Next chapter in the Qi Wars - The Polygon Alliance

The Polygon Alliance has been formed, and it is prepared for its upcoming battles in the Qi-Wars that have been heating up. The alliance has been formed with 5 polygon native protocols working together to bring TVL back to Polygon and earn revenue for their respective protocols by doing so. While the alliance has started with 5 genesis members (Sphere Finance, Vesq, OtterClam, Universe Finance, and Tetu), we await the arrival of new soldiers!  

To understand the significance of this alliance, we must first look at the war’s origins.

The Arms Race: Chapter 0 

Following QIP047, the Qi Wars officially began, as vaults on all chains that QiDao supports were eligible for Qi incentives. A total of 0.65 Qi per block, equivalent to around 180k Qi per week, are distributed to vaults as incentives determined by bi-weekly gauge weights voted upon by eQi holders (escrowed Qi). However, since the introduction of Qi vault incentives, there has been an exodus of rewards away from Polygon onto other chains, causing the TVL to fall as well, as individuals were moving their funds to the most incentivized vaults on other chains. However, since QiDao is a Polygon native protocol and a thriving part of the ecosystem, we knew something had to be done to promote the vaults on Polygon to bring the TVL back to the moon. 

The Tetu Pushback: Chapter 1

Back in December 2021, Tetu created the “AMB” (AAVE-MAI-Balancer) strategy, which interconnected all three protocols for the best single sided yield farming technique possible, earning rewards in AAVE, QiDao, and Balancer. Users could deposit MATIC, WBTC, WETH, or AAVE and Tetu would automatically supply the tokens to AAVE for amTokens, which were deposited on QiDao for camTokens, which then could be used as collateral in QiDao vaults, allowing for MAI to be borrowed and deposited in the Balancer stability pool. 

However, the Qi Wars battle over rewards emissions caused rewards to move out of 3 of the 4 AMB vaults. Tetu began their charge to bring back rewards to their vaults by creatively making a liquid form of eQi called tetuQi. Not only did eQi holders benefit from the newly found freedom by staking the illiquid eQi for the liquid tetuQi, but they are also still able to earn weekly rewards and boosts. This synergistic relationship also benefited Tetu, as they were able to accumulate eQi, allowing them to have greater control over the gauge weights. The tetuQi strategy enabled vault rewards to come back to the AMB vaults, and showed the first steps for returning QiDao dominance to Polygon. 

The Polygon Alliance: Chapter 2

Players in space saw the efforts Tetu made to gain control of Qi. Several other protocols like, Sphere Finance, Otterclam, Universe Finance & Vesq saw Tetu developing a promising war strategy by creating a liquid market out of an illiquid market, and have joined forces to increase the Qi rewards of Polygon vaults.

As soon as the Alliance was formed, more protocols got to see the potential benefits of bringing rewards and TVL back to polygon. To join the alliance individual members must contribute Qi that is staked for tetuQi. Similar to the AMB strategy, Tetu creates specific vaults for the asset that each individual protocol wishes to accumulate. For example, if OtterClam wishes to accumulate dQuick, Tetu would create a dQuick vault on their protocol for single sided staking, and using the alliance’s combined eQi voting power, Qi rewards would be directed towards these specific vaults. As time passes, the influence of the Polygon alliance within QiDAO will continuously increase, allowing for a greater share of rewards to be directed to Polygon vaults.  

The Battles: Chapter 3-?

The Qi Wars have become even hotter now that other protocols have realized the massive upside potential of providing a liquid form of eQi. Gotchivault followed Tetu’s lead and similarly created their own form of liquid eQi, vQi, to divert more rewards to the vGHST vault on Polygon. Additionally, StakeDao is planning to enter the wars soon with their own form of liquid eQi, sdQi. StakeDao will likely vote for their sdam3CRV pool on Polygon, but with over a quarter of their TVL being on Avalanche, it can be presumed that they will heavily incentivize vaults on Avalanche. StakDao’s entrance into the battles could turn the Qi Wars into a three horse race for Avalanche, Polygon and Fantom. While the Polygon Alliance has the first mover advantage here, they must be prepared to compete against protocols that provide a form of liquid eQi, for the main goal of driving Qi rewards to vaults on chains other than Polygon. Big players may look to use the alliance’s strategy for a chance to carve out their own piece of the rewards at stake. With ammunition being loaded currently, it will be exciting to see how the Qi Wars unfold. 

Author is a Decentralized Finance (DeFi) intern at Polygon, highly interested in accelerating the adoption of DeFi and NFTs in a sustainable manner. Also, currently studying finance and business analytics at Boston College - Carroll School of Management, while being actively involved in the BC Blockchain Club. Can be reached on twitter @offdeblockchain