The main function of the Warp Protocol is to allow users to receive stablecoin loans that have been collateralized with liquidity provisioning (LP) tokens — however, the ultimate vision of Warp Finance is much broader. Our true mission is to provide second order liquidity for the decentralized finance (DeFi) space with our platform functionality. Second order liquidity has many important uses and applications in DeFi, and must be supported in order to sustain and expand the industry.
Continue reading to learn more about the deeper mission of Warp Finance and why we are so dedicated to second order liquidity.
Second order liquidity is crucial in any financial ecosystem.
Broadly, the second order liquidity of an asset refers to there being a robust secondary market for said asset. Additionally, it allows for the asset in question to be more freely transferred.
Presently, there is virtually no second order liquidity for LP tokens.
In the current industry, LP tokens have very little use case other than acting as a receipt for providing liquidity, redeemable for accrued rewards in a particular liquidity pool. Because of this very low utility, there is really no secondary market for LP tokens — and therefore no second order liquidity. This means that individuals with LP tokens cannot put them towards anything other than the primary market — in other words, returning these tokens to the platform from which they were received, such as Uniswap, and receiving their due share of a liquidity pool’s earnings.
Warp is able to provide strong second order liquidity to LP tokens.
The Warp Protocol generates a secondary market for LP tokens by accepting them as collateral for stablecoin loans. At present, Warp accepts LP tokens in common stablecoin pairings from Uniswap, but has plans to allow for additional LP tokens, further expanding this secondary market.
Warp also intends to support the second order liquidity of a multitude of additional assets, and is actively investigating a broad range of use cases.
The Warp Protocol can provide these same benefits to other projects by utilizing similar mechanisms to supply them with second order liquidity.
This will be discussed in our soon-to-be released roadmap.