katana core mechanisms: what is chain-owned liquidity?
katana core mechanisms: what is chain-owned liquidity?
chain-owned liquidity (CoL) is katana’s strategy for establishing deep, stable, and self-sustaining liquidity across its entire defi ecosystem.
while traditional defi chains and apps rely heavily on short-term incentives to attract temporary (often called mercenary) sources of liquidity, katana takes liquidity into its own hands.
through CoL, katana takes internally generated revenue to continuously build and maintain liquidity reserves, ensuring long-term stability, efficient market operations, and consistent yields irrespective of market cycles.
let’s dive deeper 👇
what is chain-owned liquidity?
chain-owned liquidity is the foundation of sustainable liquidity on katana. CoL is liquidity directly owned and managed by katana, significantly distinct from traditional protocol-owned liquidity. protocol-owned liquidity, as demonstrated by olympusDAO, involves a defi app acquiring and managing its own liquidity rather than relying on external liquidity providers, but confines liquidity to a specific defi protocol. katana expands on this idea by managing liquidity at a network-wide level, delivering broader, sustainable liquidity to its entire defi ecosystem.
rather than relying on short-term incentives and mercenary capital, katana builds a compounding base of liquidity that supports lending, trading, and yield generation across market cycles. bear, bull, or crab.
CoL is designed to be:
sustainable: funded by real, recurring revenue (net sequencer fees)
resilient: deployed liquidity remains during extreme volatility
strategic: allocated to pools that contribute to the long-term health of katana’s defi ecosystem
how chain-owned liquidity works
initially, CoL starts small but incrementally grows through user interactions within the katana ecosystem, including bridging assets, deploying capital, and utilizing core defi applications such as morpho and sushi. these actions generate sequencer fees, which are strategically deployed into:
DEX LP positions on sushi: providing liquidity directly in sushi's decentralized exchange pools for better execution and minimal slippage. for example, large swaps between assets like ETH and USDC can execute smoothly, minimizing slippage (aka price impact) for traders.
asset supply on morpho: ensuring a steady flow of assets available for leverage, stabilizing borrowing costs. this allows borrowers to consistently access funds, maintaining predictable interest rates for both lenders and borrowers.
perpetual DEXs: providing margin liquidity to enhance capital efficiency. traders can leverage positions effectively, improving overall trading volume and market depth.
intent-based routing: offering inventory loans to solvers to close spreads and improve cross-chain execution. for instance, cross-chain arbitrage opportunities can be swiftly executed, enhancing market efficiency and reducing spreads.
core defi applications also directly contribute portions of their revenues into their own protocol-owned liquidity, reinforcing the liquidity and strength of the katana defi ecosystem.
CoL’s role in the katana flywheel
chain-owned liquidity creates a positive reinforcement loop:
increased liquidity attracts higher transaction volumes.
higher transaction volumes generate more sequencer fees.
more sequencer fees compound, deepening CoL and boosting yields.
this cycle perpetuates, driving continuous network growth.
core benefits of chain-owned liquidity
deep liquidity markets deliver significant advantages:
resilient liquidity: CoL remains deployed during volatility or market drawdowns, ensuring users always have stable trading and lending environments.
baseline depth for all users: anchoring deep liquidity in lending and DEX markets supports whale-sized trades with minimal slippage while improving access and execution for smaller users.
enhanced and sustainable yields: sequencer fees and interest earned on deployed CoL are either reinvested into liquidity pools or further boosting yield in core apps, deepening liquidity and incentivizing active users. as katana’s usage and TVL grow, CoL scales proportionally, ensuring sustained engagement and ecosystem stability.
support for builders: developers launching composable apps on CoL-funded pools on katana don’t need to bootstrap their own liquidity from scratch, accelerating composability and ecosystem growth.
market stability: CoL acts as a “shock absorber” for the network. during periods of defi pool withdrawals, the portion of the pool owned by CoL increases. since yield generated from deployed CoL can be redirected to boost user yields rather than solely compounding into additional CoL, this can provide an outsized yield boost for those users who remain, strategically incentivizing continued participation and ensuring network resilience.
governance and strategic deployment
chain-owned liquidity is managed by the katana foundation under the guidance of the katana consortium, composed of core application teams and ecosystem contributors.
CoL deployments are directed to focus primarily on strategic areas that support the long-term health of the katana defi ecosystem, rather than simply prioritizing the highest yield-generating opportunities. deployments are intentionally less concerned with risks such as impermanent loss in DEX pools because the primary goal is to provide essential liquidity depth and support user activity sustainably over time.
CoL deployments are manually approved, with strict priority given to katana’s core apps and assets. all CoL positions are fully transparent and on-chain, with future dashboards planned for public monitoring.
why chain-owned liquidity matters
chain-owned liquidity exemplifies katana’s innovative approach to sustainable liquidity management, fostering deep, reliable liquidity and aligned incentives across the ecosystem. by continuously compounding liquidity and enhancing stability, CoL ensures long-term health, consistent yields, and user confidence.
how do i get involved?
public mainnet is coming late june/early july, but there are already multiple ways to get involved early:
turtle club: pre-deposit in curated defi pools with high APR. can withdraw anytime after mainnet, but you take a haircut on some of the APR earned if withdrawn before 3 months after mainnet.
join the community:
kaito leaderboard
welcome to katana, where liquidity continuously compounds, shaping the future of defi.
