On Monday August 28th, The LEVEL team joined Arbitrum on their regular spaces chat to talk about LEVEL, and future plans.
Topics such as the background & history of LEVEL, challenges faced, and the vision of the recently announced LEVEL 2.0 upgrades were discussed at length. Below is a summary of the main LEVEL 2.0 key points, followed by the formatted transcript from the spaces chat.
Level 2.0: Key points
When Level Finance was launched in December 2022, the ecosystem was very different from the present. We gained significant market share on BNB Chain but realized the need for evolution upon moving to Arbitrum. The decision was made to upgrade the product to remain competitive, leading to the development of Level 2.0.
A fully decentralized exchange, utilizing an on-chain orderbook system, Level 2.0 will be a home for real traders, and will support multiple, various assets. Not only offering crypto pairs, but potentially Forex and Stocks on a synthetic basis.
The new design will also allow more user friendly and functional trading features, more akin to features available on traditional CEX’s.
Level 1.0 will pivot towards a “staking as a service” or “market making as a service” model. Users with assets like ETH or USDT can earn yields in a risk-isolated manner. Level 1.0 will act as a market maker for Level 2.0, as it shifts towards the on-chain order book system.
Reason for Change:
Instead of launching a separate project or token, we believe the existing dual token system with LGO will serve as a foundation for future DeFi projects.
This system allows for digital assets to operate at full reserve, where all profits and fees from the protocol back a redeemable token. This structure can support the development of innovative and creative products.
Roadmap and Future Plans:
We recognized the limitations and inefficiencies of the AMM model.
With Level 2.0, the AMM becomes a participant rather than the platform itself, leading to a marketplace open to free market forces.
The platform’s value will be distributed among liquidity providers and token holders, creating an ecosystem where users are also the platform’s value owners. This setup allows others to build on the contracts and create their own front-end and rules.
Role in the Future of DeFi:
We believe we’re building a product for an audience that doesn’t exist yet.
For true mass adoption, similar to centralized exchanges, we need a synergy between users who prefer permission-less transactions without compromising user experience.
Level 2.0 aims to offer a seamless experience for users unfamiliar with blockchain, making it a blockchain-agnostic liquidity marketplace.
The goal is to provide an experience similar to non-blockchain platforms. We aim to abstract away many blockchain interactions, making them more user-friendly. we’re exploring solutions like trustless bridging and cross-chain settlement.
Full Arbitrum X Level Spaces transcript
Host: I want to get this space started with some introductions. So maybe you want to introduce yourself and talk about what is Level Finance?
Level Finance: Sure, absolutely. Maybe less about myself and more about Level. Basically, the project started as a decentralized liquidity marketplace, where the sole purpose is to monetize liquidity in a permission less and in a noncustodial trust-less kind of way.
So that’s kind of what we’ve been tinkering with. And similar to what you guys have done with Ethereum scaling, we wanted to do liquidity scaling. And, you know, over the course of the last eight months, we’ve tried out various ways to make liquidity more approachable for users, unfortunately, in the current environment, where it’s largely dominated by bots, a lot of the aggregators have started using Level in terms of just finding the most efficient transaction and routing those orders through. And that’s kind of where we are right now.
Host: Yeah, I want to ask as well, because you mentioned, you guys want to scale the liquidity. So I’m wondering how do you guys plan on doing that?
Level Finance: Well, initially, we thought that one of the greatest limitations for traditional centralized exchanges is the depth of the order book. And the efficiencies in which these orders are matched based on the number of users that have so we thought that an AMM model served this purpose quite well. So that’s kind of what we started with.
To an extent, I think the thesis is partially correct. In the sense that we traded about $22 billion over the last six or seven months and generated about $30 million in fees off of base assets, have, you know, I think on average, less than $15-$16 million. So in that sense, I think it was fine.
But, you know, with the ultimate objective of creating the most humanly usable, liquidity marketplace, I think we’re, we’re still quite a bit of a ways off.
Team & Background
Host: I want to learn more about the team, who is the team behind Level? And what are some of the backgrounds that make up the team?
Level Finance: Yeah, so So we’re about 30 people all over the world, mostly PhDs. And then, you know, a couple folks like myself, who came from a more traditional finance background that kind of got into the industry a little bit earlier.
But the majority of the team are engineers. And we’re in four time zones.
Host: Nice, yeah. And so why did you guys start Level Finance, what are some things you saw in the DeFi space that you guys can solve with Level Finance?
Level Finance: To be completely honest, this wasn’t really like the inception of the project was not to solve something in DeFi, but to create something that is communally governed and communally owned, meaning we wanted to create a Democratic platform or liquidity platform, where the users are the ultimate owners of, essentially the future success or failure of the platform, which is why we kind of went with a completely fair start, as opposed to, you know, minting out all the tokens and then selling it to, you know, a select number of bag holders and try to do it that way. You know, every token that came out of Level is the by-product of using the platform. So there really isn’t any pre-mine or pre allocation of that sort.
I guess the flip side of that is that because it is a fair start project the initial stages of the project is going to have a inflationary emission schedule, you know, kind of similar to Bitcoin, where you know, the first 46 months of Bitcoin, you mine 10 million Bitcoins, and then the first halving comes and then it starts tapering down design is very similar in the sense that we want users to be the owners of the platform. And during the initial phases, the users are going to earn a little bit more reward. And as adoption kind of scales up, the reward kind of scales down. So roughly that’s the idea.
Host: It’s an interesting model. And I’m wondering, what are some achievements you’ve seen, by using that model?
Level Finance: I think the best way to highlight the achievements is by highlighting the challenges, you know, first two months in, we found out that one of our calculations, for LP tokens were off, and then we had an extra million dollars of fees sitting in the contract, that’s not being properly reflected in the individual token price. So we basically have to do a overhaul and find a way to allow the previous LPs to kind of get the additional million in fees that were collected, but not credited, or rather not reflected in their token price. And then from there it’s basically, you know, a series almost that weekly or bi weekly, of I suppose challenges that had to be overcome, and it’s just been a highly continuous process.
Tokenomics & Governance
Host: Yeah, that’s pretty wild And I want to talk about the governance structure, because I know you guys have two tokens. So LVL and LGO. Do you may want to share some info about the differences between those two?
Level Finance: Yeah, absolutely. So LVL is basically the utility token for the platform, we have not done a super good job in creating lots of utility for it. But for the most part, the LVL token is used to stake for a portion of the trading fees generated. And it’s also used to stake for the governance token, which is LGO. And LGO is pretty interesting, because currently, you even know, at its current state, I think it’s still one of the most valuable digital assets out there, around $75K to $80K, per LGO.
So LGO is basically a full reserve asset backed token system, where each LGO actually represents ownership of the DAO’s treasury. And, you know, at any point, owners of LGO can choose to exit governance by burning the LGO in exchange for their ownership of the DAO.
Host: And is this done on chain or off chain?
Level Finance: So, the assets within the DAO are staked on Level, so, we’re also our largest liquidity provider ourselves. So that’s constantly generating fees, the redemption process currently is done on chain, but there are certain settlements, for example, there are cross chain components that need to be signed. And that is not automated.
The interesting thing about Level is that the governance token earns fees from all the ecosystems where Level is deployed. So you’re not only getting fees from Arbitrum, but rather, when you stake LGO. You’re also getting fees for BNB. And also any other chains that we may launch into in the future.
Host: Oh, wow. Yeah, that’s really interesting. And how complex was the process to ensure that all fees from both networks goes to the stakers? Was that from a technical perspective? Was that something really challenging to implement?
Level Finance: Yes and no. So, prior to our omni-chain upgrade,
The fees were basically calculated on a real time basis. So all the fees were also distributed and claimable on a real time basis.
So once, so after we implemented the cross chain part, we had to kind of migrate to an epoch system, because we ultimately had to transfer and add things up at the end, which made it a little bit more clunky from an operations perspective.
But, you know, there’s only so much you can get away with when it comes to cross ecosystem redemptions.
Host: Right. And I noticed that you guys have other features for users. Aside from governance, you guys offer Asset Management for both arbitration and Binance. And you guys also have leverage trading, swapping? Could you guys maybe talk a bit more about those features that people can use on Level Finance?
Level Finance: Yeah, sure, absolutely. So it’s not so much asset management, as it is more of a market making as a service. Basically, users with single sided liquidity can choose to deposit and be a liquidity provider on the platform, where traders will effectively be trading against in a programmatic kind of way. So that’s, that’s kind of the first layer where, you know, folks who want to earn a little bit of yield on their ETH or on their USDT or whatever it is. We’ll do that by becoming liquidity providers. And then the rest is actually just staking the platform token itself, and also staking the governance token for a percentage of the trading fees.
And, you know, it’s a perp DEX. So we also offer perp trading.
Host: Right, and I see that you guys have different liquidity places, such as senior tranche Junior tranche that are low risk and high risk. Could you maybe describe more about it, talk about what are these different liquidity incentives? If I’m correct, is that what it’s called?
Level Finance: Yeah, so So basically, this is, I suppose a first or second attempt at creating a user elected, kind of risk exposure framework, where the liquidity providers can roughly pick the category of risks that they want to be exposed to, with a rough idea of what, the returns might be and what the exposure might be in terms of assets and price volatility. It’s not perfect. It’s still something that we’re working on. But I think this is definitely a good first step into, you know, a suitability related product, where those who want to take a little bit less exposure or less volatility can choose to do so. And those who want to go a little bit harder at growing their portfolio can choose to take a little bit of extra risk, assuming that their horizon is appropriate to their needs.
Host: Yeah, sounds pretty cool. It’s an interesting model that you have there. And I want to ask about Arbitrum. Why were you guys inspired to launch on Arbitrum?
Level Finance: Well, the main reason is, because that’s where all the action is at, right? As far as DEXs go, Arbitrum is the place to be, you know, for many reasons, one, you guys have successfully kind of solved scaling, and made the cost of on chain transactions reasonable enough.
Whereas you know, you’re here to do it on Ethereum layer one, it’ll be orders of magnitude more expensive, way slower, and just less viable. So that’s the main reason why we’re there because we feel like you know, that’s where the competition is. And we really want to prove ourselves in a competition rich environment.
But the the second reason is, I feel like our, our goals and objectives are largely aligned in the sense that you guys are trying to create accessibility to Ethereum and by building more user friendly ecosystems and products, for communities to build on top of, and what we’re trying to do is to make liquidity or rather offering liquidity as a service and make liquidity more accessible to folks who may very well be coming into the ecosystem for the first time. So now in that sense, I feel like we are mission aligned in many ways.
Host: Yeah, I love the synergy right there. We’re definitely happy to have you guys here with us to to help you know, be a part of this mission of bringing user friendly protocols you know, to not only web3, also web2 so it’s great that you guys are here with us.
Level Finance: Absolutely, really appreciate your hard work and building this ecosystem and we’re happy to be here.
Host: I noticed that volume on Level Finance, especially on the Arbitrum network has been very high. Yeah, so I just wanted to ask, what are some things you’ve seen since coming over to Arbitrum?
Level Finance: I think as a whole, the user base on Arbitrum is incredibly sophisticated. And, you know, as I mentioned earlier, because there’s so many options for both spot and perp products to be offered in this ecosystem, I think a lot of these opportunities become very, very efficient, meaning you have a lot of automated trades that are arbing not just against centralized players, but also arbing against the entire ecosystem as a whole. Which is one of the main reasons why we decided that Arbitrum was where we wanted to go after BNB chain, because of the efficiency that the kind of collective masses brings to the ecosystem. And, you know, as I’m sure you’re well aware, any inefficiency will be very quickly arbed away. So it maintains a relatively high level of standard for, for all the players, you know, it’s either you’re competitive, or you’re bust. And we love that.
Host: There’s definitely a lot of competition on Arbitrum. I wanted to ask about Level finance 2.0. Recently, you guys released a proposal on that. So I want to ask, what is Level 2.0? And what can the community expect from that?
Level Finance: So when the project launched, towards the end of last year, the ecosystem was drastically different than where we are today. And I think, you know, while while Level was very successful, at gaining market share on bnb chain, over the last six months, I think, really, it wasn’t until we came to Arbitrum, that we realized that the product needs to evolve, and the product needs a very substantial upgrade, in order for it to stay competitive. Which is why we decided and we’ve actually already started building this level 2 concept, where the current level is going to pivot towards a more of a staking as a service, or market making as a service model.
You know, it goes a little bit off of what I alluded to earlier, which is those with eth or USDT or, or any of the assets that’s being traded on the platform, who wish to get a yield in a risk, isolated kind of way can choose to do that. And then Level 1.0 will actually be a market maker to Level 2.0, which is actually going to pivot towards an on chain order book system.
So, we’re in the process of doing that.
Obviously the big question is, you know, this is a very drastic change. Why are we doing this as opposed to launching a separate project with a separate token or, you know, or any other reason why we’re making such a drastic change? And the reason behind that is because we genuinely believe that the existing dual token system with LGO will serve as a primitive for future DeFi projects, including Level 2.0 to be built on top of where you can have digital assets operating at full reserve, meaning all the profits and fees generated from the operations of the protocol can be used to back a token which is also redeemable for the underlying, where you can build some really, really interesting and creative products on top of. That is why we are kind of making this pivot and building this entire Order Book system on top of the existing Level 1.0.
Host: Nice. And yeah, what does the roadmap look like for, you know, after Level 2.0? Because you mentioned that you could build some really cool products on top of it. So I’m curious, what are some things that you can see Level Finance building on top of that?
Level Finance: So, you know, off the top of my head, I think through this process of building Level, we come to realize the limitations of the AMM model and some of the inefficiencies. So we aim to solve that with Level 2.0, where the AMM kind of becomes a participant of the platform as opposed to the platform itself. And then we just create a marketplace where the platform is open to free market forces as opposed to executing solely on programmatic liquidity.
And then from that, you know, the values that are captured for providing the service are kind of collected or distributed amongst the liquidity providers, as well as the token holders. So this creates an ecosystem, where the users of the ecosystem are also the ultimate value owners of the platform itself.
So when we when we kind of just set up the scaffolding this way, where the users are positioned to be the owners of the platform, we can then kind of open it up, where people can actually build on top of our contracts, using our liquidity pool, to create their own front end, to create their own rules. To conduct services, and the value, rather, the fees that they are able to charge for the services can then be distributed in a predetermined kind of way. And we think that’s super, super interesting.
Host: Yeah, for sure. And, you know, do you think this might play a bigger role, in terms of the future of Defi? Is this something Level Finance could play a role in?
Level Finance: Yeah, absolutely. I mean, in many ways, I feel like we’re building a product for an audience that doesn’t even exist yet. And the reason why I say that is because in order for the platform to gain true adoption, and when I say true adoption, I mean, you know, mass adoption, similar to the type of adoptions, that centralized exchanges have have gotten over the past couple years, we really do need kind of like a perfect storm or synergy between people who do not wish to take counterparty risks, and would prefer to conduct their transactions in a permission-less sort of way.
But what we realized is that this cannot come at the sacrifice of the user experience. So, you know, if you have to sign five transactions just to place an order or amend an order or cancel an order, this is not a very humanly usable system, not to mention the fees that will even if you’re batching, transactions, the fees that will kind of come alongside this will be fairly prohibitive.
So what we aim to do with Level 2.0 is to build the best human experience possible from the perspective of somebody who may not have interacted or may not have had extensive experience interacting with Arbitrum or the blockchain as a whole, which is why we want it to be a blockchain agnostic liquidity marketplace. And the experience in terms of the end user experience should be as similar and as seamless to a, let’s just call it a non blockchain experience as possible. And that’s what we are aiming to accomplish.
Level Finance: Thank you, I mean, it’s gonna be iterative. And it’s gonna be very challenging. But I think with the new framework for Level 2.0, we should be able to solve, or rather abstract away a lot of these interactions and batch them in a way that’s much more user friendly. And also, we’re also kind of tinkering with creative solutions that may be coming into the market in the next six months or a year or so, in the form of trustless, bridging and trustless cross chain settlement. So, you know, ideally, maybe, you know, 18 months from now, you will be able to trade on Level, you know, say you buy bitcoin on Arbitrum. And then you will have physical bitcoins settled into your bitcoin wallet at the point of redemption, if you choose to take Bitcoin on Bitcoin. So that’s one of the features that hopefully, we should be able to offer in the next eight to 12 months. But, but a lot of this is contingent on our partners who are building some of these kind of these trustless cross chain products.
Host: Yeah, that’s really cool. No, it’s crazy how fast innovation happens in the space. Because, you know, within, say, a month or two, you have completely new different products out there in the defi ecosystem. But no, 18 months from now. It’s gonna feel like a year, but it’s definitely gonna go by quick. So we’re excited to see you guys achieve that.
Level Finance: Thank you, it’s gonna be challenging.
Host: Yeah, for sure. Can’t imagine. Yeah, Good thing is that we have good devs here. So we’re in good hands.
Level Finance: Yeah, but we’re looking for more. So to the extent that there are any devs out there, I would love to take that 30 to 60. Because we’re constantly building, and just the, the Security and Audit and Review process alone has taken hundreds of man hours.
Host: Yeah, you guys, uh, do you guys have a page, like a hiring page where people can apply?
Level Finance: I think we do. But let me double check on that. And circle back. I think most of the existing hiring has kind of been done on the reverse inquiry basis where somebody will reach out to us and we’ll talk to them. And it’s not the institutional because we’re on a bunch of timezones, right. So it’s not the kind of the institutional, you know, we have the HR reach out to you and then have a chat sort of thing.
Host: Cool, cool. Yeah. Do you guys have a discord? In case anybody has any questions about that? Or Level Finance?
Level Finance: Yeah, we do. It’s right on the website. drop us a note. Reach out to us. We’re always there.
Host: Cool. Yeah. Sounds good. But I know we’re short on time. So if I missed anything, feel free to mention it.
Level Finance: I think we roughly covered everything. I really do appreciate you guys for having us and really appreciate the good work you guys are doing. bringing the community together. I mean, Arbitrum that’s an awesome place. I can’t think of a better place to be.
Host: Thank you so much for coming on. We appreciate it. I’m sure the community learned a lot about what you guys are working on, and what you guys want to achieve in this space, and within the Arbitrum ecosystem, appreciate it.
Level Finance: Awesome. Thanks.