Dolomite is not only an innovative product in the derivatives track, but also a Web3 ecological project.
Since the rise of the DeFi industry in 2020, the development of the derivatives segment has been relatively slow compared to the spot trading market, lending market, etc. However, derivatives have always been one of the most important parts of the global financial market, providing investors with diversified income channels and hedging market risks. It has played an indispensable role, and its market size is often dozens of times that of the spot market.
Therefore, DeFi derivatives are considered to be one of the most promising markets in DeFi. If we combine this with various gameplays such as spot, leverage, lending, and liquidity mining, which also have huge imagination space, can we bring some innovative changes to the DeFi track?
In the DeFi world, maximizing capital efficiency and continuously expanding reproduction are the keys to building a successful ecosystem.
Dolomite, a money market protocol on Arbitrum, has proposed an innovative LP token reproduction gameplay, fully integrating the GMX LP token GLP, and is committed to providing users with higher returns and more functions.
Currently, Dolomite is performing strongly in the DeFi ecosystem.
According to the latest data, the weekly trading volume of the Dolomite platform reached 519.54 million US dollars, and the number of active users was 16,188.
The total supply value (Supply TVL) on the platform is $67.08 million, while the total borrowing value (Borrow TVL) is $26.05 million. In addition, the platform's weekly swap volume (Swap Volume) is $29.19 million and the total net flow (Total Netflow) is $12.95 million.
These data show that Dolomite is attracting more and more users and funds, and the platform transaction volume and number of users are showing a steady growth trend.
Today, we will take a detailed look at Dolomite and explore how it can unlock the value of LP tokens in the Arbitrum ecosystem and provide diversified DeFi solutions.
Focus on efficient capital utilization
As a DeFi protocol project in the on-chain derivatives track, its current core business is still based on the decentralized trading market of the Arbitrum network. With this as the center, it will gradually develop various businesses such as spot, leverage, lending and liquidity mining.
The concept of Dolomite was born out of the inadequacies of the early decentralized exchanges (DEX) and centralized exchanges (CEX) experienced by its founding team. They realized that existing platforms had problems such as insufficient security, poor user experience, and low capital efficiency.
To this end, Dolomite has designed a new system that solves these industry pain points through smart contracts and advanced technical architecture.
First, Dolomite’s virtual liquidity model allows users to trade without actually transferring assets, which greatly improves capital utilization.
Users can use liquidity tokens (such as GLP) as collateral to conduct multiple cycles of lending and borrowing, thereby amplifying their returns. This mechanism not only reduces the transaction fee for each transaction, but also improves overall capital efficiency.
Secondly, Dolomite adopts an innovative lending and trading model. Users can conduct leveraged transactions on the platform to achieve higher returns. For example, users can borrow USDC to buy ETH, and when the price of ETH rises, sell ETH and repay USDC to obtain the difference. Conversely, users can also borrow ETH for short selling and make a profit when the price of ETH falls.
In addition, Dolomite is actively deploying the Pendle ecosystem. As the first lending protocol to support the Pendle ecosystem, Dolomite is able to use assets such as PT-GLP as collateral for lending and trading. This integration makes Dolomite stand out in the highly competitive DeFi market and attract a large number of users and funds.
Key financial agreements
Dolomite's core operating model is based on its advanced technical framework and flexible financial tools. It can provide a variety of financial services and functions, and no longer requires the intermediary participation of traditional financial institutions. The Dolomite protocol is based on a programming language and can automatically execute specific logic and rules, making it a core component of the DeFi ecosystem.
The Dolomite smart contract system is written in Solidity and deployed on Arbitrum's second-layer network. This architecture ensures efficient and transparent transactions while reducing network congestion and high gas fees. At the same time, through modular design, Dolomite can flexibly add or remove functional modules to meet the needs of different users. For example, users can start interacting with the system by depositing supported cryptocurrencies such as ETH or DAI, and all transactions are processed through smart contracts to ensure security and transparency.
In terms of transactions, Dolomite provides two main methods: internal transfers and transactions with external protocols. Internal transfers do not change the total balance of the platform, while transactions with external protocols do change the total balance.
In addition, Dolomite supports a variety of complex financial operations, such as flash loans, liquidations, and virtualization operations. These features enable Dolomite to provide more flexible and efficient capital management solutions. Through virtualization, Dolomite is able to achieve autonomous management of external rewards and voting rights, and allow users to continue to use their assets without affecting the original functions. Users can provide liquidity on Dolomite while earning swap fees and lending income. This design not only improves capital efficiency, but also provides users with more sources of income.
Security incident challenges
On March 21, 2024, Dolomite Exchange’s old contract suffered a major security incident, with a total of approximately $1.8 million in assets stolen. This incident revealed the vulnerability of DeFi platforms in the face of smart contract vulnerabilities and security risks.
At the time, Dolomite's old product was deployed on the Ethereum mainnet in 2019 and deactivated in 2020. However, some users still retained authorization for the old system, allowing hackers to use these outdated authorizations to steal assets from user wallets. The hacker used a complex transaction sequence containing multiple invalid orders and two valid orders, and successfully bypassed multiple layers of verification and stole users' funds through the defensive programming style and gas optimization strategy of the Loopring protocol.
After the incident, the Dolomite team took immediate action to disable the vulnerable smart contract and suspend the operation of the old system. Despite this, approximately 1.245 million USDC, 94,423 DAI, and 165.9 WETH were stolen, totaling $1.8 million. Dolomite quickly launched a tracking and recovery operation and took control of the situation in less than an hour. By March 24, Dolomite had successfully recovered 90% of the stolen assets and decided to use company funds to compensate for the remaining 10% of the losses. Dolomite also offered a reward of $180,000 for information about the attacker or the recovery of the remaining assets.
Although the Dolomite team took prompt and effective measures, the incident still raised widespread concerns about the security of decentralized financial platforms. Dolomite's response demonstrated the professionalism and resilience of its team, but also reminded other players in the industry that even the most advanced technical architectures may have security risks.
summary
Dolomite has redefined lending and trading in the decentralized financial sector through its innovative technology and flexible operating model. It not only solves the pain points of traditional DEX and CEX, but also provides users with more efficient capital utilization and more diversified financial tools.
As the DeFi ecosystem continues to develop, Dolomite is expected to become an important part of it, bringing more benefits and opportunities to users. But can Dolomite continue to maintain its competitive advantage in the evolving DeFi ecosystem while effectively responding to potential security threats? All this remains to be tested by time.
