Firstly, thank you Jon for starting this discussion. Liquidity incentives are extremely important when projects are first getting off the ground, and even more important when the project doesn’t yet have broad centralized exchange presence.
At time of writing, FOX is currently listed on:
Uniswap is decentralized, while MEXC and HOO are both centralized. To help folks understand the importance of LP incentives, I want to detail the current FOX liquidity situation. First, I’ll define a few terms:
Spread: The difference in price between the “buy” and the “sell” side of the market.
Depth: The amount of liquidity up or down to a certain price.
2% depth: The amount of order volume which which will move the price by 2%. Calculated as
x = (-2% depth + 2% depth) / 2
0.6% spread | 2% depth = $217,336
2.34% spread | 2% depth = $1,127
0.93% spread | 2% depth = $308
As you can see from these numbers, the only realistic place to trade FOX is currently on Uniswap. Even a small order of $300-$1100 can move the market by 2% in one direction or another on the centralized exchanges. Whereas on Uniswap it would take a $200k order to make the same movement. Additionally, the spread is far more attractive on Uniswap. Over time, FOX will get listed on better exchanges with smaller spreads and more liquidity but we’re not there quite yet.
Another important metric is total LP. Currently on Uniswap there is $21.6 million in total LP. Historically, when LP rewards are dropped it results in a proportional reduction in available LP. So, with the currently proposed 1/3 reduction I would anticipate total LP to reduce to roughly $7.2 million. That is a VERY small liquidity pool for such a major company converting over to a DAO, and will discourage many investors from participating. A lot of community members love to vilify whales, but they’re incredibly important to a healthy coin distribution and tokenomics for a fledgling project. It’s true that too many whales can cause other problems, but I don’t believe FOX suffers from such poor distribution where we need to concern ourselves with that.
With all of this said, I think we should be more careful with reducing the rewards. Here’s my suggestion:
- Reduce the current UniV2 rewards by 25%
- Provide these rewards for 6 months
- Don’t setup a Sushiswap pool (too early to split liquidity)
- Do integrate with Bancor (this will be excellent automatic marketing, will further distribute the coin, give more users more ways to stake)
Burn Rate Math:
Current rewards: 15,768,000
Duration: 3 Months (July - October 2021)
Current daily burn:
Rewards: 11,826,000 (UniV2) + an unknown amount for BNT holders based on snapshot. Let’s use a (high?) estimate of 3,000,000 FOX (15,000 BNT holders each getting 200 FOX)
Duration: 6 Months (October 2021 - April 2022)
Proposed daily burn:
Jon’s proposed burn rate with Sushi/BNT/77% reduction in rewards:
As you can see, my suggestions will reduce the overall burn rate by eliminating the Sushiswap pool and bolstering the UniswapV2 pool a bit more. I anticipate this will result in a retention of $16.2 million in LP, which is a reasonable amount for this sized project at this stage of its lifecycle.