What is Locke?
Locke is a generalized platform that enables protocol-facilitated token distribution.
By platform, we mean a marketplace made up of numerous two-sided markets—each with a protocol or DAO on one side, and individual market participants on the other.
Locke implements streaming auctions, an efficient and equitable price discovery mechanism that can be viewed as a special case of a TWAMM.
How do streaming auctions work?
The basic structure of a streaming auction is as follows:
- Market participants can freely move their deposit tokens in and out of the auction pool.
- Just like in many DeFi incentive programs, each participant receives a pro-rata share of the reward tokens.
- Each deposit increases the current exchange rate. Each withdrawal decreases it.
- Pool deposits are locked linearly over time. Locked deposits may not be withdrawn.
- The average exchange rate each market participant receives depends on the timing of their deposits and withdrawals.
- Each participant receives the TWAP for the time they spend in the pool.
Why are streaming auctions better for users?
Avoid gas wars:
In capped pools and other first-come-first-served systems, gas wars are common. This privileges users with an infrastructure advantage and results in unnecessarily high transaction fees. Locke is designed to avoid this unhealthy dynamic.
Never commit funds without knowing the price:
Locke allows individuals to express their own unique price preferences. Depositors who no longer find the implied price or implied yield attractive can withdraw the remainder of their deposit at any time.
Avoid retroactive dilution:
Locke does not have retroactive dilution. For example, if there is only one depositor for the first half of the auction, that participant earns all of the tokens allocated to the pool for that first half, even if billions of dollars were to enter the pool in the second half of the auction. The price that the first user receives changes only on a go forward basis.
No need to time the market:
There is no disadvantage to being the first participant in a streaming auction. Unsophisticated users who participate in the auction are guaranteed to receive an average outcome.
Receive a guaranteed allocation:
Because streaming auctions have pro-rata distribution, anyone who wants to participate will have a chance to do so.
How are streaming auctions created?
The stream creator can use a factory contract to create an auction, specifying the following variables:
- stream start time
- stream duration
- the deposit and reward tokens to be used
- reward token lockup period (optional, enables vesting if desired)
- deposit token lockup period (optional, enables receipt token functionality)
- a merkle tree of whitelisted participants (optional)
How do Locke receipt tokens work?
In addition to being a great tool for discovering fair exchange rates, the streaming auction mechanism can be used to discover fair implied yields. This is done by issuing receipt tokens, which are redeemable for the underlying deposit token at maturity.
These receipt tokens can be viewed as zero coupon bonds and are powerful tools for composability. Users might choose to sell their receipt tokens, use them as collateral for loans, or provide liquidity to an AMM to earn trading fees.
What are some use cases for Locke?
- Fair distribution of NFT mintpasses
- Fixed duration liquidity mining programs
- Acquisition of protocol-controlled value
- DAO treasury diversification
- What else? Surprise us!
Can I help?
If you find Locke interesting or want to contribute, please shoot a message to @LockeProtocol on Twitter.