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Incentive Program

A project can set up an incentive program to attract more liquidity and locking them in the pool. More liquidity means less slippage and more trading, which will generate more trading fees for liquidity providers to form a virtuous cycle.
A project can configure the incentive program
  • to run for a period of time
  • with a certain amount of reward tokens to be distributed every x blocks
  • liquidity providers will receive rewards pro-rata to their share of the pool
  • the incentive program can include multiple reward tokens

Loyalty Bonus

Projects can configure the Incentive Program with Loyalty Bonus to
  • avoid hot bags mining and dumping, hence encouraging more sustainable, longer term farming for the benefit of the protocol and the entire network
  • share more rewards for longer term liquidity providers compared to just vesting

How does Loyalty Bonus work?

Project can set a Loyalty Bonus ratio e.g. 40%
  • a liquidity provider will need to keep the reward token in the pool until the end of the program to receive the bonus
  • if a liquidity provider claims the reward tokens earlier, then its bonus will be added back to the reward pool to be shared amongst other liquidity providers
  • long term liquidity providers are likely to receive higher rewards than standard rewards

Example

Let’s set up an Incentive Program for Token A-aUSD pool
  • Total Incentive Reward: 100,000 in Token A
  • Program ends: in 12 month
  • Loyalty Bonus: 10% (base reward is 90,000, loyalty bonus is 10,000)
  • 5% liquidity providers claim their rewards early (before program ends)
  • Liquidity Provider 1 (LP1) owns 1% of the pool
This results in
  • If LP1 staked and kept the rewards in the pool till the end of the program, LP1 would earn minimum 5,000 reward tokens
  • 5% LPs claim their rewards early and foregone their Loyalty Bonus, so 2,500 tokens (=500,000*10%*5%) are returned back to the pool shared amongst all other LPs
  • The longer LP1 holds his/her rewards, the more rewards he/she will receive due to Loyalty Bonus forgone by others added back to the reward pool
    • If LP1 claims the rewards immediately, he/she will forego the 10% bonus, and receives 375 tokens (= 41,666.67*1%*90%)
    • If LP1 claims the rewards on Month 5, even if he/she foregoes the 10% bonus, he/she will still receive more rewards at 465 token
  • With other LPs forgoing their Loyalty Bonus, if LP1 holds onto the rewards till the end, LP1 could potentially earn a total 6,650 token at the end of the year
This is an overly simplified example, in reality, a liquidity provider's LP shares are likely to be fluctuating due to increase or decrease of overall liquidity, hence resulting in higher or lower rewards for certain periods.
Last modified 9mo ago