@andrey There is truly only one direction which is maintainable and sustainable over a long period of time. That is getting a part of the pair as a variable percentage of block rewards. Creating another token just for the liquidity has to be one of the most round about things ever. You already have a token it’s PRV. You have a proof of stake system for the voting and decisions. Having a secondary token only complicates and colludes the system while splitting the value.
Rewards for providing liquidity needs to be in the same coin as transacting that liquidity. That is what gives the liquidity coin value and drives bigger and bigger liquidity players (aka whales) to upfront their liquidity in a pool. With not enough liquidity this project will fail. I can’t say enough that other than safety of funds liquidity needs to be a central focus. If you can’t get off the ground you will never fly.
As of divergence loss (impermanent loss is a bad term because it makes people think that their losses will be recovered over time which isn’t true) being helped by a reward coins I think people are missing the point. The point of getting a reward by providing liquidity is not to offset any divergence loss it’s to get people invested in providing liquidity to the project. Which then is able to be used to vote on specific governance systems thus doing this to increase the value of their investment. As much as people hate the idea of big players controlling a large scale of the vote, as far as putting limitations on single addresses, it’s a ineffective way to control governance. A proportional token pricing like BeToken to make a successful vote is one way to combat manipulation. You don’t need to make it perfect just largely unprofitable for someone to attack it.
One of the best things about these DEFI systems is that everyone can be a winner. It provides rewards for those who can provide liquidity (if they were going to hold onto the funds anyway it’s free money to them) while making a pooled exchange system where people can safely transact that can’t be centrally taken down. By providing liquidity you are increasing the value of the reward which then makes people want to provide more liquidity. This is the exponential growth that uniswap got when they reached a breaking point where the slippage in the pool was low enough for the majority of regular trades. That then made people transact more to then increase the value of the reward to then make people provide more liquidity. The cycle repeats until everyone who could provide liquidity has provided liquidity and then it caps off. If that cap is still high enough for the majority of trades to not have a lot of slippage well the project has made it.
Liquidity needs to happen with two pairs in the pool. All the matching in provide is with one coin and PRV. This means that if PRV is ever missing from the pool where one side of the liquidity is provided we got a big problem. There needs to be a sizeable excess of PRV which scales with the liquidity pairing to make sure anything which can be matched DOES get matched and added to the liquidity pool. Right now incognito is relying upon a fixed company reserve to do the provide matching. The moment the reserve is spent liquidity will fall as things are not getting matched. It just makes sense to top up a reserve with a portion of the block rewards. It can scale depending on usage and the amount of things being matched or pending matching for the pool. Validators don’t look at this as cutting your reward. Your reward is paid in PRV. By making sure that liquidity is being matched it directly increases the value PRV in a sustainable and consistent manner which not only makes your stake more valuable overall but helps the health of the network. It’s sustainable and without a doubt the best method to make sure that PRV has a rising consistent value. It also will act as a kind of deflation method being that less PRV will be released to be sold. If you truly believe in the longevity of this project and want to see it’s long term success making sure that a portion of the block reward scales with the demand for the one sided provide matching is a must have.
Having a coin be created based on the ratio of divergence loss is an idea which is solved by this too. Being that people don’t need to back both the pairings in this system it’s no longer a problem. People can provide liquidity in the currency they want and the network itself will match it divergence loss will be a thing of the past. Rewards for providing liquidity (as I minted above) should be provided in the network coin which is PRV. The current set rates however are not sustainable. Instead the method that should be used is not a APR but a pooled reward system. Your reward for the pool is proportional to a fixed percentage of the network coin. These rewards should be from the block rewards too. The pools that are receiving more slippage should receive a higher pooled reward system incentivizing individuals to provide more liquidity. Ideally a portion of these pools should ideally be used to match the one sided pairs. The uniswap model does a really good job of this and I fully believe that this project should share it’s same vision. The coined term is “liquidity mining” and it’s the future for these projects.
