Tokemak is a decentralized liquidity network. Its name is inspired by tokamaks, which are donut-shaped plasma confinement devices used for energy fusion generation. Sounds complex, right? The Tokemak protocol can also appear complex, so let’s break it down in layman’s terms so that everyone can participate in the future of liquidity provision.

Liquidity is the number of assets available for trading and the corresponding ease with which these assets can be converted into one another without affecting their current market price. Strong liquidity creates market stability, fairer prices, reliable markets, and more seamless transactions (Cryptopedia, 2022a). Markets cannot exist without liquidity (Stankovic, 2021).

In his early days of DeFi market-making, Cook witnessed DeFi’s crippling liquidity problem. Early-stage DeFi founders have to allocate a lot of brain power and capital resources toward bootstrapping their protocol, paying large sums for market-making and budgeting for the protocol’s token inflation. As a result, DeFi liquidity can be fragmented, unpredictable, and costly. Insufficient liquidity results in poor pricing and volatility. This negatively impacts protocols and DAOs seeking deep liquidity for their tokens; exchanges looking to offer the best possible pricing; individuals hoping to avoid slippage due to the price impact of their trade; and protocols’ abilities to flow assets between each other (Tokemak, 2022). Cook believes liquidity is the next key infrastructure layer that needs enhancing. Increasing DeFi’s access to liquidity increases the bandwidth of value flow across all intermediaries in the DeFi space (Sokolin, 2022). Tokemak is used by liquidity providers and yield farmers, DAOs, new DeFi projects, market makers, and exchanges. Tokemak’s goals are to provide sustainable liquidity across DeFi while increasing its Protocol Owned Assets (POA), or its reserves, and protecting liquidity providers from impermanent loss (Tokemak Community Call, 2022).

Traditionally, markets are centralized in three functions:

1. Capital provision: equity debt financing

2. Market strategy and knowledge: executive decisions

3. Trading and expertise: technology, algorithms, expert traders setting bids and asks (Shaughnessy, 2021)

Tokemak decentralizes liquidity by disaggregating traditional centralized functions and democratizing liquidity actions to the community:

1. Liquidity providers (LPs): participants that create capital flows by depositing tokens to reactors, earning TOKE (Tokemak’s token) yield

2. Liquidity directors (LDs): TOKE holders that stake and allocate votes to manage where liquidity flows

3. Pricers: provide trading and asset pricing information when the liquidity needs to go to order book or request-for-quotation-based exchanges (Stankovic, 2021)

Think of it as a generalized or tokenized liquidity, emitted as incentivization to LPs and LDs. TOKE collateralizes the system. Its fixed supply slowly emits as the network’s liquidity grows. TOKE holders are able to generate liquidity on demand for whatever tokens they want, on whatever exchange they want, by controlling and directing Tokemak's TVL (Tokemak, 2022).

Tokemak has two types of reactors:

1. Pair Reactors

   1. Pair Reactors are pooled deposits (by LPs) of ETH and other stablecoins that can then be paired with assets from Token Reactors. LDs can stake TOKE to the Pair Reactors to balance and determine the depth of pooled Pair Reactor assets needed for optimal liquidity deployment, while also acting as Pair Reactor collateralization (Tokemak, 2022).

   2. Pair Reactors will provide TOKE holders the power to determine what stablecoin should be the dominant pair with an asset. Pair Reactors allow Tokemak and its liquidity deployment to scale at an incredible pace, including a strategic accumulation of a variety of assets for Tokemak’s POA reserve (Tokemak Team, 2021a).

   3. Pair Reactors take stablecoin/ETH tokens from LPs to be paired with the project/governance tokens as liquidity, while LDs in Pair Reactors stake TOKE to collateralize the Pair Reactor (Tokemak Team, 2021b).

2. Token Reactors

   1. Token Reactors are a specific asset's Tokemak reactors. LPs deposit their assets into Token Reactors, and LDs allocate their staked TOKE to specific Token Reactors in order to direct liquidity of that asset, earning specified Token Reactor APR (Tokemak, 2022).

   2. tAssets are tABC tokens that LPs receive when they deposit tokens into a Token Reactor. These tABC tokens represent the underlying claim to the assets deposited into the Token Reactor, redeemable at a 1:1 ratio. tAssets are transferable, and whoever owns the tABC tokens can claim the underlying deposited assets, as well as earns the TOKE rewards for those deposited assets. (Tokemak Team, 2021c).

   3. Token Reactors take project/governance tokens from LPs and allow LDs to stake TOKE to direct that liquidity and collateralize the Token Reactor (Tokemak Team, 2021b).

The Collateralization of Reactors Event is the governance act where TOKE holders have the opportunity to vote for which Token Reactors are activated. TOKE holders have a voting purse populated by their TOKE holdings that reflects voting power. Submitting votes triggers a wallet signature. After voting, Tokemak has discussions with the DAO/protocol team to secure a POA reserve of their respective tokens by swapping TOKE for their asset. These reserves are utilized in the underlying mechanics of Tokemak’s liquidity deployment. At this point, the DAOs/protocols become LDs themselves (Tokemak Team, 2021d).

The cycles in the top left represent Tokemak’s epochs. Assets deposited or TOKE staked mid-Cycle only become 'active' when a new Cycle begins. Assets requested for withdrawal cannot be fully withdrawn until a new Cycle begins. TOKE rewards only begin for newly deposited assets or staked TOKE at the start of a new Cycle (Tokemak, 2022). Here, TOKE holders can stake their TOKE and SUSHI LP to earn yield. Tokemak operates on Cycles to allow for the easing of gas costs and impermanent loss (Tokemak Team, 2021e).

The pools in the middle of the image are the primary TOKE staking pools to earn TOKE yield.

Pair Reactors are token pools composed of ETH, DAI, and other stablecoins paired with TOKE. When an LP selects the DAI/TOKE Pair Reactor and receives TOKE, the depositor has the option of pairing their TOKE with other project-specific assets within a Token Reactor. For example, if the TOKE/SUSHI Token Reactor is selected, LPs are able to choose which asset to pair with their SUSHI and which decentralized exchange they want to send assets to so they can open an initial liquidity position (Cryptopedia, 2022b).

There is staked TOKE voting to the LD side of each Pair Reactor. TOKE balances and determines the depth of reserve of those Pair Reactor assets in addition to acting as Reactor collateralization (Tokemak Team, 2021a).

Token Reactors are specialized token pools for user-provided assets on Tokemak. LPs deposit their assets into their desired Token Reactor and receive 1:1 tABC tokens. LDs allocate TOKE crypto assets to a specific Token Reactor to direct the liquidity of that asset to different decentralized exchanges in order to earn a predetermined yield. This allows users to vote on which decentralized exchange receives their liquidity with pools of capital.

Once LDs stake TOKE, they can direct their liquidity by voting. There are 3 types of voting:

• Token level voting: no preference, stake to the reactor

• Exchange level voting: down to the specific exchange

• Generalized voting: all reactors with a pro-rata apr (Tokemak Team, 2021f)

Pro Mode is exchange voting for LDs who want the granularity to choose to vote where assets are directed as liquidity. This isn’t required for LDs, but it adds optionality (Tokemak Team, 2021g).

Tokemak helps DAOs find long-term, committed liquidity. Users single-stake their tokens in a Token Reactor and then take their tABC tokens to the DAO's native dApp. There, they stake the tABC tokens to begin earning native ABC tokens, while their underlying assets are being utilized as liquidity. Furthermore, DAOs can earn TOKE as the holders of the tABC tokens. DAOs gain the following advantages when they deploy a reactor:

• Impermanent loss mitigation

• Generalized liquidity

• Cost center to revenue generator

• Direct liquidity

• Maximize total addressable liquidity (Tokemak, 2022).

Tokemak is a decentralized market maker that optimizes token utility through aggregation and liquidity transformation. It has mitigated impermanent loss through its single-sided staking and developed innovative mechanics to balance the APRs of its reactors. It has beautiful game-theory, democratizing liquidity and balancing the reactors' gamification. Its Singularity Moment is the moment it has enough POA to not require third-party liquidity providers—its developed liquidity infrastructure will provide liquidity with enough assets itself to provide liquidity for all of DeFi (Stankovic, 2021). We hope its POA reaches a decent enough size.

• Cryptopedia. March 2022a. What Is Market Liquidity?https://www.gemini.com/cryptopedia/what-is-liquidity-bid-ask-spread-slippage#section-what-is-market-liquidity

• Cryptopedia. February 2022b. Tokemak (TOKE): A New Liquidity Layer for DeFi. https://www.gemini.com/cryptopedia/tokemak-network-liquidity-crypto-toke-token-layer-2-protocol#section-toke-token-and-the-inner-workings-of-the-tokemak-network

• Stankovic, Stephan. December 2021. DeFi Project Spotlight: Tokemak, the Liquidity Black Hole. https://cryptobriefing.com/defi-project-spotlight-tokemak-the-liquidity-black-hole/

• Tokemak, 2022. https://docs.tokemak.xyz/

• Sokolin, Lex, host. The Fintech Blueprint, January 2022. Upgrading DeFi market-making and liquidity programs, with Carson Cook of Tokemak. https://open.spotify.com/episode/6xLRTvbJEU70mc3w9p4m58?si=uDyLBjuVTiOb3rIlvoviwA

• Shaughnessy, Tom. The Delphi Podcast, April 2021. Carson Cook: Tokemak is The Decentralized Liquidity Engine for DeFi.

Tokemak is a decentralized liquidity network. Its name is inspired by tokamaks, which are donut-shaped plasma confinement devices used for energy fusion generation. Sounds complex, right? The Tokemak protocol can also appear complex, so let’s break it down in layman’s terms so that everyone can participate in the future of liquidity provision.

Liquidity is the number of assets available for trading and the corresponding ease with which these assets can be converted into one another without affecting their current market price. Strong liquidity creates market stability, fairer prices, reliable markets, and more seamless transactions (Cryptopedia, 2022a). Markets cannot exist without liquidity (Stankovic, 2021).

In his early days of DeFi market-making, Cook witnessed DeFi’s crippling liquidity problem. Early-stage DeFi founders have to allocate a lot of brain power and capital resources toward bootstrapping their protocol, paying large sums for market-making and budgeting for the protocol’s token inflation. As a result, DeFi liquidity can be fragmented, unpredictable, and costly. Insufficient liquidity results in poor pricing and volatility. This negatively impacts protocols and DAOs seeking deep liquidity for their tokens; exchanges looking to offer the best possible pricing; individuals hoping to avoid slippage due to the price impact of their trade; and protocols’ abilities to flow assets between each other (Tokemak, 2022). Cook believes liquidity is the next key infrastructure layer that needs enhancing. Increasing DeFi’s access to liquidity increases the bandwidth of value flow across all intermediaries in the DeFi space (Sokolin, 2022). Tokemak is used by liquidity providers and yield farmers, DAOs, new DeFi projects, market makers, and exchanges. Tokemak’s goals are to provide sustainable liquidity across DeFi while increasing its Protocol Owned Assets (POA), or its reserves, and protecting liquidity providers from impermanent loss (Tokemak Community Call, 2022).

Traditionally, markets are centralized in three functions:

1. Capital provision: equity debt financing

2. Market strategy and knowledge: executive decisions

3. Trading and expertise: technology, algorithms, expert traders setting bids and asks (Shaughnessy, 2021)

Tokemak decentralizes liquidity by disaggregating traditional centralized functions and democratizing liquidity actions to the community:

1. Liquidity providers (LPs): participants that create capital flows by depositing tokens to reactors, earning TOKE (Tokemak’s token) yield

2. Liquidity directors (LDs): TOKE holders that stake and allocate votes to manage where liquidity flows

3. Pricers: provide trading and asset pricing information when the liquidity needs to go to order book or request-for-quotation-based exchanges (Stankovic, 2021)

Think of it as a generalized or tokenized liquidity, emitted as incentivization to LPs and LDs. TOKE collateralizes the system. Its fixed supply slowly emits as the network’s liquidity grows. TOKE holders are able to generate liquidity on demand for whatever tokens they want, on whatever exchange they want, by controlling and directing Tokemak's TVL (Tokemak, 2022).

Tokemak has two types of reactors:

1. Pair Reactors

   1. Pair Reactors are pooled deposits (by LPs) of ETH and other stablecoins that can then be paired with assets from Token Reactors. LDs can stake TOKE to the Pair Reactors to balance and determine the depth of pooled Pair Reactor assets needed for optimal liquidity deployment, while also acting as Pair Reactor collateralization (Tokemak, 2022).

   2. Pair Reactors will provide TOKE holders the power to determine what stablecoin should be the dominant pair with an asset. Pair Reactors allow Tokemak and its liquidity deployment to scale at an incredible pace, including a strategic accumulation of a variety of assets for Tokemak’s POA reserve (Tokemak Team, 2021a).

   3. Pair Reactors take stablecoin/ETH tokens from LPs to be paired with the project/governance tokens as liquidity, while LDs in Pair Reactors stake TOKE to collateralize the Pair Reactor (Tokemak Team, 2021b).

2. Token Reactors

   1. Token Reactors are a specific asset's Tokemak reactors. LPs deposit their assets into Token Reactors, and LDs allocate their staked TOKE to specific Token Reactors in order to direct liquidity of that asset, earning specified Token Reactor APR (Tokemak, 2022).

   2. tAssets are tABC tokens that LPs receive when they deposit tokens into a Token Reactor. These tABC tokens represent the underlying claim to the assets deposited into the Token Reactor, redeemable at a 1:1 ratio. tAssets are transferable, and whoever owns the tABC tokens can claim the underlying deposited assets, as well as earns the TOKE rewards for those deposited assets. (Tokemak Team, 2021c).

   3. Token Reactors take project/governance tokens from LPs and allow LDs to stake TOKE to direct that liquidity and collateralize the Token Reactor (Tokemak Team, 2021b).

The Collateralization of Reactors Event is the governance act where TOKE holders have the opportunity to vote for which Token Reactors are activated. TOKE holders have a voting purse populated by their TOKE holdings that reflects voting power. Submitting votes triggers a wallet signature. After voting, Tokemak has discussions with the DAO/protocol team to secure a POA reserve of their respective tokens by swapping TOKE for their asset. These reserves are utilized in the underlying mechanics of Tokemak’s liquidity deployment. At this point, the DAOs/protocols become LDs themselves (Tokemak Team, 2021d).

The cycles in the top left represent Tokemak’s epochs. Assets deposited or TOKE staked mid-Cycle only become 'active' when a new Cycle begins. Assets requested for withdrawal cannot be fully withdrawn until a new Cycle begins. TOKE rewards only begin for newly deposited assets or staked TOKE at the start of a new Cycle (Tokemak, 2022). Here, TOKE holders can stake their TOKE and SUSHI LP to earn yield. Tokemak operates on Cycles to allow for the easing of gas costs and impermanent loss (Tokemak Team, 2021e).

The pools in the middle of the image are the primary TOKE staking pools to earn TOKE yield.

Pair Reactors are token pools composed of ETH, DAI, and other stablecoins paired with TOKE. When an LP selects the DAI/TOKE Pair Reactor and receives TOKE, the depositor has the option of pairing their TOKE with other project-specific assets within a Token Reactor. For example, if the TOKE/SUSHI Token Reactor is selected, LPs are able to choose which asset to pair with their SUSHI and which decentralized exchange they want to send assets to so they can open an initial liquidity position (Cryptopedia, 2022b).

There is staked TOKE voting to the LD side of each Pair Reactor. TOKE balances and determines the depth of reserve of those Pair Reactor assets in addition to acting as Reactor collateralization (Tokemak Team, 2021a).

Token Reactors are specialized token pools for user-provided assets on Tokemak. LPs deposit their assets into their desired Token Reactor and receive 1:1 tABC tokens. LDs allocate TOKE crypto assets to a specific Token Reactor to direct the liquidity of that asset to different decentralized exchanges in order to earn a predetermined yield. This allows users to vote on which decentralized exchange receives their liquidity with pools of capital.

Once LDs stake TOKE, they can direct their liquidity by voting. There are 3 types of voting:

• Token level voting: no preference, stake to the reactor

• Exchange level voting: down to the specific exchange

• Generalized voting: all reactors with a pro-rata apr (Tokemak Team, 2021f)

Pro Mode is exchange voting for LDs who want the granularity to choose to vote where assets are directed as liquidity. This isn’t required for LDs, but it adds optionality (Tokemak Team, 2021g).

Tokemak helps DAOs find long-term, committed liquidity. Users single-stake their tokens in a Token Reactor and then take their tABC tokens to the DAO's native dApp. There, they stake the tABC tokens to begin earning native ABC tokens, while their underlying assets are being utilized as liquidity. Furthermore, DAOs can earn TOKE as the holders of the tABC tokens. DAOs gain the following advantages when they deploy a reactor:

• Impermanent loss mitigation

• Generalized liquidity

• Cost center to revenue generator

• Direct liquidity

• Maximize total addressable liquidity (Tokemak, 2022).

Tokemak is a decentralized market maker that optimizes token utility through aggregation and liquidity transformation. It has mitigated impermanent loss through its single-sided staking and developed innovative mechanics to balance the APRs of its reactors. It has beautiful game-theory, democratizing liquidity and balancing the reactors' gamification. Its Singularity Moment is the moment it has enough POA to not require third-party liquidity providers—its developed liquidity infrastructure will provide liquidity with enough assets itself to provide liquidity for all of DeFi (Stankovic, 2021). We hope its POA reaches a decent enough size.

• Cryptopedia. March 2022a. What Is Market Liquidity?https://www.gemini.com/cryptopedia/what-is-liquidity-bid-ask-spread-slippage#section-what-is-market-liquidity

• Cryptopedia. February 2022b. Tokemak (TOKE): A New Liquidity Layer for DeFi. https://www.gemini.com/cryptopedia/tokemak-network-liquidity-crypto-toke-token-layer-2-protocol#section-toke-token-and-the-inner-workings-of-the-tokemak-network

• Stankovic, Stephan. December 2021. DeFi Project Spotlight: Tokemak, the Liquidity Black Hole. https://cryptobriefing.com/defi-project-spotlight-tokemak-the-liquidity-black-hole/

• Tokemak, 2022. https://docs.tokemak.xyz/

• Sokolin, Lex, host. The Fintech Blueprint, January 2022. Upgrading DeFi market-making and liquidity programs, with Carson Cook of Tokemak. https://open.spotify.com/episode/6xLRTvbJEU70mc3w9p4m58?si=uDyLBjuVTiOb3rIlvoviwA

• Shaughnessy, Tom. The Delphi Podcast, April 2021. Carson Cook: Tokemak is The Decentralized Liquidity Engine for DeFi.