What Makes Polkastarter Token ($POLS) A Utility Token — Part 2 (Liquidity Mining)
Polkastarter is a permissionless DEX built for cross-chain token pools and auctions, enabling projects to raise capital in a decentralized and interoperable environment based on Polkadot.
The POLS utility token plays a critical role in the Polkastarter ecosystem by being the utility token that aligns incentives in the network. One of the roles that POLS will play is as an incentive mechanism for liquidity providers in token pools for fixed and cross-chain swaps.
Note: please refer to What Makes Polkastarter Token ($POLS) A Utility Token — Part 1 (Staking) to read about the POLS utility token for staking and governance purposes.
Polkastarter will be the place to go to decentrally swap cross-chain assets and get access to the most exclusive decentralized token sales on Polkadot and other chains. Token pools are only as good as the volume they can support, and to do that you need liquidity on both sides of the equation. Polkastarter will use the POLS token to reward liquidity providers to not only provide depth to popular trading pairs, but also to hard-to-access asset pools made available through token sales.
This method of “liquidity mining” as seen on other DeFi platforms has been a proven use-case for incentivising liquidity provision, and attracting volume and traders.
The Importance of Liquidity
One of the main issues with trading and swapping cryptocurrencies is liquidity (or the lack thereof). Many critics of cryptocurrencies point to the fact that their prices are highly volatile and the order books of many crypto-assets are illiquid. Both of these issues stem from a lack of liquidity, or the ability for traders to enter or exit their positions in the market at a given price point. The more liquid a market, the more trading volume that it can support at any given price without unacceptable amounts of slippage.
To combat the lack of liquidity in crypto markets, many exchanges have turned to a relatively new concept of Liquidity Mining. Simply put, Liquidity Mining is a way to incentivize people to supply liquidity to markets in exchange for fees, rewards, and other incentives. The benefit of highly liquid markets is clear. They attract more traders, who in turn provide more volume, which generate more fees for the liquidity providers, who then are incentivized to keep providing liquidity to the market.
Liquidity Mining on Polkastarter
To incentivize participation in the token pools, we are launching a liquidity mining program concurrent with the minimum viable product (MVP) launch in Q4 2020. This program will distribute a fixed amount of tokens to pool creators.
The way this distribution will work is simple. Let’s look at the initial Ethereum-based MVP. Everyday X amount of tokens will be distributed for all liquidity providers on a pro-rata basis. If there is a 1000 ETH swap volume for 24 hours, a pool creator that had 100 ETH in volume in his pools will receive 10% of the total daily liquidity rewards.
Astute readers will see that this system also incentivises early adopters to provide liquidity. This method will also make sure that from Day 1 of Polkastarter’s launch, there will be a robust market of liquid token pools to choose from.
How it works
Liquidity providers have 24 hours to claim their rewards on the Polkastarter dashboard. Unclaimed tokens will be sent back to the rewards pool for later distribution. Tokens are distributed on a weekly basis.
Tokens for liquidity mining will be taken from the Liquidity Pool. We are minting a total of 100,000,000 POLS and 22,500,000 (22.5%) will be destined for liquidity. Liquidity includes liquidity providing for secondary markets, but also the liquidity mining rewards. Total liquidity mining rewards are yet to be determined.
The exact reward structure will be revealed prior to the MVP launch and it’s going to include higher rewards in the beginning and a gradual decrease in the daily reward over time.
Polkastarter is a permissionless DEX built for cross-chain token pools and auctions, enabling projects to raise capital on a decentralized and interoperable environment based on Polkadot.
With Polkastarter, decentralized projects will be able to raise and exchange capital cheap and fast. Users will be able to participate in a secure and compliant environment and to use assets that go way beyond the current ERC20 standard.