disposal.
Trader Joe allocates 100% of its fees to token stakers (LPs & sJOE) and as holders themselves are set to earn once the V2 fee switch is turned on. One of my concerns for the protocol is the large % of treasury assets being held in the native token. Which is a recommendation from me to the team/community, let’s diversify the treasury assets (RWA’s wink wink).
Oh yeah, I said “let’s” because I am now part of the community. Full disclosure blah blah I purchased the tokens prior to writing this report… due diligence et al 🚜. Which essentially means I like the product, I like the community and I like the risk reward.
From one (ex) blue collar worker to another:
Credit where credits due: To Tervelix for really breaking down the differences between Trader Joe’s Liquidity Book and Uniswap’s V3. Also to the Trader Joe discord (@MF | Research) for helping further and for filling the knowledge gaps.
Nothing in this report should be misconstrued as financial advice. Any investments should be taken at the sole discretion of the reader and/or counter party.
As always, dig deep and DYOR.
Made with love,