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This week we dive deep into Fantom’s next-gen AMM protocol, what it attempts to solve and how it works. More on this week's DeFi Updates.

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 was formally created in 1972 by Qualidex Fund, a Florida-based corporation, with the main goal of closely tracking the performance of the 

 of 30 stocks. Ever since then, index funds have become one of the go-to investment methods for many investors to diversify their portfolio and hedge their risks. 

The main advantage an index fund provides is that investors do not need to spend much time analyzing their investments and portfolios, significantly saving a lot of time and money for the average investor. Despite that, index funds are typically managed by a team of traders or automated bots run by a firm. As these conventional solutions are centralized by nature, they both share some form of custodial risk.

, an open-source community-driven protocol, automated portfolio manager, liquidity provider, and trading platform built on the Ethereum network. Balancer enables investors to invest (in a permissionless manner) in rapidly rebalancing portfolios that generate yield from platform trading fees, all while having full custody over their assets. 

The protocol also provides decentralized and efficient trades through its Smart Order Router system to find trades at the best available price. Balancer also facilitates the creation of programmable liquidity pools where pool creators can customize token weights, swap fees and operate on any price curve, giving developers a full suite of customizable options. 

 to Ethereum’s mainnet in April 2020, the Balancer protocol has continued to pave the way forward for its peers as an innovative portfolio management platform. It has also since solidified its status as one of the leading DeFi primitives for programmable liquidity.

Built upon Balancer’s contributions to the DeFi space, 

 brings about the same innovations, and more, to the Fantom network. At its core, Beethoven X is a fork of the latest Balancer V2 deployed on Fantom, enabling users to take advantage of the network’s one second 

 and cheap sub-dollar transaction fees (during periods of non-congestion). 

Although Fantom gas prices have been on a steady uptrend from increased network activity, the network’s gas fees remain significantly cheaper as compared to Ethereum, with simple on-chain transactions costing as low as $0.006.

Just like Balancer, Beethoven X comes equipped with a full-fledged decentralized investment platform, liquidity provider and next-gen AMM architecture. The protocol supports the creation of unique crypto index funds with fully customizable asset allocations, efficient trading by crowdsourcing liquidity through token incentives, as well as a launchpad for new tokens with the use of Liquidity Bootstrap Pools. 

Adding to that, Beethoven X also adopts the latest 

 update, this includes many performance upgrades in terms of capital and gas efficiency, as well as powerful features such as weighted & stable pools.

, a feature carried over from Balancer V2, adds a twist to the ‘x*y=k’ model popularized by Uniswap as pool makers are able to create pools consisting of up to 8 different tokens, each assigned with a weight defining its share of the pool. 

This enables the community to essentially create auto-rebalancing index investment pools that can track a basket of crypto assets. As the pool’s tokens change in price, traders and arbitrageurs automatically rebalance the pool when making swaps through Beethoven X’s AMM. These swaps then generate fees given to pool investors or liquidity providers.

Other than weighted pools, Beethoven X also enables the creation of stable pools, something that was inspired by the StableSwap AMM popularized by Curve Finance. This ensures a more efficient design that will allow for larger trades and less slippage of assets that are expected to consistently trade in tandem with each other, preventing any significant price impact.

In addition to stable pools, Beethoven X is also the first protocol to bring Balancer’s 

 to Fantom, thereby highly disincentivizing bots, front-running and speculation from interfering with the token launches of other protocols. 

Without diving into the granular details of how LBP works, it essentially creates a weighted pool of two assets which readjusts itself to a predetermined weightage after a set period of time. This causes the token’s price during the liquidity generation event to automatically decrease, assuming there is no buy pressure. 

To summarize, LBP is a permissionless pool structure designed for token launches to be empowered with token price discovery, fair token launches, and capital efficiency (as pool creators do not need significant capital to bootstrap the pool).

 model, stakers of Beethoven X’s governance token, BEETS, are rewarded with 30% of the protocol’s revenue generated from all its pools. Beethoven X expands on this model by making sure staked BEETS holders provide liquidity to its Fidelio Duetto BEETS:FTM (80:20) pool. The protocol then tokenizes this liquidity position into fBEETS, a staked derivative of the liquidity provider’s position. fBEETS is then staked to earn protocol revenue, liquidity provider fees and farming rewards, as well as to participate in governance.

Inspired by the Curve Wars, Beethoven X recently implemented 

. The gauge vote mechanism enables fBEETS stakers to participate in 

 to determine where 30% of BEETS liquidity incentive token emissions is directed to. 

This unique interaction creates an interesting meta game theory where protocols give out 

 to voters who vote on their respective token liquidity pools to receive more liquidity mining incentives. From the perspective of the protocol, bribing whale voters to further incentivize their token’s pool with BEETS rewards is a great way of attracting liquidity to allow for more efficient trades in that specific pool.

As a result of this new metagame interaction, the 

 quickly ensued as more and more protocols started offering bribes to source for more fBEETS votes on their pools. These protocols included the likes of SpookySwap, Onering Finance, and Liquid Driver. 

Due to this “bribe war,” Beethoven X saw a significant increase in its TVL and protocol revenue as activity spiked. At its peak, the protocol garnered an all-time high of more than $400 million in TVL, 

 to become the second biggest DEX on Fantom at the time.

The Aftermath of Cronje and Nell’s Departure

As of the time of writing, and in the aftermath of 

 departure from the crypto and DeFi space as well as global market uncertainty, the Fantom ecosystem has fallen to local lows on the back of a mass exodus of liquidity and capital from the network. 

Fantom’s TVL has since fallen from a high of $12.05 billion to $6.5 billion, a -46% decrease in the span of two weeks. Currently, Beethoven X’s TVL is down to $262.47 million, while its governance token BEETS took a tumble from a local high of $1.35 to a low of $0.53, -60% down from its high. It is uncertain whether this downturn will continue or stabilize in the near term. 

 for the month of February, the team details that this has been the best month for the protocol so far, with both TVL and protocol fees generated at all-time highs. Judging from what the team has already delivered so far, it is safe to say that they will continue to build and innovate in spite of the market-wide risk-off conditions. Therefore, Beethoven X is definitely a protocol to keep an eye on.

Disclosure: Members of Bybit may be invested in some or all of the tokens and projects mentioned within the following article. This statement discloses any conflict of interest and is not a recommendation to purchase any token or participate in any of the mentioned ecosystems. This content is purely for educational purposes only, and should not in any way be construed as investment advice. Please exercise caution and practice your own due diligence if you are planning to partake in any of these projects in any way.