While DEX newcomers were frantically copying the Uniswap model, SushiSwap quickly rose to popularity with its new model for ‘farming platform token through pledging Uniswap LP tokens’. However, as SushiSwap‘s lead developer Chief Nomi cashed out 2.6 million SUSHI tokens for 18,000 ETHs on September 5, the global community thought they had been cheated.
There is no doubt that SushiSwap’s model of ‘LP Token Pledge Farming + Platform Governance Token Farming’ is desirable, but there are still many loopholes and unreasonable rules that need to be changed. To solve these problems and evolve the model, a sophisticated player SwapX (www.swapx.org) has innovated a new model for DEX.
Liquidity providers on Uniswap, Balancer, and Curve can earn token SWP through pledging LP tokens (from other DEXs) on SwapX. At the same time, they can also earn Pair Token of individual liquidity pools. Users have achieved ‘three consecutive farming in a row’, initially farming on Uniswap, Balancer, and Curve, and then earning SWP and Pair Token on SwapX.
SwapX will launch at 9/10/2020 12:00 PM (EST) when ‘LP Token Pledge Farming’ and ‘Pair Token Farming’ become available. It is worth noting that the SwapX team has adopted a decentralized approach without pre-farming or any reserves. The platform governance token SWP is 100% distributed to community participants. At present, wallets such as imToken, TokenPocket, MEET.ONE, BitKeep, BitPie, HyperPay have all integrated SwapX. Users can deposit assets to these wallets on phones to start farming on SwapX.
Pair Token Innovation to Continue Liquidity Pool Yield Farming
The key of ‘LP Token Pledge Farming’ is to attract liquidity providers on other DEXs. SwapX doesn’t mean to compete with Uniswap. Instead SwapX aggregates the liquidity from major DEXs, such as Curve and Balancer, to become a DeFi liquidity center.
While SwapX still adopts Uniswap’s design of AMM (Automatic Market Maker), it also implements SushiSwap’s farming model to support staking of Uniswap Pool Token (LP Token of Uniswap). SwapX supports not only farming through Uniswap’s LP Token farming, but also farming with other LP Token DEXs like Curve and Balancer.
SwapX has also made a major breakthrough to today’s DEX, proposing ‘Pair Token’. On SwapX, everyone can apply to create an independent liquidity pool and a Pair Token specific for the pool. Pair Token represents the governance right to liquidity pool and determines the distribution of SWP, which is SwapX’s platform governance token. Within SwapX, Liquidity providers not only get transaction fee revenue share from the platform, but also earn Pair Token and SWP at the same time. Liquidity providers now, with the same amount of assets, would earn fees from Uniswap/Balancer, as well as additional farming rewards from SwapX.
‘Pair Token Farming’: opens the door of liquid pool governance.
Pair Token is the unique highlight part for SwapX. Each certified liquidity pool on SwapX has its own Pair Token, which can not only be freely traded but also allow users to get revenue share from trading transaction fees and gain SWP. As said, when users provide liquidity for once, they can gain trading fee revenue share, Pair Token and SWP triple rewards.
As we all know, liquidity providers on Uniswap can only earn a part of transaction fees when they are providing liquidity. Once they withdraw liquidity out of the pool, they stop earning that fee. This oversimplified model has three problems in the long run:
1) The incentive is not good enough, and the profit of early-stage liquidity providers is substantially diluted.
2) Impermanence loss cannot be compensated.
3) No community contribution outside of liquidity providers.
Uniswap’s liquidity providers share transaction fees based on their liquidity contributions. However, there are also users who need to make important decisions on questions like ‘how does each liquidity pool selects trading pairs?’, ‘What is the fee rate?’, ‘how to attract more traders?’ On Uniswap, the management and operation staff take the responsibilities without compensation.
To effectively improve this mechanism, each certified liquidity pool of SwapX has a default Pair Token. These Pair Tokens can be traded freely, and the earlier the liquidity providers join, more Pair Token they could earn.
SwapX targets liquidity providers on top Swap Protocol
Liquidity is the driving force behind DeFi. As a place where DEX liquidity is concentrated, SwapX firstly targets liquidity providers from top DEXs such as Uniswap, Balancer, Curve, offering them the opportunity to farm SWP. After earning transaction fees through liquidity provision on Uniswap, Balancer, Curve, etc, those liquidity providers now can stake LP tokens on SwapX to farm SWP as well as more transaction fees. There will be four sources of earnings: transaction fee, SWP for two times, Pair Token with one-time staking, which provides more benefits for the liquidity providers.
According to SwapX developers, DEX liquidity providers can stake their LP token to start farming Pair Token and SWP in two ways:
- Staking LP Token for farming
Liquidity providers of Uniswap, Balancer, and Curve can pledge their LP tokens (‘pool token’ on Uniswap, ‘BPT’ on Balancer, and ‘ytoken’ on Curve, etc) to earn SWP. The farming lasts for 15 days and will yield a total of 2.88 million SWPs, generating 30 SWP per block and approximately 192,000 SWP per day. SWP will be distributed to all pledgers according to LP token contribution.
- Holding Pair Token as farming
Liquidity providers on SwapX would receive Pair Token and can earn SWP through Pair Token.
The farming lasts for 30 days, yielding a total of 2.88 million SWP. Every 64 blocks do one snapshot which generates 1,000 SWP. A total of 96,000 SWP will be farmed per day and be distributed to Pair Token Holders.
In short, as yield farming ends, users will be able to trade the above tokens on SwapX. During this process, the pledger can automatically get transaction fees and SWP without additional steps.
Three Consecutive Rounds of Farming to capture the value of SWP
Per ‘2020 Global DeFi User Report’, 75% of global users and 74% of Chinese users said they are interested in DeFi projects only if there is over 15% APR. SwapX has been aiming for maximizing liquidity providers’ profit while ensuring the capital security under the verification mechanism . SwapX will charge traders a 0.3% transaction fee, of which 0.25% will be allocated directly to liquidity providers and 0.05% will be allocated to the community for SWP buybacks. The community will vote to determine the usage of SWP, making it more friendly to liquidity providers.
In addition to the transaction fee income, the liquidity provider on SwapX can also farm Pair Token and SWP. The larger the liquidity pool is, the more Pair Tokens can be earned, and more SWP would be available. Multi-sources rewards attract more investors to join, improving the liquidity of the pool, forming a benign growth of ‘liquidity and income’
SwapX Risk Assessment
From the information disclosed by SwapX, SwapX has gone through a community security audit, but has not yet completed a formal audit, which is the potential risk. However, even if an audit is completed, there is still a risk of smart contract vulnerability as the same problem exists in every yield farming project. Therefore, when engaging in yield farming, users need to evaluate their risk tolerance and manage their risk.
Today, we are in the hyper-growth stage of DeFi. Yield farming, as an important way to attract traffic to DeFi projects, has already made its debut and helped many users make fortunes overnight. The competition is becoming more and more intense, but the future is unlimited. There are more and more players joining this game, but only those who have the courage to innovate can finally survive and stand out.