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Weaponized Liquidity

Price Floor

The general principle that inspired Empire DEX’s Weaponised Liquidity feature was initially pioneered by Rootkit Finance with their ERC-31337 format. This code was revolutionary in that it allowed the developers of Rootkit to essentially utilise “free” ETH that was otherwise unusable and wasted for both the developers and the community as a whole. The core premise is that if you take all the tokens that are not in the trading pair and then sold all these tokens, there would still be a certain amount of ETH in the pair (see Figure 1). The price floor is the price that would be achieved if all tokens were sold, with the remaining ETH still remaining in the pair normally being completely inaccessible.
Figure 1: A graphic used by Rootkit to help demonstrate the concept of a price floor.

Sweeping

Rootkit had a function that would sweep this remaining ETH to be utilized later, effectively converting “free” and otherwise mostly ‘wasted’ ETH into something useable.
EmpireDEX took this initial idea and improved upon it. Rootkit required a large host of associated contracts to be deployed alongside it including a dedicated wrapped ETH token (kETH). EmpireDEX simplified this down significantly and more importantly integrated this code into the DEX contracts itself. With this new implementation, any token that deploys liquidity on EmpireDEX and has permanently locked liquidity can utilize this feature, which is known as Weaponized Liquidity. This is as simple as adding a few functions into your contract, with the code being available in our EmpireDEX contract templates library and easy to follow guides for using these functions.
Additionally due to how Weaponized Liquidity is built into the DEX itself, developers can sweep the backing token (ETH, BNB, MATIC, FTM, AVAX etc.) directly rather than having to utilize an equivalent of kETH or have to deal with the myriad of contracts that Rootkit required. Ultimately, we want to make Weaponized Liquidity as easy to use and integrate into your project, as we believe that it will allow for some truly innovative projects to grow from its usage.

Limitations

A couple of key points for this system to function correctly:
  1. 1.
    The supply must be fixed, as new tokens would disrupt the price floor calculations.
  2. 2.
    Liquidity must be locked, as unwrapping liquidity tokens would also disrupt the floor calculations.

Example

  • There is a Weaponized Liquidity pair (TOKEN/ETH). In this, there are 1000 TOKEN and 100 ETH.
  • If all tokens held by users were sold into the pair, there would be 3000 TOKEN and 20 ETH left. This would be the 'price floor'.
  • If all tokens held by users were sold into the pair, there would be 3000 TOKEN and 20 ETH left. This would be the 'price floor'.

Use Cases

As Weaponized Liquidity allows for the sweeping of the backing token, generally the native coin of the blockchain (ETH, BNB etc.) this allows for an extremely wide range of uses. Some examples of this include:
  • Sweep backing tokens, use this to purchase more of the project’s tokens and then use some of the swept tokens and these bought tokens to create more liquidity to add back into the pair. Note that these newly created LP tokens would also effectively increase the price floor as they would be permanently locked away, generating a positive feedback loop allowing for even more sweeping.
  • Using the swept backing tokens as rewards for staking pools, or to purchase other tokens for rewards in staking pools. Or even to put into liquidity farming protocols to generate ongoing revenue.
  • Include governance over the sweeping of tokens as well as their subsequent use, giving a tokens community a way to generate funds for using in whatever way they saw fit.
  • Replacing features that take a token and sell it into a backing token to distribute to token holders. With Weaponized Liquidity, developers can sweep the backing token to distribute to users without selling their own token and causing a red candle on their graph.
However, at Empire Capital we are confident that there are a wide range of untapped uses for this powerful tool.