This review is a detailed look at the Fluidity Money protocol, a yield-generating blockchain implementation that rewards users for spending their cryptocurrencies. Specifically, the review focuses on what Fluidity is, why it matters, some of its features, and how it works. Additionally, there is a section on some of the protocol’s use cases and how you can start using it and take advantage of the innovative utility mining proposition.
About Fluidity Money
What is Fluidity?
The protocol aims to solve the increasingly glaring crypto problem of spending vs. holding. This challenge is growing as a result of the increasing popularity of open or decentralized finance (DeFi), which incentivizes users to lock their assets to earn passive returns.
With Fluidity, users are encouraged to spend their fluid assets by engaging in normal day-to-day transactions. However, unlike a ‘normal’ transaction that lacks a spending incentive, the protocol randomly rewards people for transacting using their fluid tokens.
Fluidity officially launched to the public on December 19th, 2022, on the popular Ethereum blockchain. This follows close to a year of thorough testing on Ethereum Ropsten and Solana Devnet testnets. The Solana mainnet launch is scheduled for future release as of publication time.
How Fluidity Money Works
Fluidity works by allowing users to swap their stablecoins for fluid assets. For instance, if you hold some USD Tether (USDT) tokens, you are allowed to swap them into wrapped Fluidity tokens representing the principal stablecoin, in this case, fUSDT.
The wrapped tokens expose their users to randomly paid rewards with every transaction, whether they are sent or received. However, the rewards are apportioned in an 80/20 ratio in favor of the sender.
Fluidity Money invests the stablecoin deposits in the crypto money markets through DeFi protocols such as Compound or Solend or other yield-generating strategies. Returns are collected in a reward pool from which the protocol rewards fluid asset users.
It is also worth noting that not all transactions are rewarded. The model works skin to a lottery and the more transactions one executes using their fluid assets, the higher their chances of getting the reward.
As a result, Fluidity has identified one obvious flaw in this design whereby rogue users could try to game the system by conducting cyclical transactions with multiple wallets they own. Referred to as a Sybil attack, this kind of activity is capable of killing a protocol’s appeal to potential users.
The solution? According to Fluidity, they offer something they call the ‘Optimistic Solution.’ The project whitepaper describes it as a system that uses gas fees to thwart such attempts at gaming the systems. In simple terms, Sybil attacks will pay more in gas fees than they will earn in rewards if they do end up being rewarded. You can read more about this solution and the mathematics that make it possible in the whitepaper.
Fluidity Money Use Cases
The Fluidity Money protocol aims to serve several blockchain-based applications while staying true to its vision. Some of the current use cases include:
Fluidity enables users to exchange or transfer value in several ways, but the main one is making various payments. For instance, shoppers can make purchases using fluid assets at significantly reduced costs.
The merchants, on the other hand, are incentivized to accept payments in fluid assets because they also get to share in the customer’s rewards by receiving a 20% cut. These rewards are also beneficial to businesses as they encourage spending as customers potentially earn higher rewards by making larger transfers.
Decentralized Exchanges (DEXs)
DEXs, especially the new ones, are often faced with the challenge of bootstrapping their pools’ liquidity or onboarding more users. Fluidity, with its incentive mechanism, offers the right solution enabling these platforms to gain users looking to earn yields by engaging with the new exchanges.
Even established DEXs can find the Fluidity proposition attractive in reducing their trading fees and increasing user engagement through gamifying the user experiences. Lower fees can attract more users or even ensure platform loyalty for those already onboard.
Fluid assets can be used as modes of payment in NFT marketplaces in the same way that stablecoins can. However, marketplace users are afforded the chance to earn life-changing rewards as they buy or sell their favorite jpegs.
Marketplaces are also incentivized to support fluid assets for a chance to share in the rewards of their users. Platforms that support fluid assets become attractive to NFT owners and prospective owners who are looking for a trading platform to swap their assets, and this increases engagement and revenue for these marketplaces.
It is worth noting that even transactions involving fractionalized NFTs stand a chance of earning the sender, receiver, and the platform a reward.
Metaverse and Gaming
More often than not, most blockchain-based metaverses will have a native token that is used as a means of value transfer within their respective ecosystems. However, Fluidity makes it possible to fluidify such native assets and introduce the aspect of rewards for transactions within these alternate digital universes.
Most play-to-earn (P2E) crypto games enable players to earn in two main ways: by participating in the gaming ecosystem as a player or buying your way to certain levels. It is also possible for non-players to acquire gaming tokens and other bespoke NFT items without playing.
Fluidity incentives can enable game designers to enhance their platforms’ appeal and encourage interactions as opposed to players hoarding items for speculative reasons. With more transactions, players raise their chances of earning extra rewards, while the platform benefits from increased engagements.
Decentralized Autonomous Organizations (DAOs)
DAOs are blockchain-based institutions that are run and managed in an open manner with community members tasked with their governance. No single entity is responsible for making critical decisions without engaging the community, and typically, the members with the most tokens have the biggest say.
This model suffers from one major flaw in that it encourages the hoarding of tokens by both users and speculative investors. Using fluid assets helps address this issue by ensuring that rewards are paid to those users who tend to interact the most with the platform and, by extension, are much more invested in its success.
FLUID Tokenomics and Utility
FLUID is the governance token used within the Fluidity Money ecosystem. It is important to differentiate it from the fluid assets, which are wrapped tokens representing deposited assets held in custody by the protocol.
The asset has a total supply of 1,000,000,000, all of which are scheduled to be in circulation for at least 4 years following the token generation event (TGE). Here’s a table showing the tokenomics as of the time of the protocol launch:
The first one is the community multisig, which is operated by members of an advisory team comprised of influential community members, i.e., with considerable FLUID holdings and active within the community;
The second multisig is named the emergency multisig and is operated by an emergency council derived from the initial advisory team that controls two of the available six keys. The other four keys control the community multisig.
The advisory team is tasked with protecting the protocol as well as the community.
How to use Fluidity Money
Here’s a simple process to start using Fluidity. We will describe how to swap your stablecoins for fluid assets. Once you hold the new tokens, you can then proceed to spend them as you normally would on supported merchants, exchanges, and marketplaces.
Before we begin, ensure that you have some stablecoins such as USDT, USDC, TUSD, DAI, or FRAX held in your favorite cryptocurrency wallet.
Step 1 – Visit the Fluidity Money Web app
Navigate to the Fluidity web app through the main website at https://fluidity.money/, then click on the [Launch Fluidity] button at the top right-hand side.
Alternatively, you can head straight to the web app address here: https://app.fluidity.money/.
Step 2 – Connect your crypto wallet to Fluidity
Click on the [Connect Wallet] button on the bottom left side of the Fluidity web app page, as shown here.
The app will prompt you to choose the wallet option to use.
In our case, we are using MetaMask, and therefore, we choose the first option labeled [Browser]. If you use any other wallet that is supported by the WalletConnect protocol, then choose the second option.
You will then be prompted to sign into your wallet and authorize the connection.
Once you do, you are ready to start using Fluidity Money.
Step 3 – Fluidify your assets
The final step is to convert your stablecoins to fluid assets or fluidify them. Click on the large [Fluidify Money] button found on the bottom right side of the page.
Alternatively, you can also click on the [Create Assets] link at the center of the page.
In the next screen, you will notice that the app will list all your available assets held within your connected wallet and the others that it supports. There is a column on fluid assets and regular assets.
Scroll to locate the asset you want to convert and click on it.
For instance, we have chosen to illustrate how to convert USDT to fUSDT. Specify how many USDT tokens you want to convert, then click the large [Create Fluid Asset] button.
The tokens will be deducted from your wallet, and the wrapped fluid assets will be deposited into it, ready for spending.
You can now start using your fluid tokens as you would the original deposit.
Is Fluidity Money Safe?
The Fluidity team has taken a multi-faceted approach when it comes to the security of the project. Earlier, we mentioned how the protocol prevents Sybil attacks or those attacks where a user spams the system with cyclical transactions with the aim of getting unmerited rewards.
To prevent this type of attack, Fluidity has implemented the Optimistic Solution whereby they leverage the use of gas and other fees to ensure that the cost of attacking the system is higher than the reward. Essentially making the attack economically unattractive.
When it comes to governance, Fluidity uses a vote-escrowed (ve) model originally used on the Curve DeFi protocol. In this model, holders of the FLUID governance token are incentivized to lock their tokens for longer periods to gain a more significant stake in governing it.
The longer someone opts to lock their FLUID tokens, the weightier their vote will be. This model ensures that entities with a more significant stake in the protocol have the most influence on its development and future.
Finally, Fluidity has undergone extensive audits from Hashlock, Verilog Solutions, and Bramah Systems. All audits were done on the smart contract publicly available on the GitHub platform.
Two of the auditors gave a few cautionary statements on the condition of the code but not a severe rating. Verilog identified three critical issues that were addressed before the project was launched to the public. Here’s a brief outline of how the project performed according to Verilog’s audit:
The rest of the issues identified above proved to have minimal to no adverse effects, but Fluidity core devs are constantly working to improve their code and better protect their users.
All of these audits were performed in 2022 before the project’s mainnet launch on Ethereum.
Fluidity Money Pros & Cons
- The protocol has a wide range of use cases, increasing its utility and value;
- Fluidity’s code is solid and secure according to three audits conducted by highly reputable security firms;
- The codebase can easily be audited by independent security analysts as it is available to the public;
- The project aims to launch on multiple blockchains, increasing blockchain interoperability;
- Users can earn while spending their assets;
- Fluidity offers a win-win proposition to businesses, customers, and itself by ensuring that both senders and receivers in a transaction benefit from the rewards.
- The protocol has not been extensively tested following its recent launch to the public, and therefore, it is too soon to gauge its robustness and security;
- As of publication time, Fluidity only supports transactions on the Ethereum blockchain.
Fluidity Money Customer Support
There are several avenues through which you can reach the Fluidity team or engage and interact with the community. These are:
Economic whitepaper: https://whitepapers.fluidity.money/fluidity-economics-wp-v0.8.pdf
Discord forum: https://discord.gg/w9DVhGDR
Email: http://[email protected]
Social Media Channels
Fluidity is a solid addition to enhance the overall blockchain experience. With the growing popularity of DeFi apps, there could be a potential liquidity crunch as more investors seek passive incomes by locking their tokens. Using fluid assets partially solves that issue by incentivizing people to spend rather than hold their crypto.
Its success remains to be seen given that it only recently launched to the public as of publication time. However, it is a decent proposal to the blockchain community with the potential to revolutionize not just payments but also how people interact with their blockchain assets.
Risk Disclosure and Disclaimer: The information provided in this review should not be regarded as investment advice. Cryptocurrency assets experience high market volatility, and therefore buying, selling, and trading them exposes you to significant financial risks.
Frequently Asked Questions on Fluidity Money
What is Fluidity Money?
Fluidity Money is a yield-generating blockchain protocol that rewards users for spending their cryptocurrencies in various ways, including making transactions, trading NFTs, and engaging on Metaverse platforms. The protocol launched on the Ethereum mainnet on December 2022.
What are Fluid Assets?
These are wrapped tokens created on the Fluidity Money protocol that represent other tokens on a 1:1 ratio. For instance, the fUSDT fluid asset is the wrapped version of the USDT stablecoin, and 1 fUSDT is equal to 1 USDT token.
What is the difference between Fluid Assets and FLUID tokens?
Fluid assets are derivative assets wrapped on the Fluidity Money protocol to represent lock deposits on a 1:1 ratio while the FLUID tokens are the native governance tokens on the Fluidity protocol.
Is Fluidity Money Safe?
Yes, according to audits conducted by three different blockchain security firms, the protocol’s code is sound, and some of the few critical vulnerabilities that were identified before the launch have been fixed.