TBW - Fluid (FLUID): The Protocol Merging DEX and Lending in One Place

The history of DeFi is punctuated by the emergence of emblematic protocols, those pioneers that defined entire categories: Uniswap for decentralised exchanges, Aave for lending. It is therefore rare - almost audacious - to see a newcomer claiming to rival these giants, and even more so to attempt to challenge them on both of their fields at the same time.

This is, however, Fluid's gamble. And the initial results give food for thought: Fluid's DEX generated more than $1 billion in volume three weeks after its launch in November 2024, before crossing the $10 billion mark on Ethereum in less than three months of existence - a milestone that Uniswap had taken nearly two years to reach.

After six months, it now exceeds $40 billion.

While most lending protocols focus their efforts on risk management innovations, Fluid is taking a different path by focusing on optimisations that directly benefit borrowers, notably via novel mechanisms such as "smart collateral" and "smart debt".

Understanding the Fluid protocol

To measure the true potential of Fluid, it is still necessary to understand precisely what the protocol proposes and what problems it seeks to solve.

What is Fluid used for?

Fluid merges lending, leverage and decentralised exchange (DEX) within a single liquidity layer. Where these functions have traditionally been compartmentalised in DeFi, Fluid builds an ecosystem in which your assets can fulfil multiple roles at once.

The aim: to optimise the use of capital while reducing the costs and complexity of operations that, until now, have required multiple steps.

Let's take an example: in the classic DeFi universe, you place ETH as collateral on Aave, then provide liquidity on Uniswap via another transaction. With Fluid, the same ETH can simultaneously serve as collateral and liquidity for trading.

The result: smoother management of your capital, simpler handling... and much lower gas charges.

The need that Fluid meets

If Fluid came into being, it was first and foremost to address the blind spots of a DeFi that was still too compartmentalised. Today, borrowing and then exchanging an asset often requires interaction with several independent platforms, each with its own technical constraints, costs and risk management logic. This disconnection between the basic building blocks limits the fluidity of operations and weighs down the user experience.

Settlement mechanisms are a striking example: designed to protect protocols, they severely penalise users, with high fees and often total sales, ill-suited to volatile markets. What's more, most of the collateral mobilised in these systems remains passive, unable to generate returns while it secures a loan.

Fluid attempts to reconcile these functions by creating a common layer, designed to be productive, flexible and optimised all at once. Where others seek to fine-tune existing models, the protocol completely recomposes the basic architecture. The challenge is not just to improve ergonomics, but to lay the foundations for a new standard of efficiency in DeFi.

>> Lending onchain: Market state, trends and prospects

Fluid's unique value proposition

Integrated pools

One of Fluid's key innovations lies in its unified architecture : instead of maintaining separate pools for lending and trading, the protocol merges the two into a common liquidity layer. This model allows your assets to perform multiple functions in parallel and reduces the structural fragmentation of traditional DeFi.

For example, a pool of liquidity between WBTC and cbBTC can both serve as collateral for a loan and generate revenue via trading fees. This dual use maximises the return on capital employed and greatly simplifies the user experience.

The "smart collateral"

Where most traditional lending platforms let collateral sleep, Fluid turns this asset into a productive tool. The protocol allows certain types of collateral - notably liquidity tokens (LP tokens) from its own DEX - to continue to generate trading fees while serving as collateral for a loan.

If, for example, you deposit an ETH-wstETH position as collateral, it continues to earn fees linked to the trades made on the DEX. The result: capital that no longer sits idle but actively generates returns while it secures a loan.

"Smart debt"

Traditionally, borrowing has meant incurring a cost: your debt sits idle, only growing with the interest, and leaving the economic circuit. Fluid has turned the tables with its "smart debt" concept, which reverses this logic.

In most protocols, the borrowed asset immediately leaves the liquidity pool and remains passive. At Fluid, the borrowed asset remains within the system, integrated into a shared pool that feeds exchanges on the DEX. Transactions are directed through this "debt liquidity", and the fees generated contribute to the repayment of your loan.

In other words, even though you are responsible for your debt, it works for you and reduces its own cost. What was once a mere expense becomes a productive asset.

Maximum efficiency

Fluid takes optimisation to a level rarely seen in DeFi. The protocol uses advanced algorithms to improve capital efficiency, reduce gas costs and refine risk parameters. This technical sophistication translates into tangible benefits for users.

Loan-to-value ratios (LTVs) are significantly higher than on most platforms: up to 90% for volatile pairs and 95% for stable pairs, allowing more to be borrowed for equivalent value.

Liquidation penalties are also much milder: between 0.1% and 1%, a far cry from the 5-10% usually seen elsewhere. Fluid also amplifies the impact of its capital: one dollar of total locked-in value (TVL) can generate up to $39 of liquidity, maximising the reach of each unit of capital.

Finally, in the event of a liquidation, the protocol sells only what is needed and not your entire position. It is also capable of handling multiple liquidations in a single operation, which significantly reduces transaction costs.

>> Morpho vs Euler: the match of modular lending

Fluid's concrete applications

Several use cases illustrate how Fluid's original approach translates into practice.

Borrowing with reduced liquidation risk

Fluid adopts a liquidation strategy that is quite different from industry standards. Rather than liquidating an entire distressed position, the protocol simply sells just enough to restore an acceptable level of risk.

If, for example, your debt-to-collateral ratio climbs to 96%, Fluid may only intervene to bring that ratio down to 95%, liquidating only a small portion of your assets.

The result: greatly reduced penalties. On a debt of $3,800, you could pay just $38, where other platforms would have charged you several hundred.

Taking full advantage of smart collateral and smart debt

Imagine a scenario where you deploy a "looping" strategy from a combined smart collateral and smart debt position, based on the wstETH-ETH pair. Thanks to the 95% loan-to-value ratio offered by Fluid on this type of position, you can use it to its full potential.

This allows you to loop your position up to 20 times: in other words, you hold 20 times the wstETH-ETH collateral, backed by debt equivalent to 19 times the same pair.

Starting with a single core asset, you thus obtain exposure equivalent to 39 times the initial value. And therefore, potentially, 39 times more trading costs captured.

Lower borrowing costs

One of the most interesting effects of the "smart debt" mechanism is lower borrowing costs. By reintegrating debt into the DEX liquidity layer, Fluid allows this debt itself to generate income via transaction fees.

This income is allocated directly to repaying the loan. In situations where trading volume is particularly high, you may even get paid for borrowing - a reverse dynamic to the traditional model.

Liquidations built into trades

With Fluid, liquidations no longer require specialist bots or separate trades. They can be carried out as users trade on the DEX.

As lending and trading are based on the same layer of liquidity, each token swap can potentially contribute to a liquidation in progress or allow a trader to recover collateral at a discount.

This unified architecture considerably fluidises the market and makes liquidations more discreet, more efficient, and better integrated into the overall activity of the protocol.

>> Aave vs Morpho: the great lending match

Team and funding

Leadership and vision

Fluid was born in the hands of the founders of Instadapp, a leading DeFi protocol launched back in 2018. At the origin of these two projects: two Indian brothers, Sowmay Jain and Samyak Jain, who left their studies to devote themselves full-time to blockchain.

Sowmay today holds the position of CEO of Fluid, while Samyak pilots the technical architecture of the protocol. A well-known figure in the ecosystem, Sowmay Jain also co-founded MoatFund, a decentralised fund management project, and features in the Forbes 30 Under 30 rankings for India and Asia. For its part, Samyak relies on a solid background in computer science to design the smart contracts infrastructure on which their entire ecosystem is based.

The team has grown with key profiles such as Thrilok Kumar, Chief Product Officer, who helped build the platform from the outset. Another pillar of the project is Igor, known under the pseudonym DeFi_Made_Here on X (formerly Twitter), who quickly identified Fluid's potential before joining the team, first in charge of business development, then as COO. Today, he plays a central role in the protocol's adoption, driving the ecosystem and multiplying partnerships.

When asked about Fluid's vision, Samyak Jain explains, "Fluid is the fruit of several years' work on lending protocols. It is a synthesis of our experience, enriched by contributions inspired by major protocols such as Uniswap v3, Aave, Compound, MakerDAO and Curve. We have designed a fundamental layer for DeFi, which combines efficiency, security and ease of use, and on which new protocols can be grafted."

Genesis of the project and growth

The story begins in 2018 at the ETHIndia hackathon, where the Jain brothers developed a first version of Instadapp... and won the competition. What was just an amateur project quickly became a real business. Instadapp evolved into middleware, facilitating the use of existing DeFi protocols, and peaked at more than $2 billion in TVL.

But faced with the structural limitations of the DeFi model, the two brothers began a more thorough overhaul in 2021. For almost two years, they designed Fluid behind the scenes. At its public launch in 2023, the protocol's DEX exceeded $1 billion in traded volume in three weeks, before establishing itself as the third-largest DEX on Ethereum.

Financing

Fluid's rise was underpinned by a solid financial foundation. In 2019, the Instadapp team is raising an initial financing round of $2.4 million. Among the investors: iconic figures such as Naval Ravikant, Balaji Srinivasan, Loi Luu (co-founder of Kyber Network), Meow (founder of Jupiter Exchange), but also big institutional names such as Pantera Capital and Coinbase Ventures.

This early support is a testament to the confidence placed in the team. In June 2021, a second funding round of $10 million strengthened the structure's resources. This round included Standard Crypto, as well as several strategic partners such as Andre Cronje (founder of Yearn and Sonic), DeFi Alliance and LongHash Ventures.

A solid network, which is now a key asset to support Fluid in its long-term development.

>> Compound, Aave, Morpho: how lending is reinventing itself in DeFi

Community support

Fluid benefits from an active online presence. On X, the protocol has 29,100 subscribers and regularly shares announcements, technical updates and development outlooks. The community can also be found on Discord, where more than 7,500 members talk to the team and each other on a daily basis. This channel also plays a central role in user support.

The protocol is also open source: all the code is accessible on GitHub, allowing any interested developer to audit or contribute to the project. To date, six main contributors are actively involved in the repository. Updates are regular, and the repository has already received 40 stars and 18 forks.

A modest score but one that reflects an open and participative dynamic, in keeping with the spirit of DeFi.

Participation in governance

Fluid DEX incorporates decentralised governance mechanisms, enabling its users to get involved in the protocol's strategic choices.

Exchanges are held mainly on the Instadapp governance forum, where several threads are dedicated to Fluid. These threads cover a variety of topics, from multichannel deployment to specific pool settings.

Among recent discussions: a proposed launch on Polygon attracted 315 views, 12 likes and 3 comments. As a result, less than a week later, Fluid was effectively deployed on Polygon. Other proposals, such as those on Arbitrum or the configuration of wstETH<>ETH pools, received fewer reactions, but testify to a committed user base.

This governance is now functional, but could benefit from wider mobilisation. As the community grows, the technical and security issues surrounding the protocol become increasingly important, and the active participation of its members could become an essential lever for its future.

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Technology and security

Fluid is based on the Ethereum blockchain, harnessing the power of smart contracts to orchestrate all its operations. This technological choice ensures that the protocol has a robust foundation, supported by one of the most secure and dense DeFi ecosystems.

While the project began on Ethereum, it has since extended its footprint to several other networks. Fluid now also operates on Arbitrum, Base and, more recently, Polygon, illustrating a clearly assumed multichain strategy.

At the heart of the protocol's architecture is the "Liquidity Layer" - a unified liquidity layer that serves as the hub for all interactions: deposits, withdrawals, borrowings, repayments. This layer also manages exposure caps, utilisation rates and ensures the coordination of the various protocols that gravitate within the Fluid ecosystem.

One of its major innovations: 'Automated Limits', a key security mechanism that dynamically adjusts debt and collateral caps according to predefined parameters. The aim is to block abnormally large transactions that could signal malicious behaviour or jeopardise the stability of the protocol. By consolidating liquidity that was previously fragmented between different modules, this central infrastructure enables more efficient and secure management of committed assets.

On the security side, Fluid has not skimped on best practice. The protocol has been audited on several occasions by specialist companies such as Statemind, MixBytes and Cantina. The audit reports are public and available in the official documentation, providing a welcome level of transparency about the robustness of the infrastructure.

To date, Fluid can boast a faultless track record: not a single security flaw has been publicly reported since its launch. This absence of incidents concerns both Instadapp and Fluid's history, testifying to a high level of rigour in the development, deployment and maintenance of infrastructures.

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Tokenomics

The native token of the Fluid protocol, the $FLUID, is at the heart of the governance of the ecosystem. In December 2024, it officially replaced the old $INST token issued in 2021 as part of a strategic rebranding. This transition was seamless: holders had no action to take, as $INSTs were converted into $FLUIDs in a 1:1 ratio.

The token's Ethereum address remained unchanged, as did its total supply, set at 100 million units.

Initial distribution

The distribution of these 100 million tokens has been designed to support the protocol's various stakeholders and its development ambitions. It is structured as follows:

• 55% allocated to members of the Instadapp community
• 23.79% allocated to the current team, with a four-year vesting period
• 12.07% reserved for investors, also subject to a four-year vesting
• 7,85% for future team members and strategic partnerships
• 1.27% for advisers, also subject to a four-year vesting period

In contrast to cliff-based systems, vesting here is continuous, via a smart contract. This choice guarantees gradual distribution and ensures that the interests of the team, investors and advisers are aligned with those of the protocol over the long term.

From June 2025, all investor and team tokens will be unlocked.

Treasury and strategic allocations

At the start of 2025, Fluid's governance treasury holds around 43% of the total offering. This significant reserve is the result of prudent management over four years, particularly in the midst of several down cycles.

A portion of this cash - 12% of the total offering - has been released as part of a one-off plan to support the growth of the protocol :

• 2% allocated to listings on exchange platforms
• 2% dedicated to market making
• 5% for fundraising initiatives
• 3% to support team growth and fund new initiatives

In parallel, 5% of the offering has been reserved to establish sustainable $FLUID liquidity on DEX. At this stage, 2.5% has actually been used, with the balance remaining available and able to be returned to the DAO if not used.

According to Token Terminal data, the Fluid protocol currently has around 7,500 token holders. Unsurprisingly, treasury holds the largest share, with 43% of the total in circulation, in line with the structure defined by tokenomics.

Token usefulness and value creation

The Fluid protocol provides several mechanisms to enhance the usefulness of the $FLUID token and support its valuation over time.

Algorithmic buybacks

Once the protocol reaches an annualized revenue of $10 million, a dynamic buyback program will be implemented. Inspired by the x * y = k model, this mechanism will adjust the volume of redemptions according to the fully diluted valuation (FDV) of the token. In practical terms, up to 100% of the revenue generated by the protocol can be devoted to redemptions, in inverse proportion to the price of the token: the lower the price, the higher the proportion of revenue devoted to redemptions. A system designed to cushion volatility while mechanically supporting the token price.

Incentives for growth

To support its ambitious target of $10 billion in TVL by the end of 2025, Fluid is introducing a monthly incentive programme. Up to 0.25% of the total supply of tokens may be allocated to those participating in Stable Lending activities. A further 0.25% will be allocated to users who provide liquidity or trade on DEX. In other words, if you deposit assets in Stable Lending vaults, or provide liquidity to Fluid's DEX, you will be eligible for these rewards.

What happens to the tokens bought back?

The fate of the tokens bought back via the algorithmic programme is not set in stone: it will be decided collectively via governance. Several scenarios are on the table: burning the tokens, redistributing them to holders or using them as an incentive to strengthen community involvement. This flexibility leaves it up to the members of the DAO to guide the value capture strategy.

Current token market

At the time of writing, the price of a $FLUID is around $4, with a market capitalisation of $160 million. The fully diluted valuation (FDV), i.e. if all 100 million tokens were in circulation, is $400 million.

The token is available on several centralised platforms, such as LCX, Bybit, MEXC or CoinW, as well as on DEXs such as Uniswap.

Business model

Fluid currently generates its revenue mainly via a commission levied on lending activities. The protocol applies a 10% tax on the interest paid by borrowers. At this stage, this is the main source of income. To this is added a new monetisation lever: Fluid also plans to deduct 10% from trading fees on its DEX, a mechanism that has not yet been activated but whose launch is announced as imminent. Finally, the protocol also intends to eventually tax third-party applications built on its infrastructure - reinforcing the platform logic.

As regards the $FLUID token, a long-term valuation mechanism is planned in the form of dynamic buybacks.

Once the $10 million mark in annualised revenue has been reached (it was passed in mid-April 2025), Fluid plans an algorithmic buyback programme. The lower the price of the token, the greater the proportion of revenue that will be allocated to redemptions.

Up to 100% of the profits generated could thus be used for this purpose, depending on the token's valuation. These redeemed tokens could then be burned, redistributed or used as an incentive - the decision will rest with governance.

For the moment, there is no staking mechanism to capture a direct portion of the revenue. The return therefore essentially depends on the evolution of the token price and the prospects for implementing redemptions.

Treasury and financial health

The vast majority of the protocol's treasury is made up of the native $FLUID token. According to the latest available data, the governance treasury holds around $100 million.

This reserve has only been tapped on one significant occasion: a one-off allocation of 12% of the offering was voted to fund growth (listings, market making, fundraising, team development).

To assess the fundamental valuation of the protocol, we can calculate a P/B (Price to Book), which enables us to assess whether a project is over- or undervalued in relation to its assets. With a market capitalisation of $160 million and estimated cash of $100 million, the P/B comes out at 1.6.

A P/B of 1.6 reflects a cautious but confident valuation, in line with what is expected of an innovative protocol, still in the adoption phase, with a business model that is beginning to take shape, but whose profitability is not yet fully established (a project is considered undervalued when it is less than 1).

On the revenue side, Fluid has generated $62 million in annualised fees, for $2.7 million in net revenue according to DeFiLlama.

If we relate this last figure to its current capitalisation, we get a P/E (Price to Earnings) of 59 - a high ratio, but typical of a protocol at the start of its monetisation cycle, still focused on growth rather than profitability. Mind you, revenues must continue to grow.

Partnerships and ecosystem

The development of the Fluid protocol is accompanied by a growing network of strategic collaborations within DeFi. These partnerships strengthen its liquidity, visibility and the scope of its use cases.

Fluid has notably forged alliances with heavyweights such as Lido Protocol, a benchmark in liquid staking, and RedStone Oracles, an innovative provider of on-chain data. The protocol has also integrated with Spark and ResolvLabs, two projects that have introduced fixed-rate lending functions - a rarity in DeFi.

As proof of its appeal, Aave's DAO has even considered acquiring 1% of the $FLUID token offering, via a formal proposal, illustrating the attention Fluid's model is attracting among its more established peers.

The protocol also integrates with platforms such as DeFiSaver and Superlend, and its deployment on networks such as Arbitrum, Polygon and Base demonstrates a well-developed multichain strategy. These technical integrations reinforce the modularity of the ecosystem and the interoperability of the protocol with the other DeFi layers.

Finally, Fluid is collaborating with key players such as Pendle, which facilitates performance tokenisation, and Wintermute, one of the largest market makers in the sector. These synergies show that both incumbent projects and start-ups in the sector recognise the relevance of Fluid's approach, based on integrated liquidity and borrowing management.

Fluid's performance and competitive position

Fluid may be a new entrant, but its current performance and progress on both fronts - lending and DEX - already place it among the players that count.

As of early May 2025, the protocol has a TVL (total locked value) close to $870 million, a sign of rapid adoption.

Positioning in the DEX market

Fluid's breakthrough in the decentralised exchange market is remarkable. At the beginning of May 2025, the protocol was capturing 3.6% of daily trading volume on Ethereum, rising to 4th place behind Uniswap (58%), PancakeSwap (18%) and Aerodrome (6%), according to @hagaetc on Dune.

Fluid even briefly hit 20% share in February, temporarily claiming second place in the rankings.

Positioning in lending

In the lending segment, Token Terminal data places Fluid in sixth place among protocols active on Ethereum (3% market share), behind well-established leaders such as Aave, Morpho, Spark Protocol or Compound, according to Token Terminal.

But the dynamic is favourable: Fluid and Compound are regularly swapping places, a sign that the start-up is gradually gaining ground. This shift demonstrates that a new generation of protocols, more integrated and flexible, can now compete with the old DeFi standards.

Potential limitations and risks of the Fluid protocol

Like any crypto protocol, Fluid is not immune to certain weaknesses that need to be monitored. Behind the innovations, several grey areas remain.

The extensive integration between lending, leverage and DEX functions is a strength... but also a factor of complexity. By bringing all this together on a single layer, Fluid gains in efficiency but also creates a strong interdependence between the modules. In the event of a vulnerability in a single component, the domino effect is to be feared, as the various building blocks of the system are closely linked.

The "smart debt" and "smart collateral" mechanisms, ambitious as they are, remain unprecedented in DeFi. The concept of smart debt in particular, which consists of making a liability productive, has never yet been tested on a large scale. It will be necessary to observe how these mechanisms react in the face of high market volatility, collapses in liquidity or extreme behaviour by certain users.

Also, the effectiveness of smart debt depends largely on the activity of the DEX. If the trading volume is not there, the fees generated will be insufficient to offset the borrowing costs. The business model then becomes more traditional and the promises of cost reductions may not materialise.

Lenders are not without risk either. The fact that their assets are included in DEX's liquidity pools potentially increases their returns, but also exposes them to phenomena such as impermanent loss, liquidity problems on certain pairs or sudden market movements that could alter the value of their deposits.

Finally, competition remains one of the most structural challenges. Fluid is taking on historic giants such as Aave and Uniswap, whose network effects are immense. To succeed, it's not enough to have the best technology: you have to convince users, win their trust over the long term and maintain a dynamic of constant innovation.

>> DeFi on Ethereum: State of play and prospects

Roadmap

Fluid is positioning itself as a basic DeFi infrastructure. Its ambition: to become a reference layer for the integration of lending, exchange and decentralised financial market services.

In the long term, the protocol wants to host a wide variety of tools, including derivatives, credit markets, cross-chain bridges, real world assets (RWAs), interest rate swaps, stablecoins or even decentralised foreign exchange (Forex) solutions. The team also plans to open up the ecosystem to external teams who could come and build directly on Fluid.

For the next twelve months, several priority projects have been identified:

• Deploying new pairs on DEX
• Launching new protocols built directly on Fluid
• Expanding DEX to other Layer 2 solutions
• Enhancing the "ETH Lite"
• Adding new supported assets
• And most importantly, a major update to DEX with version 2 ("DEX v2")

The user interface is also the subject of frequent updates, with the aim of a smoother experience. Among the new features: an integrated swap aggregator, based on KyberNetwork, 1inch, Paraswap and others; a "Refinance" function enabling one-click migration of positions from other protocols; and the introduction of "Smart Lending Vaults".

The Big Whale's opinion

Fluid is one of the most ambitious projects of the new-generation DeFi. By combining lending, leverage and decentralised exchange within the same liquidity layer, the protocol introduces a radically different architecture, based on the novel concepts of "smart collateral" and "smart debt".

These innovations aim to make capital more productive: collateral continues to generate trading costs, while the borrowed assets themselves participate in the liquidity of the DEX, thereby reducing the cost of credit. This approach quickly caught on.

On the lending side, it is already nipping at the heels of heavyweights such as Compound and Spark. With a seasoned team and an unblemished security track record, Fluid benefits from solid execution. But its model is not without risks.

The interconnection between modules creates systemic dependency, and smart debt mechanisms rely heavily on trading volume, making their effectiveness variable. In addition, the protocol operates in an ultra-competitive environment, facing players with powerful network effects such as Aave or Uniswap.

Tokenomics, while promising with algorithmic buyouts planned, is still in its latent state.

The future of Fluid will therefore depend on its ability to maintain traction, execute its ambitious roadmap - including the launch of DEX v2 and expansion into new layer 2s -, and consolidate its community.

If these challenges are met, Fluid could become a key infrastructure for decentralised finance. But at this stage, the investment opportunity still rests more on potential than fully established fundamentals.

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