Liquidity Is King
As a candidate for CCR, Cryptoak takes governance and growth of the protocol seriously. One of our community members proposed an idea today that we wanted to take an in depth look into, Liquidity.
“The long term success is going to depend on Liquidity. There are many ways to get liquidity, but the best and fastest is to pay for it. Take a look at CAKE/BNB. There is currently $363k USD in liquidity. Why? Incentive of extra UNFI (they are paying for this liquidity). My proposal would be to offer some formulaic bonus of UNFI for providing liquidity using some ratio (smart math guys here?) where the lower LP pools get a higher share of some fixed amount of UNFI per block. These incentives WORK. Look at CAKE and the VOLUME of CAKE. Imagine all of the chains and each pair with that kind of liquidity and volume. The 100k UNFI per month needs to go someplace — let’s have it go to GROW the entire ecosystem.” — David Babinski
The Unifi Protocol’s ecosystem requires a balance between liquidity providers (LP) and traders. When there is ample liquidity the traders will come for deals and arbitrage opportunities, while enjoying little slippage fees, and in turn LPs mine precious $UP. The two groups need each other to make the engine run, but what comes first? The chicken or the egg?
Liquidity must come first. Traders can’t trade if there is no liquidity. Let’s dive into ways we can attract LPs to help grow the protocol.
PROMOTIONS
Like David mentioned above in his CAKE/BNB promotion example, there is strong evidence that if you provide bonus incentives for LPs they will show up. People are excited to double-dip and mine $UP and while getting bonus $UNFI.
Two major questions.
- Will these LPs remain once the promotion is over?
- Where will the $UNFI come from for future promotions?
Once the 25,000 UNFI CAKE/BNB promotion is over in the next couple of weeks we will have a lot more data to see if LPs stayed in the CAKE/BNB pair, withdrew their liquidity from that pair to a new pair, or left the protocol altogether (if they chose the last option my guess is they didn’t read this thread on $UP)
According to the Unifi Lite Paper:
“Over half of the total supply of UNFI tokens are allocated to the Liquidity Providers and Ecosystem Development (LPED) fund. The LPED incentivizes the use and growth of the platform which includes rewards for participation in the governance of the Protocol.”
According to the Unifi White Paper:
“uTrade is committed to establishing a market-balanced and well incentivized experience to liquidity providers.”
The UNFI for promotions likely comes from the protocol’s LPED (51% of UNFI) and with its commitment to incentivizing LPs, we believe there will be a lot more to entice LPs in the near future.
As an elected CCR we would be in favor of exploring all options to continue promotions that benefit the protocol.
PROTOCOL SUPPORT
Since we understand the importance of having liquidity on the protocol, Cryptoak has decided to take a portion of our CCR rewards and provide liquidity to different pairs on uTrade each month. Increased liquidity will allow for less slippage on pairs and create an overall better environment for all traders. These funds will be allocated from Cryptoak’s Protocol Support and will be used at our discretion with the community’s voice in mind. This is just one way that Cryptoak plans on helping to improve uTrade for all involved. More information on staking rewards coming soon.
