Phantom Protocol is a cross-chain synthetic asset generation protocol that supports multiple marketplaces. An overview of Phantom’s ecosystem can be seen in the diagram below. We can see that once synthetic assets are generated, they can either go to the trading market or interact with various decentralized financial services like LP farming.
Like every ecosystem, there are multiple players involved. This article will analyze in-depth how different players participate and capture value in Phantom’s ecosystem.
In Phantom Protocol, users can take on one or more of the following roles:
- Liquidity Provider
A closer look into the Phantom Ecosystem Participants
A builder is a user that over-collateralizes their input assets to obtain newly built tokens (pAsset).
Instead of turning their input assets into pAssets through transactions, builders enter a collateralized debt position (CDP). Builders may redeem their inputted assets at any time and modify their CDP’s collateral ratio by adding or withdrawing collaterals. That is, as long as the collateral ratio stays above the minimum limit.
For example, Alice can pledge USDT on Phantom to generate pTSLA, which mimics real Tesla stock. As long as Alice’s CDP collateral ratio stays above the minimum percentage, she can withdraw her collateral at any time by returning pTSLA.
A trader buys and sells pAssets through decentralized exchanges like moonswap and uniswap, benefiting from price exposure via pAssets. Traders can invest in diversified assets by using both stable coins and mainstream cryptocurrencies. In other words, traders are no longer burdened by the time and switching costs of moving funds across multiple markets.
For example, Bob, who lives in Switzerland, is bullish on the Vietnamese stock market. However, his assets are mainly cryptocurrencies.
Bob may not realize that he can get the same return curve without actually investing in Vietnam’s stock market EFTs. Instead, he can simply purchase pMVIS assets, a pAsset following the MVIS Vietnam Index, on the exchange. When investing through pAssets, Bob does not need to exchange fiat currency, open a new overseas account, go through KYC, or be restricted by the stock market’s trading hours.
• Liquidity Provider
A liquidity provider is a user who funds a liquidity pool to facilitate pAsset trading on decentralized exchanges and earn passive income. By funding a liquidity pool, a provider also enables traders to buy or sell pAssets.
Instead of using traditional order book-based trading systems, decentralized exchanges facilitate trade by using funds held in liquidity pools for every asset in a trading pair. As a result, liquidity providers are seen as trade facilitators and are paid with the transaction fees.
Here is how it works:
1. A liquidity provider adds equal amounts of a pAsset and crypto asset to the corresponding pool, which increases liquidity for that market.
2. This process rewards the liquidity provider with newly minted LP tokens, representing their share of the transaction fee.
3. The liquidity provider earns passive income over time.
4. A liquidity provider can reclaim the assets from the pool by burning LP tokens.
For instance, a liquidity provider may provide a liquidity pool with $1,000 worth of pTSLA and $1,000 of ETH to allow trading between the two. Each time trade is initiated on the pTSLA/ETH platform, the liquidity provider receives compensation for funding the pool.
A farmer is a user who locks PHM or LP Tokens into Phantom’s rewards pool to receive farming benefits.
There are two types of farming benefits/rewards:
- Provide LP Tokens and receive PHM rewards in return (see Farmer A in the figure below)
- Provide PHM and receive synthetic asset handling fee dividends in return (see Farmer B in the figure below)
Locked LP tokens and PHM can be unfarmed at any time on Phantom’s website.
Summary: Roles in a bigger picture
We have covered 4 key roles in Phantom’s ecosystem and their corresponding benefits. It is worth noting that a user can play different roles by participating in different steps.
For example, a builder can create pAssets and make trading pairs with other crypto assets to provide liquidity in DEX, hence becoming a liquidity provider.
They can continue to stake LP tokens in the Phantom reward pool, acting as a farmer to receive PHM rewards.
As you can see, Phantom provides an open-operating space for its participants to engage in different parts of the ecosystem and get corresponding benefits.
Any questions? feel free to talk to us in the community.