Kaddex- Traditional exchanges trade assets using a classic order book model. In this case, a trade happens when the exchange can match a buyer and a seller who are willing to accept the same price. This centralized model assumes that exchanges maintain funds under their custody during and from the order entry to the end of the transaction. It is also very common for exchange-traded products to be subjects of lucrative fees. The order book model not only fails to fulfill the cryptocurrency premise of eliminating intermediaries from financial markets. But it also gives all the power to the middleman, who maintains tokens under their custody and capitalizes on both the trading volume and locked value.
In the last couple of years, decentralized exchanges (DEXes) have been revolutionizing this paradigm by applying mathematical and algorithmic strategies to intermediate trades. In essence, liquidity providers (LPs) leave their assets under the control of a smart contract. which is responsible for intermediating trades and ensuring that buyers and sellers will be able to trade at any given time. Thus, the Automated Market Model (AMM) model guarantees that traders will no longer need to leave their tokens under a DEX custody. On top of that, all the fees collected from swaps are shared between LPs. Ultimately, DeFi allows you to be your own bank.
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At launch, Kaddex’s will implement a safer and modernized version of the Uniswap-v2 AMM using the Pact programming language. Kaddex software is built upon the already known and community-tested [https://github.com/kadena-io/kadenaswap] modules. One of the most impactful features we added to the code is the liquidity mining program, which is meant to incentivize people to act in our ecosystem as liquidity providers.
The Tokenomics and Liquidity Mining relationship
It is remarkably rare to have a DeFi protocol, with a maximum supply of tokens, sharing rewards in their native tokens to LPs. This happens as the tokens are minted. In many cases, rewards are distributed to new users at the expense of the token values, which ultimately depreciates for the long-term holders. At Kaddex, we want to benefit the longstanding users while also being fair and innovative. Network Rewards account for 40% of the KDX total supply. This large tranche of tokens will boost the DEX activity in the long-term, ensuring a fair and decentralized distribution that directly benefits the DEX participants.
KDX Liquidity Mining Parameters
The set of mechanisms designed to attract liquidity through distribution of native KDX tokens aims at generating lucrative pool boosters for early LPs that will non-linearly decrease with time. As the volume grows to the point where they are no longer needed. Let us now take a closer look at the key parameters of this program. The rise and fall of other DEXes has often been correlated with their incentive’s emission schedule. This results in a difficult multivariate balance between attracting liquidity (with higher incentives) and implementing a sustainable reward issuing program. With this in mind, the KDX Liquidity Mining Program has been designed to be profitable, sustainable, and decentralized.
- The KDX liquidity mining program is set to last no-less than 4 years
- The Liquidity Mining Program generates extra rewards on top of the 0.25% from all swapping fees. Rewards are magnified by a multiplier if withdrawn in form of KDX.
- Users can collect their boosted rewards at any time
- KDX rewards are vested for 5 days. This short vesting period helps ensuring there is no trading pair manipulation and helps preserving market stability.
- The DAO will have total freedom in assigning the multiplier to their preferred pools. Ensuring that Kaddex’s rewards will be applied according to the community’s interests.
The overall KDX Multiplier benefits
First, the possibility of collecting KDX as rewards increases the KDX buying pressure from the open market. Why? The Kaddex smart contracts utilizes the standard 0.25% of the pool tokens fees to purchase KDX from the open market. Therefore, the Multiplier only mints the KDX resulting from the delta between the standard fees and the boosted rewards.
The purchase of KDX, resulting from allowing end users to collect boosted KDX rewards. Has a second and potentially more powerful implication: an increase in the overall DEX volume. This is important as it directly benefits KDX Staking APR. An increase in volume means an increase in DEX fees and consequently rewards for stakers. A symbiotic flow that financially boost the DEX activity as well as those staking their KDX. From governance to the overall DEX empowering, KDX has strong and well-defined scopes.
KDX liquidity mining five purposes:
- Impermanent Loss coverage: by distributing rewards to LPs in form of KDX. In addition to the 0.25% of the overall DEX trading fees volume.
- Deepening Pools Liquidity: by incentivizing users’ participation in providing liquidity.
- Keeping the KDX vesting schedule predictable and providing long term sustainability. As the rewards emission schedule of Kaddex is programmatic and self-adjusting according to market conditions.
- KDX rewards waste management: an algorithmic multiplier that finetunes rewards accordingly to market conditions. Rewards will never be too low or too high.
- Benefitting the Staking APR by distributing rewards in the form of KDX. The buying pressure increases leading to a higher trading volume and therefore a higher APR for KDX Stakers.
