Our last few posts have covered criteria to look for when choosing a crypto exchange, what makes a DEX different from a centralized exchange, and how Polkaswap is a purpose-built DEX for the composable DeFi future.
Polkaswap’s launch is just around the corner and in this piece, we highlight and explain the three kinds of PSWAP rewards that will be available to users on Polkaswap.
The three ways you can earn rewards on Polkaswap after launch are:
- Adding liquidity on Polkaswap
- Buying XOR from the Token Bonding Curve (TBC) with ETH or DAI
- Market making rebates from trading at least 1 XOR, 500 times a month
Rewards will be earned from the start of the Polkaswap launch, though please keep in mind that the user interface for claiming the rewards will only be available several weeks after launch.
PSWAP Rewards 1: Liquidity Provision on Polkaswap
The first way to earn PSWAP rewards on Polkaswap is to provide liquidity on the DEX with XOR and any other token. Liquidity providers will not only get 0.3% of each swap in fees, but will also get special strategic bonuses in PSWAP tokens.
If you are hodling XOR, instead of keeping your tokens idle in your wallet, you can put your tokens to work to earn passive income by contributing the tokens to a liquidity pool. There is a risk of losing funds via Impermanent Loss, so be careful (!), but once Polkaswap launches, there will be 3.5 billion PSWAP available for farming rewards, at 2.5 million per day; you can check out this article for more details.
Polkaswap users will earn PSWAP tokens for providing liquidity in any XOR-paired pool, with a threshold of at least one XOR. If you contribute to the XOR-VAL, XOR-PSWAP, XOR-DAI, or XOR-ETH pools, your reward will be doubled. The point here is to incentivize the use of XOR, which is our utility and transaction fee token.
By providing liquidity on Polkaswap, you’ll be stimulating the flow of trades, ensuring that transactions are quickly completed, improving the attractiveness of the DEX, and contributing to the acceleration of the DeFi future!
Unlike more complicated systems on other chains, here you won’t have to stake liquidity provider tokens to be eligible for your PSWAP rewards (you will still have to claim, however). There is also a vesting coefficient that increases how many PSWAP tokens you get daily; hence, the duration of the liquidity provided will also influence the number of PSWAP tokens you’ll earn.
Please keep in mind that you won’t be able to claim your PSWAP rewards immediately because there is a PSWAP Strategic Bonus Vesting that is dependent on the Polkaswap transaction volume and the amount of PSWAP tokens burnt daily.
PSWAP Rewards 2: Buy XOR from SORA’s Token Bonding Curve
A token bonding curve is a smart contract that takes as input one token and outputs another, using a mathematical formula. A token bonding curve can automatically issue, sell, and buy tokens at prices that are determined by the mathematical functions used
In contrast to a linear supply-price function, the token bonding curve helps provide forward guidance for the market by tweaking the bid-ask spread to incentivize early buyers while keeping the price of the asset attractive for later buyers.
After the Polkaswap launch, XOR will be managed by a bonding curve supporting ETH, DAI, PSWAP, and VAL as reserve tokens — DOT and KSM will be added this summer at full launch. Users who help collateralize the bonding curve by buying XOR with ETH, DAI, DOT, or KSM will earn PSWAP as a reward ⸺ DOT and KSM purchases will earn double rewards because both tokens will be used to secure parachain slots for the SORA network.
Buying XOR with ETH, DAI, DOT, or KSM would help grow the SORA ecosystem, collateralize the bonding curve, and in the case of DOT and KSM, help SORA secure parachain slots for the Polkadot and Kusama chains respectively. In exchange for this support, 2.5 billion PSWAP tokens have been allocated as rewards for XOR buyers.
The PSWAP rewards to be earned are calculated exponentially as a function of current reserves: the lower the reserves at a given time, the greater your rewards for helping boost them. Hence, early adopters can expect to earn higher greater PSWAP rewards before mainstream adoption. If you’re interested in the math behind the token bonding curve, check out this article. Nonetheless, the PSWAP rewards are vested and the vesting schedule is determined by the daily token burn.
It is important to note that the token bonding curve does not guarantee stability of the price of XOR, but rather a measure of forward-guided price predictability.
PSWAP Rewards 3: Market Making Rebates from Trading XOR
The third way to earn PSWAP rewards on Polkaswap is to conduct a high volume of transactions that qualify for the market maker rebates. Market makers make strategic predictions on bid-ask spreads to boost the liquidity on an exchange by buying and selling in large volumes, as well as carrying out arbitrage with other exchanges and liquidity sources. There is an intrinsic risk that market makers assume in placing a large number of trades on a new DEX, and that is why the Polkaswap dApp will intentionally reward market makers with PSWAP rebates.
Polkaswap will distribute a fixed amount of PSWAP, proportional to trade volume, to market makers who conduct at least 500 transactions per month, with a per-transaction amount of at least 1 XOR.
However, as with rewards gained through yield farming and XOR purchases from the token bonding curve, market maker rebates will be vested and distributed as a fraction of the daily token burn. For details, check out this article.
A Word or Two on PSWAP Rewards’ Vesting Schedules
You’ll notice that PSWAP rewards earned via all of the three rewards programs explained above must be vested before they can be claimed. The vesting of tokens is done automatically (though you will have to claim them) and is an increasing linear function of the number of tokens burned from usage fees.
This gives guarantees that a sudden supply of tokens will not immediately flood the market and gives clear forward guidance about the supply of tokens in circulation.
The vesting speed depends on the amount of PSWAP burned from Polkaswap usage fees. Earned PSWAP are vested as Strategic Bonus Vesting, wherein the amount vested is a percentage of the daily amount of PSWAP burned in transaction fees, as shown in the figure below.
Questions? We’re here for you.
Finance is complex, and DeFi can feel like another level entirely. Polkaswap leverages complex concepts that we believe will improve market efficiency and benefit our community in the long term. We are also committed to taking this DeFi journey together — so if you have questions, reach out to us via Telegram or email us at firstname.lastname@example.org.
We also suggest downloading Fearless Wallet for a test drive of the DeFi wallet custom-built for the Polkadot and Kusama ecosystems. And stay tuned here for our next updates.
About SORA NEO Network, Polkaswap, and Fearless Wallet
SORA is a new economic system aimed at creating a supranational, world economic system with built-in tools for decentralized finance (DeFi). The SORA network implements a new kind of parachain architecture on the Polkadot and Kusama network, with the capability to bridge external blockchains (like Ethereum) to the Polkadot ecosystem.
One of the DeFi applications that will run on the SORA network is Polkaswap, a non-custodial, liquidity aggregating, cross-chain AMM DEX designed uniquely for the Polkadot ecosystem. Polkaswap will offer boundless liquidity through its one-of-a-kind Aggregate Liquidity Technology (ALT).
Fearless Wallet is a mobile wallet designed for the decentralized future on the Kusama and Polkadot networks, with support for iOS and Android platforms. It offers an awesome user experience, fast performance, and secure storage for your accounts. Fearless Wallet will integrate Polkaswap functionality for easy, decentralized swaps of assets.