A deep dive into the Solidly model and its forks

8 min readDec 14, 2022

Solidly is an innovative automated market maker (AMM) built on Fantom that aims to facilitate low-cost, near-zero slippage trades for a wide range of crypto assets. Its innovation lies in the fact that its model incentivizes fee generation along with liquidity provision, unlike many other decentralized exchanges (DEXs). This allows Solidly to solve some of the key problems with today’s DEXs and AMMs.

In this article, we take a deep dive into the Solidly model and the various forks that have emerged on other Layer 1 and Layer 2 blockchains following the initial launch of the project on Fantom.

Overview of DEX models: What is a Decentralized Exchange?

Decentralized Exchanges (DEXs) are a core part of DeFi.
DEXs rely on the community and users for liquidity.
Users can deposit tokens to the smart contracts of a DEX to facilitate P2P trading.
Benefits of DEXs include self-custody of funds, a transparent trading environment, and opportunities for users to share protocol profits.
DEX users do not have to rely on a centralized entity for custody and management of their funds.
The collapse of FTX has shown yet again the importance of DEXs.

In today’s DeFi environment, DEXs have to “fight” to attract liquidity due to extensive competition. Their goal is to attract more/deeper liquidity which leads to a better trading experience as the exchange can then process larger orders.

This, in turn, leads to more fees for liquidity providers (as higher trading volumes can be processed efficiently), which incentivizes more liquidity to be deployed onto the DEX, which again improves the trading experience, ad infinitum.

However, high liquidity mining rewards have negative effects on a project’s token price. The token essentially pays for the liquidity, i.e. it is used to rent liquidity.

Uniswap, Sushiswap, Curve, and other models

Bancor and Uniswap were the first DEXs to launch using an automated market maker (AMM) framework.
They used the x*y=k (constant function) model.
The main problem with this model is impermanent loss and capital inefficiency.
AMMs often use “farms” to attract liquidity with the help of liquidity mining rewards.
This is an unhealthy model as it attracts ‘vampire liquidity’ that dumps the reward tokens.
Curve introduced a new tokenomics component: the locking of CRV. Locking resulted in non-transferrable, non-tradable veCRV positions.
On Curve, rewards must be locked to maximize returns from Curve’s liquidity mining program.
Curve’s Stableswap is more capital efficient than x*y=k.

Main problems of DEXs

Some AMM designs prioritize liquidity over fees.
Liquidity mining rewards are used as a bootstrapping mechanism (liquidity renting).
This attracts mercenary capital that farms and dumps the token.
Emissions should align with incentives.

Solidly’s (3,3) Model

On 6 January 2022, Andre Cronje introduced a new AMM model inspired by OHM and Curve — ‘Solidly’. This model did not bring anything particularly groundbreaking to the table, but rather introduced an improved tokenomics model.

The game theory behind the new model would allow the participants to self-optimize the AMM, which would not lead to the dumping of the platform’s governance token.

Solidly Model key characteristics:

Locking: Lock SOLID for a period of time to receive veSOLID. Different lock lengths result in different amounts of veSOLID (max lock == max amount of veSOLID).

Benefits of veSOLID include:
i) Fees from pools that have been voted for, paid in base assets;
ii) Portion of weekly SOLID emissions;
iii) Voting power on AMM pools;
iv) Boosted rewards based on the user’s veSOLID balance and LP position.

Emissions: Solidly includes weekly token emissions but the amount changes depending on the % of SOLID tokens locked. If all the circulating SOLID tokens were to be locked in veSOLID, then there would be no emission. This is important as lockers never get diluted.

Trading fees: All trading fees go to SOLID lockers and only from pools they voted for. Fees are paid in base assets (underlying pool assets). The platform maintains a 0.01% fee.

Bribes: The concept of bribes was popularized by Convex, which controlled a large share of Curve's voting power.

Protocols realized they could bribe veCRV holders to vote for their pools to grow their protocols and on-chain liquidity.
On Solidly, anyone can award bribes to a gauge and those who vote for it can claim them.
Solidly also introduces the concept of negative voting, which allows users to prevent emissions from going to a pool.

With Solidly, Andre Cronje created a new base-layer AMM inspired by OHM and Curve. The AMM would reward pool voters with trading fees, which would help direct liquidity to where it is needed (based on fees).

The initial supply of locked veNFT positions was awarded to projects in the Fantom ecosystem. However, this ended in the attraction of huge amounts of vampiric capital. Combined with a rushed launch of the protocol that included a lot of bugs and unhealthy token emissions, Solidly failed to capture long-term traction.

The model eventually resulted in forks on other chains that took the principles of the new token economic model and improved on the flaws of Solidly.

Solidly forks and their improvements

Velodrome — the fork on Optimism (Ethereum L2)

Grew to become Optimism’s de-facto DEX thanks to heavy incentivization using their OP grants.
Fixed critical flaws of Solidly. Also centralized the pool whitelisting process, and put higher swap fees in place to incentivize productive pools. Removed LP boost and negative voting.
Reduced weekly emissions to make protocol more sustainable.
In the near future, Velodrome will see the following developments — UI overhaul + improvements; relay for voting optimization; additional platform features including new pool types, voting mechanisms upgrades, zapping, and veNFT composability. More details here.
In the first six months since its launch, Velodrome has been a consistent top-three protocol on Optimism, with $70M+ TVL, $2M+ daily volume, and ranging between $10–20k weekly fees.

Hermes — the fork on Metis (Ethereum L2)

One of the first successful Solidly projects and native to Metis, an Ethereum Layer 2 blockchain. Created by DEX aggregator Maia and able to establish itself as one of the main DEX projects on the L2.
Fixed critical flaws of Solidly, most notably -
Centralized pool whitelisting process to prevent whales from creating their own personal pools, voting on them, and reaping all the rewards.
Also introduced a one-week vote lock to fix the bribe-farming exploits.
Recently released V2 whitepaper, major changes include -
Becoming an omnichain DEX and introducing concentrated liquidity to its platform.
Revamped tokenomics: The original locking mechanism required continuous managerial maintenance; Hermes will introduce a burning mechanism that allows for a more set-and-forget model.

More can be found here.

3xcalibur — the fork on Arbitrum (Ethereum L2)

The newest Solidly project on the market and native to Arbitrum. This Layer 2 blockchain is by far the most successful and houses a thriving DeFi ecosystem with a wide variety of products.
Implemented similar changes as Velodrome, but improved on emissions by introducing algorithmic minting. This further enhances the sustainability of the protocol’s token.
Aims to become a Tri-AMM, with volatile and stable-swap pools, and a lending/credit functionality.
Has a multi-swap feature that allows users to swap into multiple assets in a single transaction.
After a successful launch, 3xcalibur aims to develop a working credit swap for their users. Additionally, their roadmap includes new products, such as Unr3kt which aims to solve impermanent loss.
We could also expect voting optimization features, similar to those introduced by Velodrome and Hermes.

Solidly+: the migration to Ethereum

Fantom native developers decided to fix Solidly bugs and have made a decision to migrate to ETH mainnet due to a lack of activity and liquidity issues on the Fantom chain and the lack of support provided by the Fantom Foundation.
The team exposed Solidly’s flaws by performing a series of attacks and rendering aspects of the DEX inoperable — you can read more about this here.
The past 6 months have been spent improving Solidly V1 into a fully functioning DeFi product — work has been dedicated to basic functions, bugs, tokenomics, and governance, as well as new features
Implemented a migration of $SOLID and veNFTs on Fantom through a burn contract.
Planning to establish a Swiss non-profit organization called Solidly Labs, which will support the development and decentralization of Solidly+ and its ecosystem.
Launching in late December 2022 with multiple liquidity partners such as Frax, Yearn, Ren, Abracadabra, and others.

Equalizer — the fork on Fantom (Alternate L1)

Equalizer is filling the hole left by the demise of Soldily and the subsequent migration to ETH mainnet.
They have taken elements of the Solidly modeling with the intention to create a sustainable DEX that rewards its holders and changes the generic DEX modeling forever.
Different from Solidly in key areas such as a smaller max veLOCK period, fairer initial token distribution, a sustainable fee structure, no negative voting, and ve locking bonus.
Targetting $ETH trading pair volume — Fantom chain’s $ETH volume is disproportionate compared to other chains that are EVM compatible.
In the first two weeks since launch — TVL has grown to $4M+ with Fantom native protocols getting involved in bribing veNFT holders to build the positive flywheel loop.

Thena — the fork on BNB Chain (Alternate L1)

Utilized theNFT fundraiser (non-fungible token with revenue streams) along with airdrop to major protocols.
Deploying on BNB Chain due to its growing DeFi ecosystem and its links to Binance.
Adjusted the Solidly fee structure (increased fees), redesigned the bribing market to be resilient to mercenary capital, removed negative voting, and implemented permissioned whitelisting of tokens.
veTHE holders will be incentivized to vote for either the highest volume pools, or the ones being bribed by protocols seeking to bootstrap their liquidity.
Aims to be the backbone of the BNB chain — the primary liquidity layer that DeFi on BNB is missing with current DEXs on-chain inefficiently incentivizing liquidity.

Conclusion

The game theory behind Solidly leads to staking the native token becoming the preferable strategy.
There is a positive feedback loop: more locked tokens > more liquidity > less slippage > more fees > more locked tokens > etc.
Flaws in Solidly’s original code have been solved by other projects.
Each of these three projects have proved to be innovative and are working on additional features that improve the original protocol.

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