Equalizer will be launched on the morning of September 30. Governance tokens will be distributed intelligently according to the transaction volume of the trading pair, and the mining weight of each trading pair will be automatically adjusted every half day.
Written by: Spike Chen
DeFi (Decentralized Finance) is undoubtedly the most popular investment field in the blockchain industry today. After more than two years of low-key sneaking, DeFi ushered in explosive growth in the second half of this year. According to DeBank data, the total lock-up volume of DeFi was US$670 million when it encountered the Black Swan incident on March 12. In just 6 months, the total amount of DeFi locked up has exceeded 11 billion U.S. dollars, an increase of more than 10 times.
The engine of this outbreak of DeFi comes from DeFi’s governance tokens. Based on Ethereum’s lending protocol Compound, it issues governance tokens COMP, and distributes these tokens to DeFi liquidity providers (LP) for incentives. It pioneered liquidity mining in the industry, and its own platform liquidity has increased by 6 times. COMP tokens The value of ”rose from nearly US$66 in early June to nearly US$220 in mid-August. Various agreements that followed up quickly attracted unprecedented liquidity. The most typical example is the DeFi agreement yearn.finance, which was released on July 17. The price of YFI’s governance token soared to more than $1,000 within 72 hours, and rose to $41,157 on September 13 within two months of its release, becoming the first cryptocurrency to surpass Bitcoin in the shortest time. The governance token UNI issued on September 17 by Uniswap, the decentralized exchange that occupies the first place in total lock-up volume and trading volume, has become a major event in the DeFi industry, with its market value once climbing the sixth place.
Rise and fall, what happened to liquid mining?
However, the market is like a roller coaster, after climbing the peak, it began to fluctuate continuously. The reason is that, on the one hand, the current distribution and incentive mechanisms of DeFi governance tokens are unfair and unreasonable, which threatens the long-term liquidity of the entire DeFi ecosystem.
For example, the emergence of UNI has undermined the fairness of Uniswap’s entire system: At present, UNI’s token incentives are only for 4 trading pairs, attracting most of the liquidity, and LPs of other trading pairs will take no matter how much they contribute. Less than UNI token incentives. SushiSwap, which successfully sucked Uniswap before, has 100 trading pairs, but only 18 trading pairs of LP can get the governance token SUSHI incentive. These 18 trading pairs account for more than 90% of the traffic on SushiSwap, while other transactions without incentives The counter flow is almost zero.
In terms of governance, at present, all liquid mining projects are determined by the development team at one time which transaction pairs can obtain governance token incentives and corresponding mining weights. Even if it can be modified by community voting in the later period, the whole process is lengthy and inconsistent. flexible.
The more direct reason lies in the fact that the supply of governance tokens for the project mostly adopts the inflation model, and the lack of effective supply curve control and repurchase and destruction actions has caused its supply to maintain a linear increase, exceeding the market’s digestibility, making it difficult to maintain stable prices. .
Improve fairness and limit supply. This project allows governance tokens to capture value
The equalizer.finance, which is currently undergoing professional audits and will be launched on the morning of September 30th, Beijing time, will correct the DeFi governance tokens, so that the incentives will return to the free distribution of the market from artificial manipulation and achieve a fairer and more efficient governance tokens Incentive mechanism to innovate the value capture aspect of DeFi protocol. While the governance token incentive mechanism is more fair, the distribution and supply of governance tokens are more reasonable through the control of repurchase, destruction and production reduction curves.
Equalizer issues governance tokens EQL for decentralized governance of future projects and asset liquidity incentives. The transaction fee rate is initially set at 0.3%, half of which is allocated to LP, and the other half is used to repurchase EQL and burn. When the number of daily buybacks is greater than the number of new EQLs generated daily, the entire economic system will enter a deflationary mode. Although the transaction fees received by LPs have been reduced, the revenue of governance tokens obtained through liquidity mining is higher-because governance tokens capture greater value, their overall benefits are greater.
Equalizer’s liquidity mining mechanism is unique, and governance tokens are distributed intelligently according to the transaction volume of the transaction pair. The EQL mining weight of each trading pair is automatically adjusted every half day, and anyone can add new trading pairs at any time. The new weight is related to the number of EQL repurchased and destroyed for each trading pair in the previous round. The greater the number of EQLs destroyed by repurchase, the higher the weight of the trading pair in EQL liquidity mining, that is, the more active trading pairs are, the more rewards they can get, forming a positive feedback mechanism.
In order to prevent the trading volume from skyrocketing and plummeting under extreme conditions, so that the flow can more truly reflect the market heat, Equalizer introduced the EMA (Exponential Moving Average) mechanism, which is calculated based on existing and historical trading data.
EMA is a trend indicator whose construction principle is to perform arithmetic averaging on the closing price to determine the future trend of price changes. Compared with the MACD and DMA indicators, the EMA indicator, because its calculation formula focuses on the weight of the current price (current), determines that it is a type of trend analysis indicator, which overcomes the lag of the MACD indicator for price trends in use Sexual defects, and at the same time, to a certain extent eliminates the signal advancement generated by the DMA indicator for price movements at certain times. It is a very effective analysis indicator.
Assuming there are three trading pairs and no new trading pairs are added, the second round of weight adjustment is shown in the following figure:
If a new trading pair ETH/DDD is added. The weight of the first round of mining is 0, but because the transaction volume is growing rapidly, the number of EQLs burned by repurchase is sufficient, then the corresponding EQL mining weight will be increased in the second round of the transaction (due to the short time, the optimization of the curve cannot be reflected Effect, for reference only):
Equalizer only pre-designates about 10 trading pairs and the corresponding mining weights on the first day of launch, and anyone can add new trading pairs for trading at any time. The mining weights of different trading pairs will be automatically adjusted every 8 hours according to the number of EQLs repurchased and destroyed according to the trading volume (the frequency can be adjusted by community voting afterwards).
Repurchase + burn, and freely add trading pairs
Equalizer trading pairs can be added freely, and users can actively destroy EQL so that their trading pairs can get more EQL in the next round.
Assume that 100 EQL will be allocated in the next round. At this time, there are only three trading pairs online, corresponding to three pools. Pool A consumes 2 EQLs, Pool B consumes 3, and Pool C consumes 5. A total of 10 EQLs are consumed. A total of 100 EQLs will be distributed as mining rewards in the next round.
Then the reward should be:
- A pool 20
- Pool B 30
- C pool 50
If at this time, someone sees this opportunity and voluntarily adds a new trading pair, corresponding to the D pool, and provides 100% liquidity for the D pool. This person directly bought 10EQL and then actively carried out the destruction operation in the D pool. As a result, Pool D has half the amount of destruction of the entire network. Then 50 EQL rewards can be obtained in the next round of D pool. This person only consumes 10 EQL and gets 50 EQL, and others can follow suit. As long as it is profitable, someone will take the initiative to destroy EQL for arbitrage. This will give EQL more opportunities to be consumed.
In order to better encourage early liquidity participants, and at the same time have enough tokens to encourage ecological development, Equalizer has developed a Quasi-fixed-supply model (Quasi-fixed-supply model). The model will be halved after each epoch. But unlike the general production reduction model, the new production cycle will be twice as long as the previous production cycle. As shown in the comparison chart of production rate and total estimate, the EQL distribution model can encourage both early and future participating LPs. Compared to SushiSwap, which uses a constant distribution model for each block, EQL’s production reduction design greatly eliminates participants’ concerns about the dilution value of additional issuance in the future.
Donate liquid mining income to promote the healthy development of the industry
Equalizer will be launched on the morning of September 30th, Beijing time. The following parameters will be used to initiate the token distribution: the first production cycle will last 20,000 blocks (about 3.5 days), and each block will produce 10 EQLs in the first production cycle, which is It is said that 200,000 EQLs will be dug in the first 3 days, and then the production will be reduced to 200,000 EQLs in 7 days, and then the production will be cut to 200,000 EQLs in 14 days, and so on.
The first version of Equalizer was first launched on Ethereum, with zero pre-mining, no private placement, and no public placement. The 10% EQL produced by liquid mining is used for team development, community incentives and a better development ecology. The Equalizer team will donate 1% of the first month to Uniswap and the ecology, thanking for its pioneering and innovation. At the same time, I hope that the industry will have more innovations to promote the healthy development of DeFi, rather than simple malicious plagiarism and fork.
After the launch, in addition to further improving and adding a series of functions such as DAO governance, Equalizer also plans to use other more efficient public chains such as QuarkChain as Ethereum side chain solutions to solve the network’s gas fee and performance issues.
