What benefits do Liquidity Providers have?
Swop.fi is an instant cryptocurrency exchange operating an AMM (automated market maker) model. Swop.fi combines several types of liquidity pools using different price formulas depending on which is most suitable for each specific token pair.
You can add tokens to the pool of your choice and become a liquidity provider (LP). For information on how to do this, see our Guide.
The LP’s income consists of two parts:
- Trading fees accumulated in the pool relative to LP’s share.
- Incentive paid out in SWOP, the protocol’s governance token.
We’ll distribute an exclusive pre-launch reward of 1 million SWOP among the early-bird liquidity providers (see Pre-Launch Reward below).
What Is SWOP
⚠️Be careful: the SWOP token is not launched yet. We’ll announce the SWOP launch in our blog.
SWOP is the governance token of the protocol. After the SWOP launch, SWOP holders will be able to vote for key system parameters, for example:
- Swap fee size.
- Percentage of fees spent on increasing SWOP capitalization.
- Choice of reward-bearing pools whose LPs will be entitled to SWOP tokens.
The SWOP reward is based on both the size and duration of the liquidity added to the pool. You will be rewarded according to the market value of the tokens you contributed to the reward-bearing pools, relative to the total market value of tokens in all such pools.
The total SWOP supply will be 6 million: 1 million for pre-launch reward and 5 million for all the annual rewards after launch.
In the short period before the SWOP launch, you can earn the greatest reward. 1 million SWOP will be granted specifically for the early-bird liquidity providers. At the time of the launch, this amount of SWOP will be distributed among LPs according to the market value of liquidity they provided during the pre-launch period. The pre-launch reward will be vested to LPs gradually within a year after the launch, so that the gradual SWOP emission leads to a healthy market equilibrium.
SWOP launch is scheduled for late 2020 or early 2021.
After the SWOP token launch, the annual SWOP reward will be as follows:
- First year: 1 million.
- Second year: 1 million.
- After that: the previous year amount minus 25%: 750,000 over the third year, 562,500 over the fourth year, 421,875 over the fifth year, and so on.
As a governance token that lets you control the protocol parameters, SWOP has its own value. SWOP market price will be driven by supply and demand.
A part of swap fees (currently 40%) from all the Swop.fi pools will be converted to USDN and added to the SWOP/USDN pool to increase the SWOP price.
Share of Fees
Another part of swap fees (currently 60%) remains in the pool and increases the value of the share token that represents each LP’s current share in the pool. When you add liquidity, the smart contract mints the share token and transfers it to you, in proportion to your contribution:
For any of Swop.fi pools, you can add two tokens in the same ratio as they are in the pool. Suppose the smart contract stores 100,000 Waves and 350,000 USDN, so you can add, for example, 1000 WAVES and 3500 USDN. The total amount of the pool token sWAVES_USD-N is increased by 1% and your share is 1/101.
For USDT/USDN, you can also add liquidity in a single token. You can take advantage of this if the pool lacks some token compared to the other and your contribution brings the ratio closer to 1:1. Your share is calculated using a dummy swap that would exchange a portion of your contribution so that the token ratio in it becomes equal to the ratio in the pool. By adding the lacking token, you receive more share tokens than adding both, since the current price of the lacking token is higher.
Whenever a swap occurs, the amount of share token does not change but its value goes up due to the fee appended to the pool. When someone adds liquidity, the smart contract mints share token again, and therefore your share decreases: the further swap fees are shared among all the LPs of the pool including the new one.
At any time you can remove liquidity by sending your share tokens (or part of them) back to the smart contract which burns them. You receive the underlying liquidity proportional to your share, which contains accumulated fees as well.
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Add liquidity and earn with Swop.fi!