Tokenomics V2.0

Published in

Uniwhale

5 min readJul 13, 2023

Background

We launched on Binance Smart Chain in March 2023 and since then saw rapid growth. Our trading volume hit nearly $500mio and more than $380,000 protocol fees were paid by traders. 40% (more than 144,000 USD) of these fees was distributed to esUNW holders.

On the other hand, we also had some significant selling pressure, in particular, on UNW, partly driven by the Pancake Syrup Pool farming and the Airdrop programme. We expect these selling pressures will subside soon because the Pancake Syrup Pool farming will end in June and the passing of UIP-5 means Airdrop holders now have an option to burn 50% of what’s remaining and receive UNW immediately.

So it is time now to look at how we may fine-tune and upgrade the existing tokenomics that serve better given where we are now and where we are heading.

What do we aim to address and achieve

The Proposal aims to primarily address the following concerns our community has

UNW and esUNW compete, with not enough incentives for UNW holders to convert to esUNW.
ULP and esUNW compete for Fee Distribution, without benefiting each other.
Traders, who may not be aligned with the long-term interests of the protocol, earn too much esUNW emission.

And we would like to address these concerns in a way that achieves a more coherent Tokenomics with the following goals

Protocol revenue directly drives both esUNW and UNW.
UNW and esUNW complement and create a positive feedback loop.
Emission is used more effectively to drive revenue higher.

creating the following Flywheel:

Proposal details

The Proposal calls for:

Replace esUNW with UNW as the primary emission token,
Migration of esUNW to “esUNW-v2”,
Introduction of “Fee Vault”, and
Introduction of “Hyper Event with Ladder” as part of token emission

Replace esUNW with UNW as the primary emission token

esUNW was meant to reward the long-term stakeholder of Uniwhale, allow UNW holders to convert to such long-term stakeholders while giving esUNW holders an option to convert back to UNW if they need. While sound in theory, what we observed in practice was the incentives were not attractive enough for UNW holders to convert to esUNW, while the incentives that were allocated to UNW (instead of esUNW) were not attractive for UNW holders to stake, often leading to little reasons to buy and/or stake UNW and thus creating selling pressure.

So the Proposal calls for a clear distinction between esUNW and UNW, with esUNW continuing to reward the long-term stakeholders of Uniwhale but in a way that does not compete with UNW (see “Migration of esUNW to “esUNW-v2””) and for UNW to be the primary tool for incentives for Uniwhale, i.e. be the primary emission token.

Migration of esUNW to “esUNW-v2”

esUNW should continue as the governance token of Uniwhale, whose holders are rewarded based on their long-term commitment to the protocol.

To serve its narrower but better defined purpose, the Proposal calls for esUNW to stop being the emission token, and be more exclusive.

Specifically, the Proposal calls for esUNW to be upgraded to esUNW-v2 with the following feature:

Max Supply: 2,000
Initial Supply: Up to 140 (see “esUNW migration”)
Emission: 416 per year across staking and auction (see “esUNW-v2 emission”)
Non-transferable
Redeemable at the intrinsic value of Fee Vault

esUNW migration

The Proposal calls that the esUNW holders migrate to esUNW-v2 with a few options to those holders who do not wish to migrate.

Each 50,000 esUNW will be equal to 1 esUNW-v2, considering the maximum supply of 2,000. Given the current circulating supply of c. 7m esUNW, this means the initial supply of esUNW-v2 can be as many as 140, if all esUNW holders choose to migrate.

After the migration, esUNW will receive neither Fee Distribution nor Emission. esUNW that is not migrated may be :

vested to UNW (linearly over 6 months),
if converted from UNW, be converted to UNW immediately 1:1, or
if otherwise, be converted to UNW by burning 50%

esUNW-v2 emission

1 esUNW-v2 per day is allocated to UNW staking.
1 esUNW-v2 will be auctioned on a weekly basis, where, for an allocation of esUNW-v2, UNW holders burn UNW.
Therefore, 8 esUNW-v2 will be emitted every week, annualizing to 416 esUNW-v2.

Introduction of “Fee Vault”

As part of the governance, esUNW-v2 holders also control Fee Vault, whose value is mapped to esUNW-v2, by allowing esUNW-v2 holders to redeem esUNW-v2 (i.e. burn) against the intrinsic value (proportional) of Fee Vault.

The Proposal calls for the Fee Vault to receive 40% of the Fee Distribution, which is then automatically converted into ULP. This re-investment of fee into Liquidity Pool aligns the interests of esUNW-v2 holders with the ULP holders.

Introduction of “Hyper Event with Ladder”

Currently 65% of esUNW emission goes to Traders as part of “Trade and Earn”. This is effectively a “fee rebate” model, in esUNW, but our observation has been that it has not been very effective in attracting real users.

So instead of indiscriminately giving out the valuable resources, the Proposal calls for much of the UNW emission to be part of so-called “Hyper Event with Ladder”.

Hyper Event with Ladder is any event organized by the protocol to encourage growth, either in terms of trading volume or in TVL. An example is a trading competition, where the best traders are rewarded with UNW.