Fluid - What is the origin of the second largest DEX volume on the ETH mainnet?

Why follow Fluid

On February 15, 2025, the Ethereum ecosystem witnessed a landmark event - the decentralized exchange Fluid, with a 20% market share, became the second largest DEX in terms of trading volume on the Ethereum mainnet, with its total value locked (TVL) surpassing 9.2 billion US dollars. This achievement not only surpassed traditional protocols like Curve, but also redefined the capital efficiency of decentralized exchanges. The success of Fluid lies in its innovation in integrating lending and trading depth, converting every $1 of TVL into $39 of effective liquidity through ‘smart debt’ and ‘smart collateral’ mechanisms, breaking through the bottleneck of traditional DEX capital efficiency, and ushering in a new era of ‘super applications’ in the DeFi field. This article will delve into Fluid’s technological innovation, economic model, and the profound impact it may have on the entire industry.

What is Fluid

Fluid is an innovative DeFi super app developed by the Instadapp team, aiming to integrate lending protocols, decentralized exchanges (DEX), and liquidity pools to improve the overall operational efficiency of the system through a unified capital pool. Fluid adopts a new architecture that breaks down the barriers between traditional DeFi protocols, promoting deep integration of the core modules of lending, trading, and liquidity. Its architecture includes the following three core components:

Liquidity Layer: As the underlying infrastructure of Fluid, the liquidity layer aggregates liquidity pools from multiple protocols (such as lending pools and DEX trading pairs), effectively avoiding the issue of fragmented market liquidity. Its design philosophy is similar to the “Unified Liquidity Layer” proposed by Aave v4, aiming to improve overall capital efficiency through cross-protocol liquidity aggregation and avoid unnecessary capital waste.

Loan Agreement: Fluid’s lending agreement supports the ERC4626 standard. Users can borrow stablecoins by collateralizing a single asset (such as ETH), and the system ensures that the collateral will not be re-collateralized (i.e., avoiding rehypothecation), effectively reducing potential systemic risks. This design ensures transparency and security for user lending, as well as making liquidity providers’ returns more predictable.

DEX Protocol: Unlike traditional DEX, Fluid integrates lending and trading depth, allowing users’ borrowed debts to automatically convert into DEX liquidity. For example, after users borrow stablecoins (such as USDC or USDT), this debt will automatically adjust according to market demand, and users can also earn trading fee income during this process, thus realizing a new business model of ‘debt industrialization’.

As of February 9, 2025, the total value locked (TVL) of the Fluid Protocol has reached $9.2058 billion, while the market capitalization (Mcap) is $2.6523 billion. During this period, the trading volume of the Fluid Protocol has also reached $1.325 billion, with a market cap to TVL ratio of 0.29, indicating its strong potential for capital efficiency in the DeFi space. These data not only reflect Fluid’s emergence as an innovative protocol in the market but also demonstrate its tremendous success in improving capital utilization efficiency.

Technical advantage: The core of explosive growth in TVL

Fluid’s TVL achieved more than triple growth between November 2024 and February 2025, revealing some technological innovations that traditional lending platforms and DEX cannot match. The core advantages of Fluid can be summarized as follows:

Dynamic Debt Mechanism: Turning Debt into Liquidity

In the traditional lending market, debt is usually a burden - once the borrower fails to repay on time, the system faces liquidation risk. However, Fluid breaks this convention by introducing a dynamic debt mechanism. Simply put, Fluid allows the user’s debt to automatically adjust with market demand. For example, when USDT is needed in the market, borrowed USDC may be converted to USDT, and the debt structure is dynamically rebalanced. This design is like adding “flexible wings” to the debt, not only reducing liquidation risk, but also creating additional trading fee income for users, greatly increasing capital efficiency.

Super high capital efficiency: every $1 TVL can leverage $39 of liquidity

Another killer feature of Fluid is its super high capital efficiency. Through the perfect combination of intelligent collateral and smart debt, Fluid can leverage 39 US dollars of effective liquidity for every 1 US dollar of TVL. This figure is comparable to the miracle of leveraged investment. Traditional DEXs like Uniswap rely on liquidity providers to inject more funds, while Fluid, through clever technical design, maximizes the utility of every fund. For example, users can mix WBTC and cbBTC as collateral, leverage the effect of leverage and intelligent risk management system, steadily move forward in market fluctuations, and achieve higher capital utilization rate than traditional platforms.

Advanced clearing mechanism: optimize capital utilization, reduce market impact

The liquidation mechanism of the Fluid protocol is a major highlight in its technology. Compared to traditional DeFi protocols, it not only improves liquidation efficiency but also significantly reduces associated costs. Based on a slot-based approach, Fluid aggregates the debts and collateral of all vaults within each time slot. When the debt ratio exceeds the liquidation threshold, the protocol completes the liquidation through a single transaction. This design is inspired by Uniswap v3’s slot-based liquidity, allowing Fluid to efficiently liquidate multiple positions, reducing gas costs and market impact during the liquidation process.

More importantly, Fluid’s minimum impact liquidation method will only liquidate the necessary part of the debt to restore the health of the account, rather than liquidating a large number of positions at once like traditional systems. This not only minimizes the market impact, but also avoids the chain liquidation effect, keeping the market more stable during turmoil. In addition, Fluid’s liquidation system allows any trader to participate as a liquidator, no longer relying on a dedicated liquidation bot network. Traders can participate in the liquidation process through regular DEX platforms (such as 1inch, Paraswap, and 0x), obtaining collateral discounts during the liquidation process, while liquidating Fluid’s debt, making the entire liquidation process more decentralized and efficient.

Resist liquidation risk: Successfully deal with market crash

Fluid uses a 97% liquidation threshold and a 0.1% penalty mechanism. In the market crash in February 2025, it successfully handled the largest liquidation event in history, avoiding the accumulation of bad debts. The advantage of this mechanism is that by appropriately setting the liquidation threshold, the system can adjust in a timely manner during market volatility, avoiding uncontrolled liquidation of a large amount of funds, while ensuring the safety of liquidity providers and borrowers.

The evolution of the team behind Fluid, Instadapp

Instadapp was established in 2019 as an innovative digital financial service platform dedicated to simplifying user investment operations in the decentralized finance (DeFi) space. Instadapp provides a simple and intuitive interface that allows users to seamlessly operate across multiple DeFi protocols without relying on traditional financial intermediaries such as banks or brokers. Leveraging blockchain technology, Instadapp aggregates multiple DeFi protocols onto an upgradable smart contract layer called DeFi Smart Layer (DSL), enabling cross-protocol interaction and management. This innovation has made asset management, lending, trading, and liquidity provision more efficient and user-friendly, driving the widespread adoption and development of DeFi.

In 2021, Instadapp launched the governance token INST, marking an important step for the team in decentralized autonomous organization (DAO). The INST token not only serves a governance role in the protocol but also provides users with incentive mechanisms, further driving the development and optimization of the platform.

With the rapid development of the DeFi market, the Instadapp team keenly captured the industry’s increasing demand for capital efficiency and liquidity. Against this backdrop, the team launched Fluid Protocol in February 2024 and unveiled a brand reshaping and growth plan in the same year. The Fluid Protocol aims to redefine the mode of decentralized lending and trading, breaking the traditional barriers between lending and trading, and enhancing capital liquidity and market efficiency by integrating the two on one platform.

The core product of the Fluid protocol is USDF, an over-collateralized stablecoin designed to provide higher fund security for decentralized lending markets and reduce the impact of market volatility on lending activities. The launch of this stablecoin not only enhances the platform’s attractiveness but also provides new fund security guarantees for the DeFi market.

With the launch of Fluid Protocol, the Instadapp team continues to deepen its innovation in the DeFi field and drive the continuous development of the protocol. In October 2024, Fluid completed a $3.9 million seed round financing, which will be used to accelerate the development of USDF, enhance the security of the protocol, and expand the team’s size. The financing round saw participation from investment institutions including Bloccelerate, Animoca Ventures, CMS Holdings, among others, while angel investors such as Meltem Demirors and Kartik Talwar also provided strategic support to Fluid.

The success of the Fluid protocol has attracted widespread follow from the DeFi community. In November 2024, the Aave community decided to invest in INST tokens and establish a strategic partnership with Instadapp through the ARFC proposal. Through this collaboration, Aave DAO will provide support for the GHO trading pair on Fluid and drive the development of more cross-protocol products based on Aave and Fluid. This move not only brings more liquidity to Fluid, but also further consolidates Fluid’s position in the DeFi ecosystem.

In the next 12 months, Fluid plans to launch a series of major upgrades, including DEX v2 version, lending and trading with more asset support, optimizing the ETH Lite Vault, and launching a new DEX on the Layer 2 network. These measures will further enhance trading efficiency and capital utilization, driving Fluid’s continued growth in the DeFi market.

To strengthen the market demand and governance structure of tokens, the Instadapp team has decided to rename the INST token to FLUID and implement a maximum 100% revenue buyback plan. This plan will further enhance the liquidity of the token, while driving the long-term development of the Fluid protocol.

The success of the Fluid protocol is not accidental, but the result of the Instadapp team’s years of deep cultivation in the DeFi market, accurately grasping industry trends and user needs. With its innovative design and strong technical foundation, Fluid is expected to occupy a more important position in the future DeFi track, bringing new opportunities and challenges to the decentralized finance sector.

Token economic model and governance structure

Total supply of INST tokens

Total supply: 1 billion INST (1,000,000,000 INST).

This is the maximum total supply of tokens, which means that the platform will not issue more than this amount of INST tokens.

Initial distribution of INST tokens

The initial token allocation of Instadapp is based on multiple factors such as the ecological development of its platform, team incentives, investor support, etc. The following is a rough distribution plan, specific proportions may be adjusted depending on the project’s development and community needs:

Team and Advisors: about 20% (200,000,000 INST)

These tokens usually have a certain lock-up period to ensure long-term participation of the team and advisors in the success of the project.

Community Rewards: about 40% (400,000,000 INST)

This part of the tokens is usually used to incentivize liquidity providers, participants in lending protocols, and other ecological contributors.

Including liquidity mining, platform user rewards, governance rewards, etc.

Investors and strategic partners: about 20% (200,000,000 INST)

Including token allocation for early investors and strategic partners. Typically, these tokens will also have a certain lock-up period.

Foundation and ecosystem development: about 10% (100,000,000 INST)

These tokens are typically used to support the expansion of the platform ecosystem, including community development, marketing, and protocol upgrades.

Public offering and IDO (Initial DEX Offering): about 10% (100,000,000 INST)

These tokens are distributed to the public investors through public sale or IDO. In this way, Instadapp can raise funds to support its development.

As an important part of the Fluid protocol, the token $INST will be converted to the $FLUID token at a 1:1 ratio, and all existing holders do not need to take any action. Through this conversion, the Fluid protocol has successfully achieved brand reshaping and improved token liquidity without diluting holders. This reshaping has maintained the same total supply (100 million) and ensured that the token addresses remain unchanged.

Fluid also plans to launch an algorithmic repurchase plan after the protocol reaches an annualized income of 10 million USD. The core of this repurchase plan is based on the x * y = k model, and the repurchase amount will be dynamically adjusted based on the fully diluted market value (FDV) of the $FLUID token. Up to 100% of the revenue will be used for repurchase, and the repurchase ratio will fluctuate according to market conditions, increasing when the market is sluggish and decreasing when the price is high. All repurchased tokens will be kept in the governance treasury, and it will be decided by governance whether to destroy, distribute to holders, or use them to reward users.

In order to drive the Fluid protocol to reach a market size of $10 billion by the end of 2025, the team has proposed the following growth incentive measures:

0.25% of the token supply will be used to incentivize stable borrowing and lending each month.

0.25% of the token supply will be used to incentivize DEX activities each month.

By creating liquidity through the DEX pool, ensuring the liquidity and market stability of $FLUID, 5% of the total supply will be allocated for governance.

In addition, 12% of the governance treasury will be used to support key growth initiatives. The specific allocation is as follows:

2% for listing on the exchange

2% used for market making

5% for fundraising plan

3% for team expansion and implementation of new plans

These funds will provide a solid resource guarantee for the rapid expansion of the Fluid protocol.

Summary

By the end of 2024, Fluid had experienced a significant surge, with an increase of up to 8 times, a performance that has revitalized the market. Although Fluid is currently entering a correction phase following ETH series projects, compared to mature competitors such as CRV and UNI, Fluid’s market resilience still appears stronger. This not only reflects the potential of its protocol architecture and innovative design but also indicates Fluid’s unique position in the market.

This strong retracement performance reflects the unique competitiveness of the Fluid protocol in the DeFi field, especially in terms of capital efficiency, liquidation mechanisms, and decentralized trading functions. With the gradual recovery of the market environment, Fluid is expected to continue its growth momentum and achieve further breakthroughs in the coming months. For investors and ecosystem participants, Fluid provides an opportunity worth following and participating in, with promising future development potential.