Flux Liquidity Incentives: What You Should Know
General disclaimer: None of the following should be considered financial or investment advice - please consult a financial professional before engaging in investment related activities.
Decentralized Finance (DeFi) has taken the crypto world by storm in recent months. Used to refer to the decentralized management of financial services in the form of exchanges, lending platforms, marketplaces and tokenized assets, DeFi holds the promise of re-imagining finance in a more private, decentralized, and market-based manner.
Flux Protocol, a rising DeFi project in its own right, has recently launched their Main Net on NEAR Protocol. As a followup to this announcement, Flux CEO Peter Mitchell also released an exclusive look into the liquidity incentives on Flux and the value proposition of using Flux as a market maker, validator, and trader. Here are the most important takeaways from that announcement:
There is a Huge Opportunity to Earn Flux Tokens By Locking Up nDAI: Flux CEO Peter Mitchell explains it best in the example he provided in his exclusive series, Flux Behind the Scenes:
“Example: Liquidity providers (LP) supply 10m DAI to select markets that leverage the Flux CPMM. Each day ~171k $FLUX will be distributed to LPs based on the total DAI allocated to markets out of the total liquidity supplied. If the supply is 10m DAI for 30 days, the LPs will earn 5.13m $FLUX.”
What this example demonstrates is the means by which Flux intends to guarantee liquidity for its markets from the very beginning: ¼ of all Flux tokens (25%) will be allocated to network participants who provide liquidity in the form of nDAI and other ERC20 stable coins and assets. Flux tokens are issued to specific markets via community vote, and liquidity providers receive such rewards based on the amount of nDAI they lock up as well as the amount of time they lock it up for. All in all, this is a HUGE opportunity to earn Flux at the launch and early stages of the protocol.
Open-Interest is Correlated with Validator Rewards: Second, Peter revealed that open-interest on the platform is correlated with validator rewards via the relationship between open-interest and the total market capitalization of Flux.
Increasing Rewards: If the market cap is less than 5x the total open-interest across markets, then validator fees (i.e. rewards for resolving markets) are increased via community vote.
Decreasing Rewards: If the market cap is more than 5x the total open-interest across markets, then validator fees (i.e. rewards for resolving markets) are decreased via community vote.
Putting one and one together, it’s easy to see that the incentive to provide liquidity in the form of open-interest will not only result in yielding Flux to liquidity providers, but it will also most likely result in increasing rewards for Flux Protocol validators. As such, there is a direct incentive to not only yield Flux but to also hold it and stake it on the network. These two upward pressures suggest a high growth in both open-interest and market cap of Flux shortly after the launch of the protocol.
The Flux Flywheel Is a Win-Win-Win: The ‘Flux Flywheel’ is the process by which mutually reinforcing activities result in positive cyclical growth for the core tenets of the Flux platform:
It starts (1) with liquidity providers earning a yield with Flux and fees from active markets.
This, as described above (2) increases the validator incentive for holding Flux and resolving market outcomes.
In turn, (3) developers and entrepreneurs looking to build verticals, are incentivized to build more solutions on markets that already have significant amounts of liquidity.
Finally, (4) a spike in the number of solutions leads to a vast collection of open-markets that will attract traders, and bolster the overall development of the protocol and all of the pieces involved therein.
As a unique win-win-win, this mutually reinforcing process will continue to expand over time, as more Flux markets become more liquid, with more validators, more verticals, and more traders.
Over Time Flux Protocol Will Continue to Expand, Making Early Participation Especially Rewarding: When we put all of these considerations together, we find that Flux is not only a serious long-term project that will only continue to grow overtime (Note: The Total Addressable Market for Flux is valued at over $12 trillion dollars.) But that for those who are active from the beginning - be it as liquidity providers, early validators, developers and entrepreneurs, and those participating in the social incentive program - stand to serious benefit from the rapid rise and growth of the entire protocol.
It is an exciting time to be a part of Flux: To get more involved, join the Flux Community on Telegram, or sign up for the Flux Social Incentive Program today!
About 4NTS: 4NTS Guild is a rising NEAR Guild focused on connecting and communicating NEAR, its different projects, and the tremendous opportunity for entrepreneurs, contributors and other Guilds. Feel free to drop us a line at m@4NTS.com