SWM Tokenomics

An alternative Swarm Network Proposal

SWM tokenomics = Rewards for Staking + Liquidity

Hey from Philipp, Timo, and a group of long-term SWM token holders.

We are incredibly excited about the new app that has been created by a group of Swarm Network members on top of the SRC20 + SPF protocol. We believe this together with other upcoming developments will be marquee milestones to advance Swarm and drive adoption. Kudos to Corn, TokenAddict, and the two devs. We applaud their initiative and it’s great to see the renewed community interest come in.

The group is also proposing to change the tokenomics for the SWM token and introduce a new governance token for the Swarm network. As Swarm community members, we would like to add our perspective and voice our concerns with the current proposal:

• Creating another token on top of SWM is counterproductive. It takes the attention away from SWM and leads to buyer’s confusion and market challenges. We believe modifying the staking and rewards model for the SWM-token is sufficient to achieve our common goals.
• The new token proposal contains significant questions around supply and inflation around the proposed SWG token, which would put the preservation of token supply into question. Something the community voted away re SWM in early 2019.
• As a network we need to be incredibly mindful not to create centralized functions. The existing proposal would introduce some centralization, as well as create further dependencies on individuals and ongoing administration/maintenance.

SWM Tokenomics… an alternative

Therefore we are proposing a modified version, that would address these concerns:

IssuanceMintFees:

• Today the issuers of SRC20 are required to stake their SWM issuance stakes based on this rate card. We propose to turn this into a fee rate card and amend it with this previous proposal. The IssuanceMintFee would be collected at token minting within the SRC20/SPF and distributed from there.
• To start, 80% of the IssuanceMintFees should go to SWM Staking Pool (see below) and 20% to the SWM Network Treasury, allocated by SWM Governance.

SWM Staking Pool:

• This pool becomes the hub for the SWM protocol to reward behavior. It is a Balancer pool with two assets.
• SWM hodlers commit 50% SWM tokens + 50% SWM Liquidity Pool Token (see below) to this pool. The equal weighting is purposely giving both aspects the equal attention. As a result they get SWM Staking Pool Tokens giving them a pro-rata share of the pool.
• All IssuanceMintFees and all Masternodes Rewards (name should change to Staking Rewards, but continues to follow set schedule) are voluntarily added to assets within this pool. That way the asset base increases constantly and SWM Staking Pool Token holders benefit on an ongoing basis.

SWM Liquidity Pool:

• This pool becomes the hub for SWM related liquidity. It starts with 80% SWM and 20% ETH, but ideally that value is adjustable by SWM governance.
• If this pool is out of sync with other liquidity pools, SWM hodlers can certainly arbitrage against the SWM Liquidity Pool and adjust its asset base accordingly.

SWM Governance:

• The SWM governance continually receives a portion of the IssuanceMintFees; it starts with 20% and can deploy into further development or market development, all subject to SWM governance.
• SWM governance and treasury distribution should change from the SWM token to the SWM Staking Pool Tokens, as these SWM hodlers have a higher degree of vested interest.

So what are my choices as a SWM hodler?

Under this proposal, the mechanics of staking for SWM hodlers would be the following:

Option 1: Add to the SWM Liquidity Pool on Balancer: Add 80% SWM / 20% ETH to a SWM Liquidity Pool like this one, receiving Balancer Pool Tokens (SWM-ETH BPT) that represent the pro-rata share of the pool.¹ This mechanic:

1. Creates liquidity for SWM
2. Rewards liquidity providers a share of the swap fees from all trades between SWM and ETH using this pool.

Option 2: Add to the SWM Staking Pool on Balancer: Add 50% SWM and 50% SWM-ETH BPT (obtained in Step 1) into a SWM Staking Pool on Balancer, receiving Balancer Pool Tokens to represent the pro-rata share of the pool.¹ This mechanic:

1. Alleviates the current Masternode staking requirements to run a physical machine and 50K SWM with a much simpler staking mechanism.
2. Reduces the effect of the competing interests and opportunity cost between providing liquidity and staking, requiring that those who wish to stake SWM have also provided liquidity, or at least have acquired liquidity pool tokens, generating fees for existing SWM stakers.
3. Creates a market for SWM liquidity.
4. Rewards SWM stakers a pro-rata share of the swap fees from trades of SWM liquidity and also from staking rewards.

Advantages

We believe this proposal has some key advantages:

• It creates an ongoing development budget that scales with adoption and sustains protocol innovation,
• It preserves the core intentions around incentivizing token liquidity,
• Aligns better the protocol adoption with the SWM token value to the benefit of engaged SWM token holders,
• It is overall leaner on gas requirement, as the distribution of value into the staking pool participants are only based on single transactions and each pool participants individually decides when to take out their pro-rata share,
• It is independent of individual actors aside from what’s defined in the Swarm Network Constitution,
• It is somewhat clearer and more transparent in it’s mechanics,
• It preserves focus on SWM token and its value

We look forward to community to suggest any amendments / improvements to this proposal.

We will create a GAP around our proposal, but ask the Swarm Council to distill this proposal together with the other one, or any other variations into an upcoming community vote. We look forward to the SWM community should having it’s voice which alternative speaks to them more.

[1]: Of course in either of these options mentioned, as with any Balancer pool, the staker can choose to provide only a single asset into the pools, which would be like “trading” a portion into the other asset. This is reflected by the resulting Balancer pool token representing participation in both assets.