Since our last announcement, there has understandably been a lot of questions around the BIDL model. The model is getting close to completion but still requires scenario testing and a few more rounds of iteration. In the meantime we thought it best to share the details we do know about BIDL and the overall vision that led us here.
Over the last year we have seen exchange token designs evolve and some interesting use cases applied. A well designed token system can help overcome the chicken and egg problem that many exchanges face; how to attract buyers when there are no sellers, and how to attract sellers when there are no buyers? In other terms, how do we ignite liquidity and adoption of the platform?
Crypto exchanges are inherently prone to network effects. The value proposition of an exchange to a trader increases as its liquidity increases — highly liquid exchanges attract more users which in turn increases liquidity. The real challenge we are faced with as a young exchange is attracting traders when liquidity is low. The obvious solution is to throw in huge amounts of marketing money and hope something sticks. But there is no stronger form of marketing than financial incentivisation.
Hence we sought to create a token which would align network participants to work together toward a common goal — the growth of the network and the appreciation of the token.
We are proposing a world first Liquidity Incentive Model where early adopters can financially benefit proportionally to the value they add to the network.
Where do BID holders fit into this vision?
The BID holders are our earliest adopters and deserve to be rewarded as such. Whilst the specifics haven’t been determined we want to make sure that we reward not just the loyalty of BID holders, but incentivise our early holders to be our early users as well.
BIDL will be airdropped free to BID holders. The ratio is still to be determined.
What is BIDL?
Blockbid Liquidity Token (BIDL) rewards users who provide liquidity and trading activity on the platform. Whenever you trade on the Blockbid exchange and are charged transaction fees, you will automatically receive a certain percentage back in BIDL. This is nothing groundbreaking, as many current exchanges pay rebates to traders. There are also other models, such as trans fee mining, that encourage high volume trading. It’s important for us to clarify the difference between these two systems.
How is the Liquidity Incentive Model different to a trading rebate or trans-fee mining?
Trans-fee mining was a model popularised by FCoin and later Bitmax, whereby the user received their fees back as rebates in the exchange’s native token.
These models sought trade volume over liquidity, and whilst the volume was gigantic (up to $2bn/day), much of this volume was trading in and out of stable coins, or wash trading as a method of collecting the fee. Neither of these actions are very beneficial to other traders on the platform.
The liquidity incentive model rewards early exchange participants relative to the value they are bringing to the exchange. It is not a fee rebate like we’ve seen in Trans-fee mining, but rather a way to own a tokenised piece of the future network value that you help establish by providing early liquidity.
The real challenge is to align the reward proportionally to the value contribution of the early network participants.
This is achieved by:
- Incentivising market makers to provide liquidity in exchange for tokens which represent a claim on the future revenue of the platform
- Incentivising traders to move their trading activity to the platform in exchange for tokens which represent a claim on the future revenue of the platform
- Increasing or decreasing the token issuance rate to makers or takers as the requirement for liquidity changes
What makes the token appreciate?
The token value is directly tied to the success of the exchange and will be deflationary. To achieve this, we are proposing the following:
- Token issuance is capped and will stop at a predefined date
- A % of the trading fee revenue from the exchange will be used to do an on-market continuous buy back and burn of the token
As more trade volume is achieved, more fees are allocated to market buy backs, which places upwards pressure on the token price.
We will continue to build out the liquidity incentive model and create the smart contract required to distribute BIDL proportionally.
This is a huge step forward for Blockbid and we’re excited to welcome our community to the next phase of Blockbid’s evolution.
We will provide more information in the coming weeks as we progress.