Cloned Assets: An Ideal Tool for Bringing Liquidity to Non-Native Tokens on Solana

The article, titled “Cloned Assets: An Ideal Tool for Bringing Liquidity to Non-Native Tokens on Solana,” explores the potential of cloned assets as a solution to the liquidity fragmentation problem faced by non-native tokens on the Solana blockchain. Evan Deutsch, a core contributor and co-inventor of Clone, discusses the drawbacks of perpetual contracts and bridged tokens, highlighting their limitations in terms of cost, utility, and liquidity. Deutsch then introduces cloned assets as a new defi asset class that can optimize the onboarding of non-native token liquidity to Solana. He explains how cloned assets differ from bridged tokens and introduces the Comet Liquidity System as a sophisticated and capital-efficient solution for providing deep liquidity to non-native tokens. The article concludes by discussing Solana’s suitability as a blockchain for Clone and how cloned assets can contribute to boosting token diversity and growth within Solana’s defi ecosystem.

Liquidity Fragmentation Problem

The liquidity fragmentation problem refers to the challenge of providing sufficient liquidity for non-native tokens on the Solana blockchain. Currently, there are limited options for trading these assets, with perpetual contracts (perps) being one of the few available tools. Perps allow for high-leverage trading but are more suited for short-term strategies due to their high cost to hold over time. Additionally, perps lack potential utility across the broader Solana DeFi ecosystem. Bridged tokens, on the other hand, face the liquidity fragmentation problem, as there is minimal liquidity available to trade these tokens. Liquidity Providers (LPs) must make decisions about which bridges to use and which decentralized exchanges (DEXs) to establish liquidity pools on, introducing significant initial costs and risks. Therefore, a more scalable solution is needed to address the liquidity fragmentation problem and bring liquidity to non-native tokens on Solana.

Perpetual Contracts not Ideal for Long-Term Trading

While perpetual contracts offer a way to trade non-native assets on Solana with high leverage, they are not ideal for long-term trading strategies. Perps can be complex for novice traders due to funding rates and can be expensive to hold over time. These contracts lack potential utility across the broader Solana DeFi ecosystem and are better suited for short-term, high-leverage strategies. As a result, alternative solutions are required to bring long-term liquidity to non-native tokens on Solana.

Drawbacks of Bridged Tokens

Bridged tokens, which are created through blockchain bridges, face challenges related to liquidity fragmentation. LPs are required to make decisions about which bridges and DEXs to use, introducing significant initial costs and risks. Even after setting up liquidity pools, there is no guarantee that traders will prefer the specific bridge and DEX combination chosen by the LP. This makes the process of providing liquidity for bridged tokens risky and inefficient. Therefore, bridged tokens alone are not sufficient to address the liquidity fragmentation problem and bring deep liquidity to non-native assets on Solana.

Advantages of Concentrated Liquidity Market Makers (CLMM)

Concentrated Liquidity Market Makers (CLMM), pioneered by Uniswap, offer several advantages over traditional liquidity provision methods. Unlike traditional market makers that require LPs to provide liquidity for both sides of a trading pair, CLMMs enable LPs to provide liquidity for a single token while allowing for positive and negative price movement simultaneously. This cross-margin approach reduces the capital necessary for LPs to achieve a specific price range compared to traditional market makers. CLMMs also offer cross-margin capabilities, allowing LPs to support multiple positions simultaneously, further enhancing capital efficiency. In summary, CLMMs provide a more sophisticated and capital-efficient system for liquidity provision, making them a promising solution for addressing the liquidity fragmentation problem on Solana.

Why Clone Chose Solana as the Blockchain

Clone Protocol chose to build on the Solana blockchain due to its efficiency, scalability, and innovation. Solana offers unparalleled speed and cost-effectiveness, making it an ideal choice for creating products that prioritize these qualities. Clone recognized the need for better integration of non-native token liquidity on Solana and saw the potential for token diversity on the blockchain. While Solana has seen the rise of meme coins and recent projects’ Token Generation Events (TGEs), there is still ample room for growth and variety. By building on Solana, Clone aims to enrich the ecosystem with more trading options for existing users and create bridges for users from other blockchains. Cloned assets provide a familiar opportunity for these users to experience the advantages of Solana through assets they already know and trust, driving growth within Solana’s DeFi space.

Introduction to Cloned Assets

Cloned assets are a new DeFi asset class pioneered by Clone Protocol to optimize the onboarding of non-native token liquidity to new chains. Cloned assets can be thought of as bridged assets with additional capital efficiency and scalability. Holders of cloned assets can swap them for bridged assets, ensuring a peg to their non-native counterparts. While cloned assets and bridged assets are similar, cloned assets provide a liquidity boost that allows them to be traded, utilized, and scaled quickly within any DeFi ecosystem. By introducing cloned assets, Clone Protocol aims to bring deep liquidity to non-native tokens on Solana and overcome the liquidity fragmentation problem.

Differences Between Cloned Assets and Bridged Tokens

Although cloned assets and bridged tokens share similarities, they have distinct characteristics. Cloned assets are a refined version of bridged assets, offering enhanced capital efficiency and scalability. Unlike bridged tokens, cloned assets can be swapped for bridged assets, ensuring a peg to their non-native counterparts. This swapability enables cloned assets to bring liquidity to non-native tokens on Solana and facilitate their trading, utilization, and scalability within the DeFi ecosystem. In contrast, bridged tokens alone face challenges related to liquidity fragmentation and lack the capital efficiency and scalability provided by cloned assets.

Overview of the Comet Liquidity System (CLS)

The Comet Liquidity System (CLS) is a refined version of an automated market maker (AMM) that was developed to address the liquidity fragmentation problem on Solana. At its core, the CLS is a Comet AMM, which utilizes USDC as the liquidity backing for cloned assets. This simplifies the process for liquidity providers (LPs) as they only need USDC to get started. The CLS introduces a leveraged, cross-margin approach that allows LPs to provide more total liquidity than the amount of USDC they deposit. This liquidity can be spread across multiple Comet AMMs, known as Comets. The CLS provides a scalable solution for onboarding non-native token liquidity to Solana, ensuring efficiency, scalability, and security in the process.

Benefits of CLS in Bringing Liquidity to Non-Native Tokens

The Comet Liquidity System (CLS) offers several benefits in bringing liquidity to non-native tokens on Solana. One of the key advantages is its ability to address the liquidity fragmentation problem, which has been a challenge for bridged tokens. The CLS simplifies the process for liquidity providers by utilizing USDC as the liquidity backing and allowing for leveraged, cross-margin positions. This streamlined approach enhances capital efficiency and reduces the initial costs and risks associated with providing liquidity for non-native tokens. By providing a more efficient and scalable solution, the CLS enables deep liquidity for non-native tokens on Solana, making them more accessible and tradable within the DeFi ecosystem.

The Role of Cloned Assets in Boosting Token Diversity on Solana

Cloned assets play a crucial role in boosting token diversity on the Solana blockchain. While Solana has demonstrated efficiency and scalability, the ecosystem can benefit from a richer variety of tokens. Cloned assets provide a gateway for users from other blockchains to experience the advantages of Solana through assets they already know and trust. This fusion of familiarity and innovation attracts users and catalyzes growth within Solana’s DeFi space. By introducing cloned assets, Clone Protocol aims to enrich the Solana ecosystem with more trading options, enhancing token diversity, and unlocking the full potential of the blockchain.

Overall, cloned assets offer a promising solution to the liquidity fragmentation problem on Solana. By providing deep liquidity for non-native tokens, cloned assets enable efficient and scalable trading, utilization, and scalability within the Solana DeFi ecosystem. With the Comet Liquidity System and the advantages it brings, Solana becomes a more attractive blockchain for users seeking diverse token options and a seamless trading experience. Through these innovations, Clone Protocol contributes to the continued growth and development of Solana as a leading blockchain in the DeFi space.