Introducing vKSP & Token Airdrop Model
Decentralized Finance (DeFi) has continued to grow and add innovation to innovation since it emerged as a key advancement in the blockchain and cryptocurrency worlds. KLAYswap, the only AMM-based swap protocol in the Klaytn ecosystem, has achieved remarkable results of more than $800 million in Total Value Locked (TVL) and an average daily trading volume of $50 million.
In order to build a solid ecosystem that can continue to evolve, KLAYswap will add a new feature called the “Token Airdrop Model” and introduce its own governance model to ensure greater growth through active participation by users and the community.
In this post, I would like to introduce the new features that are added to KLAYswap and expand on the previous post about the KLAYswap DAO to explain in detail the utilization mechanism of vKSP- governance voting rights.
KLAYswap’s New Token Airdrop Model
Until now, KLAYswap was structured to provide rewards in two forms.
- Distributing transaction fees of a pool to the liquidity providers of that pool
- Distributing KSP tokens to specific pools
This approach did provide a high APY and led to active participation in the ecosystem, but the APY structure was limited to the two aforementioned forms and it was a only a one-way reward distribution structure that passed from KLAYswap to participants.
By applying an additional token airdrop model and transforming this limited environment into an organic system that connects everyone [Dapp Projects — KLAYswap — Users] rather than just [KLAYswap — Users], we aim to add to our innovative on-chain swap to connect the Klaytn ecosystem economically with further connection of decentralized liquidity.
This change can have a positive impact on KLAYswap’s liquidity providers and the DApp projects utilizing KLAYswap.
1. Stable Environment for Providing Liquidity
By creating an environment in which additional rewards such as token airdrops can be provided on top of the existing structure of distributing transaction fees or providing KSP, KLAYswap’s governance token, liquidity providers can offset the risk of token price volatility, making KLAYswap a more stable protocol to provide liquidity to.
2. Opportunity for Dapp Projects provided by Token Airdrops
The token airdrop model can bring about the expansion of DApp projects’ respective token economies and serve as a strong incentive to maintain the inherent value of the project. In particular, liquidity-poor DApp projects have been largely affected by high price volatility, but in KLAYswap’s AMM environment where additional rewards are received, better quantity and quality of liquidity can be interconnected. As such, projects utilizing KLAYswap can focus on increasing the inherent value of their projects while defending against short-term price volatility.
In summary, the addition of this new feature means that a more advanced incentive structure in which organic connections between liquidity providers and participants as a whole, including DApps, can be established while also giving additional benefits to all involved.
KLAYswap Governance Voting Rights: vKSP
The KLAYswap Protocol is an AMM-based DEX that essentially has the expansion of transaction fee redistribution to its participants as its key business model. Also, as we mentioned in our previous announcement, the goal of our decentralized autonomous organization (DAO) is to encourage more favorable terms (liquidity) within the protocol around KSP holders and to give them increasing incentives as KLAYswap grows.
KLAYswap’s governance has established mechanisms to achieve this and to promote economic flow in the protocol. This can be summarized with two key points:
- Governance participants using KSP are given responsibility and authority on determining key issues such as changing various policies and setting the distribution rate of KSP per liquidity pool.
- At the same time, the pool’s transaction fees and KSP can be further distributed as incentives for initial liquidity, compensation for infrastructure contributions, and continued motivation for the protocol’s growth.
Generally in the KLAYswap economy, each governance participant will support the liquidity pool that is most directly advantageous to him/her, as more KSP will be distributed the more support is behind any particular pool. This leads to a strong incentive to supply liquidity, and this rich liquidity formed by KSP in turn can lead to an influx of “Takers” on the Klaytn network for various trading (swap) purposes, which then in turn will generate ongoing transaction fees. We expect this to create a positive feedback loop in which the accrued fees will be redistributed back to the liquidity providers and governance participants who support the pools.
Eventually, we expect that activities of individual participants — liquidity providers, governance participants, and traders — will be directly linked to the interests of the KLAYswap community as a whole, sharing significant value as the protocol grows and expands. This will accelerate the influx of new users into the community and eventually enable the completely decentralized operation of the protocol by KSP holders.
In the following content, we will share the policies of and how to participate in determining KSP mining distribution rates and transaction fee fee reward distribution rates using vKSP obtained by staking KSP.
1. How to get vKSP
vKSP refers to the voting power of overall KLAYswap governance and participants must stake and acquire their own KSP to acquire vKSP. However, even if you stake the same quantity of KSP, the amount of vKSP acquired will vary depending on the length of the staking period. This means that long-term governance participants will get more voting power. We believe that it is only natural that long-term participants exercise strong decision-making rights for KLAYswap’s growth.
1–1. KSP Distribution
If you stake your own KSP, you can earn the voting power (vKSP) and receive additional KSP based on your governance contribution. The KSP mining distribution rate for eligible voters is set to an initial value of 20%, which can be changed through an overall governance vote. Of 73,440 KSP currently distributed daily, 14,688 KSPs will be distributed to vKSP holders, while the remaining 58,752 KSP will be distributed to pool liquidity providers.
1–2. KSP Staking Policy
- You can apply for a staking contract for an integer quantity of KSP. You need to proceed with an Approve procedure for KSP for your first staking contract.(1st time only)
- Voting rights (vKSP) obtained through each staking application will be based on KSP quantity and contract duration (4/8/12 months).
- Staking rewards are distributed proportionally to the user’s share(%) of vKSP vs total vKSP, (i.e., your vKSP/ the total number of vKSP).
- If several applications for different periods require renewal of previously acquired vKSP, reward efficiency “Boosting” may result in additional vKSP given to reflect the quantity of KSP staked and its corresponding contract period.
- The final date and time of staking contract expiration will be processed in accordance with the following criteria: Case 1. Current time + New contract period (4/8/12 months) ≤ Existing contract end date and time → Existing contract expiration date and time is the final expiration date. Case 2. Current time + New contract period (4/8/12 months) > Existing Contract expiration date and time → Current time + new contract period date and time is the final end date
- Cancellation is not possible before the end of the contract period.
- Distributed KSP rewards can be freely claimed and received in wallets.
- If the existing KSP balance changes due to additional KSP staking/unstaking, any accumulated KSP rewards will be automatically claimed and sent to your wallet.
2. Determining KSP Mining Distribution per Liquidity Pool
As revealed in our previous post, with the introduction of governance, the current KSP distribution rate by liquidity pool (set to initial value) can be changed through voting by vKSP holders. How KSP mining pools are selected is based on the following policies:
- 20% of daily KSP distribution will be distributed to KSP staking participants. (Distribution rate may change through governance vote)
- 80% of daily KSP distribution is based on real-time liquidity pool voting. The KSP distribution rate by pool is calculated with the formula below (3).
- KSP distribution rate of the pool = ((the number of vKSP voted on that pool)/ (the total number of voted vKSP) * 80
- The pool’s calculated distribution rate of the pool is aggregated in integers between 1% and 100%.
ex) If the calculation of the KSP distribution rate of Pool A is calculated as 12.34%, the actual KSP distribution rate of Pool A is 12%.
- KSP is distributed to the top 20 pools (based on pool distribution rate); no KSP is distributed to pools with a distribution rate of less than 1%.* Voting power (vKSP) voted in pools not included in the top 20 will be applied to the top pool, and KSP will be distributed accordingly.
- Pool distribution rates may change in real time with each voters’ votes.
- The KSP distribution rate of KSP per pool is calculated to reflect the voting status in real time. (changes applied approximately every 1 minute) * Pool voting rate = (vKSP quantity voted on the pool)/ (total voting quantity) ** KSP distribution rate = ((vKSP quantity voted on the pool)/ (total voting quantity) * 80)
A 1% KSP distribution rate applies only when the pool voting rate exceeds approximately 1.25%.
3. Transaction Fee Rewards Distribution
Liquidity pool transactions (swaps) currently incur a 0.3% fee. Liquidity pool voters may receive additional revenue from the pools they support through KSP mining distribution rate voting. 50% of the transaction fees from the pools they support will be distributed to respective vKSP voters, and the other half will be distributed to the pool’s liquidity providers.
Pool voting and fee distribution will be carried out in accordance with the following policies:
- Voters can cast their votes (vKSP) across up to 10 liquidity pools. Voting power can only be exercised in whole numbers.
- 50% of transaction fees incurred in a pool are distributed to vKSP voters of that pool. Transaction fees incurred during the period of vKSP pool voting are distributed.
- The transaction fee that each voter receives is based on the proportion of their vKSP shares in the pool, i.e. the percentage of vKSPs/vKSPs voted in the pool.
- Fees accumulated without a pool vote are not subject to distribution.
- Transaction fees distributed for each pool can be freely claimed and received in wallets.
- If the voting volume changes due to voting/unvoting or loss of voting rights (KSP Staking expiration), any accumulated fee rewards will be automatically claimed and received in your wallet.
4. Staking Contract Expiration and Renewal
- At the end of a staking contract, you can unstake your KSP for a 7 day expiration period and receive it in your wallet. If you unstake within the 7 day period, corresponding voting power (vKSP) will be returned and your KSP can be withdrawn.
- If you unstake KSP while you are participating in a pool vote, your voting history will be fully reset due to the return of your voting power, and the amount of transaction fees distributed by the pool vote will be automatically claimed and sent to your wallet.
- Voting power and voting history held during the expiration period of the contract will be maintained.
- If unstaking is not done within the 7 day expiration period, staking is automatically renewed for the duration of the longest period of the previous contract (4/8/12 months) and the corresponding voting rights will be given. Contract auto-renewals cannot be undone.
- If additional staking has been done within the expiration period, the additional staked quantity + existing contracted quantity will be deemed to have been renewed from that date.
- Voting does not reduce the number of vKSP you have.
We explained above how KSP holders have decision-making authority over the transaction fee reward distribution and KSP distribution of KLAYswap through staking and voting.
In summary, KLAYswap’s incentive system is determined by individual participants in a completely decentralized form, and we expect that as participants pursue their own interests within KLAYswap, KLAYswap’s economy will expand.
vKSP’s start and KLAYswap’s next goal
The start of vKSP, or KSP staking, determining KLAYswap’s incentive system, will begin right after the security audit scheduled for the end of March 2021. All KSP holders can participate through KLAYswap’s ‘Stake & Boost’ section.
After a stabilization period of the new vKSP-based incentive decision-making system, a governance forum will be opened for individual participants to make changes and introduce various policies of KLAYswap. The forum will help ensure that the agenda discussions, registration, voting, and time periods needed for governance consensus to occur are achieved smoothly.
The KLAYswap team will also continue to make various efforts to ensure that the Klaytn ecosystem continues to have abundant liquidity, and will continue to regularly announce updates. Representatively, we are currently planning to introduce a smart contract-based collateralized debt position mechanism so that stablecoins with stable currency functions can emerge in the Klaytn ecosystem. We will continue to share updates regarding this, including possible ecosystem and technical development to the members of the KLAYswap community.
In this post, we explained the new opportunities and features available to KLAYswap users, KSP staking and vKSP voting procedures/policies, and our underlying philosophy of governance.
Giving community members responsibility and authority over governance and its incentive systems is a very challenging goal, and KLAYswap aims to achieve this and become a liquidity hub in the decentralized financial ecosystem by accelerating an ongoing influx of participants.
The community is now a major operator of KLAYswap! We look forward to your active and positive participation as we work to achieve our common goals!