# The Pearl Flywheel
The Pearl flywheel is a unique model in the DeFi world that uses pushes the Solidly boundaries by enhancing the virtuous relation between liquidity providers and voters. Let's take a deep dive into this model to fully understand how to benefit from it.
## The Solidly model
Initially created by Andre Cronje, Solidly is a **D**ecentralized **Ex**change on the Fantom blockchain. Its codebase has been forked and improved multiple times, and the best performing platforms nowadays are usually variations of it:
* Aerodrome on Base and Velodrom on Optimism
* Thena on BNB chain
* Equalizer on Fantom and Base
* and obviously Pearl on Polygon and re.al
Solidly is primarily aiming at reducing mercenary liquidity that is destroying the value of reward tokens of DEXes like Curve or SushiSwap. In fact, most liquidity providers were providing liquidity to earn swap fees as well as the platform reward token. But because the reward token has little to no use case, it is generally sold, which reduces the reward, lowering the attractiveness of the platform until the liquidity provider decide to move their tokens to another platform offering better rewards. Another issue is that platform with competitive (low) swap fees usually end up performing most transactions going through aggregators, but will earn (and distribute) less fees to liquidity providers.
Solidly on the other hand proposes a 2-tier reward models
* Liquidity Providers earn the DEX native token as a reward for providing liquidity
* Swap fees are directed to users who lock the platform's token and vote to direct emissions to certain pools. Swap fees, used as "bribes", are usually complemented with extra rewards that protocols pay to get more emissions for their pools
This system is done to give the best use case possible to the platform's token. Applied to Pearl, this means that
* If one pool has a high APR, liquidity providers will deposit their liquidity to earn a lot of $PEARL, increasing the TVL
* These liquidity providers may sell their $PEARL rewards, lowering the price of the token
* Voters can buy the $PEARL token on the market and lock them into a locker, granting them voting power, effectively driving the demand and price for $PEARL up, and the pool rewards
* If there's enough bribes for the pool (swap fees that increase with the pool TVL, or manual bribes), voters will vote to emit more $PEARL to the pool so they can earn the incentives
* With better votes, the pool will get more $PEARL emissions (relative to other pools), which will increase the pool rewards as well as the attractiveness
{% hint style="info" %}
Basically, the more TVL in a pool, the more swap fees, which gives better voting rewards, increasing the demand and price of the native token, which gives better APR on the pool, which increases the TVL.
{% endhint %}
{% hint style="success" %}
Obviously, liquidity providers have all the right reason to lock their $PEARL rewards and vote on the pool they participate in. This not only guarantees they will still get emissions, but they also earn voting rewards.
{% endhint %}
## The Pearl uniqueness
### Concentrated Liquidity and Trident ALM
In its original form, Solidly proposed UniV2 pools where the exact same value was deposited for both tokens. The entire price range was covered, but this model is pretty inefficient for traders, and generates a lot of impermanent losses for liquidity providers.
{% hint style="info" %}
Impermanent Loss (or IL) happens when the value of your allocated assets changes from the time you allocated them. This loss is termed 'impermanent' because it can be mitigated if the token price returns to its original value. [Best explainer here](https://www.youtube.com/watch?v=8XJ1MSTEuU0).
{% endhint %}
With concentrated liquidity and UniV3 model, DEXes became a lot more efficient at trading one token for another. The introduction of additional fee-tier for the different pairs also helped early adopters to operate the majority of the trades happening on the exchange, driving swap fees up. Finally, and because most of the liquidity is concentrated on a specific range, there's a lot less impermanent losses for liquidity providers. Pearl is using a concentrated liquidity model. If you want to learn more about UniV3, [this video](https://www.youtube.com/watch?v=Ehm-OYBmlPM) is recommended.
And to simplify the management of the concentrated liquidity, and automate the range adjustment, Pearl offers natively a **A**utomated **L**iquidity **M**anager called Trident. The ALM is taking care of the balance of the liquidity in the pool by making sure that if one token is getting too close to one of the bound of the liquidity range, the pool get re-balanced and the range is adjusted accordingly. This is pretty useful as liquidity providers don't have to actively monitor their liquidity to continue earning $PEARL rewards. They only have to deposit their tokens in the pool and stake their position in the Trident manager, a pretty "set and forget" operation.
### Auto-bribes module
Pearl also has an auto-bribe feature. [The skimming engine](/re.al-community/pearl/the-auto-bribe-engine.md) can harvest the rebases of the various tokens used in liquidity pools to increase the dollar value of the bribes. This way, protocols don't really have to add incentives to make sure their tokens continues trading and earning $PEARL rewards to liquidity providers.
Big bribe amounts also help keeping the demand for locked $PEARL up, making sure the price of the token doesn't go down too much.
### USTB bribes
Another nice feature from Pearl is that all bribes are paid in USTB, a rebasing stablecoin. To make it simple, USTB is
* a wrapper around USDM
* earning 5% APY, mostly from short terms U.S. T-Bills
* rebasing daily
* pegged to the U.S. dollar
This is particularly nice as it ensures that bribes always have a strong and reliable value. It also generates a few transactions and swap fees when the rebases are converted to USTB on a daily basis.
### High inflation protection
The $PEARL token is inflationary, as for any other DEX reward. However, every week, voters will receive additional $PEARL to add to their $vePEARL (**v**oting **e**scrowed PEARL) locker to compensate for the inflation. This means that a small amount of the newly emitted $PEARL will go directly to people who locked their $PEARL, making sure that their locked tokens don't get diluted as more tokens are emitted. The inflation protection, when implemented on other DEXes, usually sits around 10% APR, but Pearl decided to allocate enough tokens to ensure a 70% APR paid as inflation protection.
## The flywheel
When you combine the advantages of Solidly and the benefits of the Pearl unique features, you get a virtuous cycle where
* High liquidity in rebase tokens in a pool generates bribes via the skimming engine
* Bribes ensure that the voting APR remains high, driving demand for $PEARL and increasing the price of the token
* High price for $PEARL and votes directed to most bribed pool make sure that the APR on the liquidity pool remains high
* High rewards on liquidity pools increase attractiveness and liquidity in the pool
## Disclaimer
This page is only showing how the Pearl DEX operates, and what are the mechanism in place to prevent a "death spiral" that happens when there are more people are selling their DEX tokens than voters buying them. It is not a recommendation to invest in the $PEARL token, this is entirely up to you.
Also, as the infographic of the flywheel (from [the official Pearl docs](https://docs.pearl.exchange/)) is showing, the flywheel assumes that users get access to the $PEARL tokens from emissions, and not from the market. Locking rewards is also removing tokens from the circulating supply, which helps maintaining a price that stimulate the flywheel. In any case, this is no financial advice, and please do your own research on the subject if you want to participate on Pearl.
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