Liquidity Grant Program
Last updated
Last updated
In order to solve the liquidity issue faced by rTokens, the StaFi team has launched an Initial Liquidity Grant Program (ILG Program) which will reward initial rToken liquidity providers on StaFiHub, which mainly consists of core community members and the Foundation of Target Chains.
There are many candidates taken into consideration for the early provision of liquidity such as Cosmos Ecosystem project developers, community whales as well as Venture Capitalists. After much consideration, the StaFi team has concluded that the Foundation of Target Projects (FOTP) has the most substantial benefit and motivation to be an initial liquidity provider of rTokens on StaFiHub.
This can be justified due to the following:
1.The Foundation of Target Projects (FOTP) has the greatest motivation to increase the staking ratio of their respective networks through StaFiHub’s Liquid Staking Solution.
2.The FOTP will also have an adequate amount of native tokens from their respective Treasury/Reserves for the provision of liquidity in large quantities (e.g. 1 Million USD)
Therefore, the StaFiHub team has been in continuous discussions with FOTPs in the Cosmos Ecosystem to obtain partnerships as well as initial liquidity support. The StaFi team ultimately aims to build a mutually beneficial relationship between StaFiHub and Cosmos Ecosystem FOTPs through a protocol fee sharing scheme.
StaFiHub aims to share a part of StaFiHub’s protocol fee to incentivize Cosmos Ecosystem FOTPs for long term initial liquidity provision as well as assist them in improving rToken adoption among their community members.
The protocol fee sharing scheme under the ILG Program will allocate a certain percentage of the respective rToken’s Liquidity Fee to FOTPs as an incentive. The rToken Liquidity Fee is calculated by using the formula provided below:
Where Alpha is set at 10% and Beta is set at 0.2%.
To clarify, the Liquidity Fee is all that StaFiHub is able to collect from a new rToken solution. Based on the , 10% of the Protocol Fees are allocated to the development team to cover basic development costs including relay nodes services and human resource costs, 70% will be allocated towards buyback and burn schemes, and the remaining 20% will be allocated to the StaFi Treasury.
Initially, a 10% reward from Protocol Fees was introduced to incentivize StaFi Community Developers in developing their own rTokens based on StaFi protocol. However, the liquidity of rTokens is critical to the success of the rTokens developed. Therefore, StaFiHub will be providing a portion of the 10% rewards to initial liquidity providers.
In conclusion, the FOTP incentives are derived from the 10% obtained by the development team who are more than willing to share this with StaFiHub partners to elevate and ensure the prosperity of StaFi Protocol as a whole.
Calculation of FOTP ILG Program Grant Rewards:
Where Delta is set from 0% to 10%. When Delta is set at 10%, it implies that the StaFi team is willing to share 100% of their revenue towards the FOTP.
When deciding the Delta parameter, the Core team will consider the following factors which include the reputation of the target community, initial liquidity provision amount, the choice of using rDEX as the DEX of choice and the liquidity providing period. A project with a higher reputation will imply that a larger initial liquidity amount should be provided. FOTP’s are also recommended to select rDEX as the DEX of choice as well as provide liquidity for longer periods of time to obtain a higher Delta parameter.
Let’s have an in-depth look at IRISnet’s case as an example. IRISnet is willing to provide 1 million in USD valued tokens as initial liquidity on rDEX for 6 months, this results in a Delta of 6% provided to their foundation.
A certain FOTP in the Cosmos Ecosystem provides 0.8 million USD valued tokens as initial liquidity on rDEX for 6 months, this results in a Delta of 5% provided to their foundation.
The above are just two examples to conceptualize the influencing factors of the Delta parameter. The StaFiHub team will also negotiate with FOTPs to determine the finalized Delta parameter.
When a FOTP provides liquidity support for StaFiHub, it may seem like a burden due to the large amount of liquidity provided, however, this liquidity provision has highly sustainable rewards as well.
Let’s have a look at IRISnet once again as a case study. The IRISnet Foundation could create the following positive profits for the IRIS tokens from their Treasury:
1.ILG Program Profits: 6% of the liquidity fee collected by StaFiHub on rIRIS.
2.Liquidity Provider Fees: Fees obtained from swaps are shared without impermanent loss based on IRIS tokens.
3.Liquidity Mining Fees: StaFiHub will sponsor FIS tokens to reward liquidity providers of rIRIS/IRIS pair liquidity pool.
4.Staking Rewards from rIRIS token: IRISnet will earn staking rewards from the IRISnet network when staking IRIS tokens to mint rIRIS tokens. The IRISnet Foundation will be able to redeem additional IRIS tokens after 6 months with their rIRIS token holdings due to the staking rewards generated.
But what are the costs for IRISnet? IRISnet has to allocate a suitable percentage of their Treasury’s IRIS tokens to support the rIRIS solution which will create amazing benefits for the entire IRIS token community. Additionally, during this period, IRISnet does not face the following challenges that FOTPs encounter regularly:
1.No other tokens besides native tokens and stable coins will be required in their Treasury. IRISnet could always redeem IRIS tokens by burning rIRIS tokens from StaFiHub’s contract.
2.No requirement to swap to other tokens besides their native tokens and stable coins. Solely IRIS and rIRIS tokens are used which could be burned to redeem IRIS tokens when required.
3.No potential permanent loss when providing liquidity. In most scenarios, IRISnet will obtain additional IRIS tokens and rIRIS tokens compared to the initial liquidity deposited, this occurs due to earning rewards from swaps as well as the rIRIS token price being close to the on-chain exchange rate against IRIS token. In certain extreme circumstances, the rIRIS against IRIS token price on rDEX may diverge greatly from the On-chain exchange rate. In this case, the IRISnet Foundation will either get more IRIS tokens or more rIRIS tokens when withdrawing from the liquidity pool. However, IRISnet could always redeem more IRIS tokens by burning rIRIS tokens. Additionally, they may also arbitrage this exchange rate gap between rDEX and the On-chain contract to earn more IRIS tokens.
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