Block by Block: Kurt Grumelart of Elektrik Network

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Happy Sunday. Welcome to another issue of Block by Block, a series where we highlight conversations with founders and operators. The idea is to ask thoughtful questions for projects that want to achieve more media exposure.

In today’s issue, we have Kurt Grumelart from Elektrik — the premier DEX on Lightlink.

Initially, Elektrik started as a simple Uniswap v3 fork to launch on the platform quickly to gain a first-mover advantage. They quickly realized the significant implications of having gasless contract calls in DeFi, particularly on a DEX, especially when considering onboarding the next billion users.

To learn more about Elektrik and its products, check out my conversation with Kurt, Founder of Elektrik.

-Marco

Disclosures

1. Today’s issue is sponsored by Elektrik.

2. None of this is investment advice.

3. The Founders of Launchy hold no exposure in Elektrik.

Kurt Grumelart of Elektrik Network

Kurt Grumelart is the Co-Founder and CEO of Elektrik Network, a cutting-edge decentralized exchange (DEX) protocol integrated with the Lightlink Network that enables direct peer-to-peer trading without intermediaries or centralized market makers.

Kurt began his career at Zerocap, a digital asset-focused capital market firm. There, he started as a Research Analyst and was a Special Project Lead for the last two years. 

Currently, he serves as the Strategy Director of Kaskade Finance and the LightLink Foundation Lead, responsible for establishing and overseeing the Foundation's early growth. In this role, he develops and structures core materials related to corporate structure, purpose, strategy, and program development and ensures sustainable funding for the network's public goods and value-driving sectors.

Here’s my conversation with Kurt Grumelart.

Quick takeaways:

• Kurt's defining moment in crypto came when he researched and wrote a report about Bitcoin as digital gold. This deepened his understanding of the issues with fiat currency and Bitcoin's potential as a solution, solidifying his desire to work in the crypto industry.

• Elektrik is a decentralized exchange (DEX) on Lightlink, offering gasless contract calls. It started as a Uniswap v3 fork to quickly establish a presence and includes advanced order types, automated liquidity provider (LP) management strategies, and a community-centric token and vote-escrow system.

• Elektrik was built on LightLink due to its innovative gas fee structure, close relationship with the founding team, and potential to onboard the next billion users by bridging Web2 and Web3. LightLink’s zero gas fees and low latency enhance user experience and facilitate complex trading functionalities.

• Elektrik offers significant incentives for liquidity providers, including earning ELTK tokens through a vote-escrow system, which enhances yields. Active liquidity management strategies and zero gas fees are major features. An audit by Zokyo is in progress to ensure security and transparency.

• The ELTK token serves as the DeFi gas asset on LightLink and plays a central role in the vote-escrow system. Holders can lock tokens for voting power, influencing emissions to liquidity pools, and earning protocol fees from swaps. This mechanism creates a positive feedback loop, encouraging liquidity provision and platform growth.

What was the defining moment that drew you into the world of crypto?

Kurt's crypto journey is different from most. Like many, he was exposed to the ICO boom while still in school. During that time, many of his peers were investing their part-time job earnings, making a few thousand dollars here and there. It was an exciting period, but over time, the hype faded, and Kurt lost touch with the industry.

Afterward, Kurt worked in logistics back in Australia, where he's from. He found himself on a research team focused on blockchain implementations for supply chain management. Despite sounding mundane, this experience piqued his interest and gave him a better understanding of the underlying technology. This period coincided with the hype leading up to the 2020 Bitcoin halving, which reignited his interest in crypto.

Kurt began looking for more crypto-centric jobs and landed an opportunity with a small startup focused on OTC in the crypto space. He joined them as a research analyst while still studying. At this point, he was still determining if crypto was where he wanted to spend his career, but it was an interesting field and a part-time job that paid the bills while allowing him to do something cool.

The defining moment: Kurt worked on a report about Bitcoin as a digital gold in his first few weeks at the startup. The research for this report gave him deeper insights into the rise of the US dollar, the problems with fiat currency, and how Bitcoin emerged as a potential solution. By the time he finished the report, Kurt was convinced that the crypto industry was where he wanted to be. He felt a strong desire to increase the prominence of crypto through his work, marking a defining moment in his career.

What is Elektrik?

Elektrik is the premier DEX on Lightlink. The idea came about because Kurt and his co-founder wrote the white paper for Lightlink and are closely connected with the core team there. They quickly realized the significant implications of having gasless contract calls in DeFi, particularly on a DEX, especially when considering onboarding the next billion users.

Initially, Elektrik started as a simple Uniswap v3 fork to launch on the platform quickly to gain a first-mover advantage. This strategic move allowed Elektrik to focus on its core mission: providing a centralized trading-like experience on a decentralized exchange.

Elektrik has implemented advanced order types typically available only to centralized exchange users or institutional users with specialized terminals. These include limit orders, take profit, stop losses, and TWAPs (time-weighted average price orders). Soon, Elektrik will also introduce iceberg orders.

On the liquidity provider side, Elektrik's roadmap emphasizes providing variability in what LPs can do. This includes automated LP management strategies, which are feasible on Lightlink due to its low gas costs. High fees, particularly for on-chain rebalancing, are a significant barrier to yield-based strategies on other networks.

Arguably, Elektrik's most important aspect, especially in relation to the network it is built on, is its token and vote-escrow system. This system allows other ecosystem partners and protocols deploying on the network to bootstrap their token economies. Elektrik is committed to this community-centric ethos, pushing 100% of the fees back to token holders. Ultimately, Elektrik's utility token drives value to the exchange and its users.

Can you elaborate on why you chose to build on top of LightLink?

Kurt and Nathan, the Elektrik co-founders, were working at Zerocap in Australia when they were asked to consult LightLink on a launch strategy. This included drafting the white paper and tokenomic structure. During this process, they developed a strong relationship with the founding team. They realized the significant opportunity LightLink presented, particularly with their mission to onboard the next billion users by bridging Web2 and Web3.

LightLink's strategy to support traditional businesses leveraging blockchain to expand their operations or increase efficiency is innovative and crucial. The business model that emerged from this strategy is incredibly valuable in DeFi and other areas. Instead of users paying gas fees per transaction, contract deployers or a nominated third party can cover gas costs monthly or fixed fees. For example, a large Web2 company might pay a fixed monthly fee to ensure users don't incur any costs, providing a seamless experience.

This approach significantly enhances user experience. On LightLink, users can receive airdropped Elektrik tokens and immediately put them to work in the Elektrik token economy without buying ETH and bridging it to fund gas costs. The zero gas cost feature is particularly appealing, making the user experience smooth and rewarding.

From a technical perspective, LightLink's zero gas fees and low latency, combined with its status as an Ethereum Layer 2 solution, allow for functionalities like TWAPs and iceberg orders, which require constant order filling. These features wouldn't be feasible on other networks.

From a business standpoint, LightLink was an obvious choice for Elektrik due to its first-mover advantage. Their relationship with the LightLink team provided significant support, including investment from the foundation, nomination as the premier exchange, and introductions to ecosystem partners launching tokens. The opportunity to be part of the core infrastructure on LightLink was too significant to pass up.

Can you elaborate on the benefits and features available to liquidity providers (LPs) on your platform, including incentive programs and security measures like audits?

Elektrik is currently undergoing an audit from Zokyo, with results expected to be live in time for Elektrik's vote escrow system launch on the 14th of June. Elektrik will keep the community updated on this. Regarding features for liquidity providers (LPs), one key feature is the ability for LPs to stake their tokens and earn ELTK through Elektrik's vote-escrow system. This system allows vote-escrow ELTK holders to vote on emissions weekly, benefiting those who stake their LP positions by enhancing their yields. LPs not only earn pool fees but also emissions, which significantly boosts their Annual Percentage Rate (APR) and provides greater incentives to remain in the pool or with Elektrik overall.

Additionally, a distinctive aspect of Elektrik is its Active Liquidity Management strategies. While similar strategies are implemented on other networks, the effectiveness is marginal. Many significant LPs typically develop and run their strategies rather than using available ones. Elektrik has also focused on the impact of zero gas fees for LPs, a significant factor that enhances their experience. The team expects to release this feature in Q3 2024.

Elektrik is not trying to reinvent the exchange model but rather enhance yield and provide strategies that optimize the use of concentrated liquidity in a V3 pool. Elektrik's North Star goal for LPs is to encourage users to create and contribute strategies to the marketplace, offering them a share in the revenue generated from others adopting these strategies, akin to how vaults operate. This approach fosters a more collaborative community and helps users maximize their earnings.

Can you elaborate on Elektrik’s LBP plan and explain the rationale behind choosing to do an LBP?

The $ELTK LBP will take place from May 27th to May 30th, curated by @CryptoGrills, who has previously worked on Lightlink’s successful LBP and several other notable projects. Elektrik chose Fjord for this launch due to the exceptional community support for projects on their platform and the positive experiences shared by Lightlink.

For the LBP, only 4.44% of the ELTK supply will be made available, with an initial liquidity of $50,000. This strategic decision ensures a focused and impactful launch.

The choice to implement an LBP was driven by the desire to leverage this supportive community and the benefits of the launchpad model, which aligns with Elektrik's goals for community engagement and project success. Moreover, Elektrik observed that many new projects are moving towards this model. Unlike traditional IDOs or launchpads with fixed valuations, LBPs offer a more community-centric approach.

By using an LBP, Elektrik can accurately measure demand without being manipulative or setting fixed prices. This method allows the community to determine the project's valuation, aligning with our goal of distributing as much supply as possible to early participants. This approach ensures that the community can actively participate and benefit from the project's growth.

What is the utility of ELTK Token?

The utility of the ELTK token lies at the heart of Elektrik's strategy to bootstrap the exchange and, ultimately, the LightLink network. The token serves as the DeFi gas asset on LightLink and is designed to facilitate various network activities.

As Kurt explained, Elektrik will launch its vote escrow system on June 14th. ELTK token holders can lock up their tokens for a chosen period, gaining proportional voting power based on the duration of their lock-up. This voting power allows them to vote weekly on the allocation of emissions to different liquidity pools. Liquidity providers, in turn, earn emissions by staking their positions.

Additionally, ELTK holders who participate in voting will earn protocol fees, which amount to 10 basis points on swaps. As the exchange scales, these fees can become quite lucrative. This mechanism creates a positive feedback loop: ELTK holders are incentivized to lock up their tokens and vote on pools, directing emissions where their LP positions are. This encourages liquidity provision, stabilizes prices, reduces slippage, and attracts more traders. As a result, the total value locked (TVL) on the platform increases, boosting trade fees and benefiting ELTK holders.

In the future, the scope of user voting will expand beyond emissions to include feature implementations, budget decisions, and the use of ecosystem funds. However, Elektrik plans to ship several key features before involving the community in these decisions.

For those unfamiliar with vote-escrow tokenomics, it's not just about bootstrapping the platform that issues the token, but also about supporting third-party protocols.

One of the biggest challenges smaller protocols face, especially when launching a new token, is bootstrapping liquidity and generating volume or attention to support healthy price action. This is typically achieved through incentives, but without the right systems in place, it can lead to a highly inflationary supply and currency devaluation.

For example, if a new product is launched on LightLink and lacks significant funding, they can bid for Elektrik tokens or receive a grant from Elektrik. By locking up these tokens, they can direct emissions towards their pool to bootstrap it. This strategy can significantly enhance their treasury. Holding ELTK tokens in their treasury and being one of the biggest LPs in the pool allows them to earn Elektrik protocol fees and attract more attention to their LP.

In essence, this is a lucrative treasury strategy. They earn yield, swap fees, and LP fees on their pool and receive emissions. This is similar to what we have seen with Convex and Curve. Protocols can support their own pools, sustain their token, and keep their community engaged in trading their token.

Do you have any plans to expand to other L2s?

Kurt has observed that many DEXs rush to go multi-chain to diversify risk. However, unless they have rich components like SushiSwap, this often leads to equity fragmentation, creating more problems than benefits. While it might increase the DEX's relative market share, it doesn't necessarily help the ecosystem as a whole. 

If the opportunity arises for Elektrik to be an early adopter of a network, Elektrik would consider launching on alternatives. However, the primary issue, especially for a vote-escrow token like ELTK, is its effectiveness within the Elektrik token economy on LightLink. Fragmenting the supply across networks can lead to ghost protocols with minimal activity on some DEXs.

If Elektrik decides to go multi-chain, it would likely involve rebranding the platform, issuing new tokens, and acting as a white label for Elektrik. Elektrik would still earn fees, similar to a SaaS model, and ELTK holders would receive a significant portion of the new token supply. While this is a consideration, Elektrik's current focus is on shipping the planned features for the LightLink network.

What are your thoughts on the current consumer landscape of crypto?

Kurt believes that his interest in DeFi and traditional finance might introduce some bias, but he sees significant progress in the financial sector. For instance, a recent bill passed in Congress highlights the advancements in smart contracts and legislation supporting financial value settlement. While it also addresses other crucial aspects like defining decentralized protocols, the key takeaway is that finance is on track. Despite resistance from incumbents who fear disruption to their business models, the finance industry is beginning to understand and integrate these innovations.

On the consumer side, the importance of payments becomes evident in countries with poor banking systems. Although adoption is not yet widespread, there is a significant amount of financial value transacted through service providers charging exorbitant fees for international transfers. This underscores the need for better solutions. Notably, large commodity deals are being settled using Tether daily, indicating promising adoption that often goes unnoticed.

Kurt also mentions exciting developments in the consumer app space. For example, a friend is building infrastructure for a super app similar to WeChat, which could revolutionize the user experience. Such an app would enable users to lend money to friends via chat, play games with wallet funds, and use location-based services to connect with others. These innovations, powered by blockchain, have the potential to significantly enhance the consumer landscape.

Lastly, Kurt highlights the crucial role of blockchain in AI authenticity. With the rise of AI, validating authenticity becomes paramount, and blockchain offers the best solution for distinguishing facts from fabricated information.

Any closing thoughts for our readers?

Rapid Fire Questions

1. What's one piece of content every aspiring investment professional should read/watch?

   • Bitcoin whitepaper.

2. What’s your biggest investment mistake?

   • Not respecting leverage.

3. What’s the most underrated use case of crypto?

   • Payments.

4. What’s your most contrarian view in crypto right now?

   • Arbitrum or another prominent L2 will spin out of Ethereum (In this cycle)

5. What’s the biggest risk that the crypto space is facing?

   • People are still very insular, focusing on what the core crypto community wants rather than recognizing the need to appeal to the masses.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.