Polars: Platform distribution of income from trading fees
In the two previous articles, we got acquainted with the basic concept of polar tokens, as well as with the structure and logic of the main smart contracts of the Polars platform. In this article, we will tell you about how platform revenues are generated and how these revenues are distributed among the stakeholders of the Polars ecosystem.
The main source of revenue generation is trading fees for making swaps in liquidity pools on the Polars platform. Users buy, sell and exchange polar tokens among themselves and they pay a liquidity fee for each transaction.
The trading fee rate for swap in the Secondary Pool is 0.5%, and the trading fee rate in the Trade Pool is 0.3% for the swap. The higher fee in the Secondary Pool is due to the fact that there is no slippage and the price is fixed, so users have no probability of losses as a result of slippage.
All income from the liquidity fee paid by users is distributed in several directions:
- 50% of the liquidity fee goes to market makers and liquidity providers who have added polar token liquidity to the Polars platform liquidity pools.
- 20% of the liquidity fee is sent to the Base Pool as an underlying asset, thereby increasing the security of minted polar tokens and increasing their aggregate price.
- 30% of the liquidity fee is sent to the incentives staking pool, where it is proportionally distributed among the Advanced Users.
Consider each of the above landmarks:
Liquidity Providers Fee
Liquidity providers place liquidity of polar tokens in the Secondary Pool and in the Trade Pool and receive LP tokens of these pools in return.
They can place these LP tokens in a Farming smart contract and receive additional rewards in governance tokens, but we will talk about this in more detail in our next articles.
Initially, each LP token has a certain weight within a specific liquidity pool. As users make swaps and pay liquidity fees, the weight of the received LP tokens gradually increases. To the base cost and weight of LP tokens, a cost is added, comparable to 50% of commission income from all swaps. Thus, when a user returns LP tokens back to the pool, he receives more liquidity in return than he originally added. This difference reflects the providers’ liquidity fee received.
Base Pool Collateral
In a previous article on the technical structure of the Polars platform, we examined the mechanism for calculating the aggregate price of polar tokens in the Base Pool:
Polar token aggregate price = Base pool collateral / Polar tokens minted.
Based on this formula, we can conclude that if we increase the size of the base pool collateral, then the total cost of polar tokens will grow. This will further motivate liquidity providers and long-term holders of polar tokens, as long-term holding of polar tokens can be very profitable.
For example, if the trading volume on the Polars platform fluctuates within the range of $1 million per day, then holders of polar tokens will be able to additionally receive from 100% APY due to the fact that the collateral of the base pool will constantly increase.
Governance Token Holders
30% of all platform revenues go to a special incentives staking pool. Advanced Users of the Polars platform have the opportunity to claim a proportionate share of these proceeds in governance tokens.
Thus, in the end, all platform revenues remain within the Polars ecosystem. Part of the income is received by liquidity providers, who additionally receive governance tokens as a reward for yield farming. Part of the proceeds goes to the base pool, increasing the aggregate price of polar tokens, from which all polar token holders benefit. And part of the income is received by Advanced Users of Polars platform. Since governance tokens can be obtained for activity on the Polars platform, the circle of beneficiaries is expanding even more. But we will talk about this with you in the following articles.
The new DeFi platform for creating secure polar tokens, the price of which depends on the results of specific external events. Within the POLARS platform, users can buy, sell and exchange polar tokens, as well as participate in the distribution of the platform’s commission income.