MINt token: expose MINt Liquidity Providers to other pairs

Summary

When redeeming from MINt to MIN, instead of giving users yield farm boost on the
MIN/ADA pool exclusively, we give users yield farm boost on any pair, possibly even in
different weights. The aim is to give the MINt token more usability, powering the DEX as
a whole.

Background

The MINt tokens are the tokens that will be airdropped to the community through several mechanisms, and that aim to incentivize and reward Liquidity Provision to the Minswap DEX. As described in the FISO FAQ section, to convert from MINt to MIN tokens (the governance token of the DEX with commercial value), one has to provide an amount of MINt and ADA in a 50:50 weighting to a MIN/ADA pool. Then, a MINx/ADA LP token will be minted and locked for 45 days. The ‘x’ indicates a multiplier for yield farming rewards on top of the normal MIN/ADA LP rate. After 45 days lockup, the amount of ADA and MIN you can withdraw gradually increases on an additional 45 days linear vesting period, after which you can withdraw 100% of your ADA and MIN. The LPs that convert their MINt tokens will have one of the biggest boosts on yield farming rewards of MIN tokens ever.

Currently, there are 100,000,000 MINt distributed through the FISO airdrop and 5,000,000 MINt distributed through incentivized testnet airdrop, representing 2.1% of total MIN supply. MINt has a 1:1 conversion rate to MIN.

Motivation

Having a gigantic liquidity pool for the MIN/ADA pair on launch wouldn’t be the best scenario for the Minswap protocol, as other pairs would lack the necessary liquidity and thus be inefficient. Additionally, forcing users to lock liquidity and thus exposing them to the IL in the MIN/ADA pair would also prevent adoption, and increase selling pressure of MINt on secondary markets. Enabling the conversion of the MINt token in additional pools would prevent this.

Solution

In the previous option, when redeeming MINt tokens, one deposits MINt and ADA tokens in a MIN/ADA pool, at which point they convert to MIN tokens, and after a lock-up period of 90 days they can be fully redeemed.

In this second option or “boosted yield farming”, a user would first provide liquidity in the DEX with their tokens (for instance in the LQ and ADA, LQ and MELD or any X/Y pool), hence obtaining a normal LP token. Then, by staking this LP token plus their MINt tokens to yield farm pools, liquidity providers can redeem MIN. Two things will happen:

  • The LP tokens corresponding to the MINt tokens that are aimed to be redeemed will be locked for 90 days and yield additional MIN rewards. The ratio between LP tokens and MINt tokens will be configured for each pool.

  • MINt tokens will be burned and the same amount of MIN tokens are minted with 90 days vesting period.

For illustration, the process would be: a user provides a liquidity pair to the DEX (for instance MIN and ERG, ADA and ERG or ERG and MELD), the user gets an LP token, the user locks these LP tokens along with the MINt tokens in a farm, and after 90 days the LP tokens, the earned MIN from providing it and the converted MIN can be redeemed.

This basically has the same effects as the previous mechanism: converted MIN tokens from MINt will be locked for 90 days, and users receive yield farm boost for 90 days on their locked LP tokens. However, by having the option to utilise their MINt tokens locking their liquidity on pools different from the ADA/MIN one, users will reduce their exposure to IL, which in this particular pool would be relatively significant.

Moreover, as the changes pertain to the Smart Contract of the MINt token, it would not delay the launch of the DEX, while giving users extra incentives to provide liquidity. In addition, boosted yield farming users generate more yield, not only from the MINt to MIN conversion, but also from the locked LP token generating MIN tokens. The downside is the MIN/ADA pool will have less liquidity to trade, but increased adoption will drive Minswap valuation and compensate for this.

Authors

  • Yes, I support this measure
  • No, I am against this measure

0 voters

5 Likes

Welcome @PGSargent and congrats on the first proposal on Minswap forum! This idea sounds nice. From the technical side, both the old mechanism and the new mechanism have about the same engineering efforts. I like that with the new idea, users can choose among the boosted pools to provide liquidity too, instead of committing to just one pool (MIN/ADA).

What’s interesting is that the boost weight for each yield farm pool is different and configurable, I think this could be a good subject for future proposals and/or DAO votes.

6 Likes

Mintswap will be Explode

2 Likes

I think this proposal is a step in the right direction. This will open a new option for users to convert their MINt, and also incentivise liquidity for other tokens than ADA/MIN.

In the technical side, since there can be multiple ways for MINt tokens to be converted, perhaps there should be a way to query MINt tokens that are being converted from many different LPs and track their specific timings correctly for a particular user? A dashboard that shows this data would be very useful.

Overall, great first proposal. Looking forward to see more like these in the future :+1:

3 Likes

Great idea.

Following the community-minded thinking characteristic of Minswap I think it would make sense to set the system up in such a way that no one single liquidity pair tilts and warps the yield reward system. If any other pair than MINt/ADA proves to be the best value generator though, basic economics guarantees that it will soak up most of the liquidity meant for the whole ecosystem because people will just want to make the most money in the shortest possible time.

What solutions exist, if at all, that lead to a self-regulating fair and healthy distribution of liquidity among any number of pools that 1; doesn’t require micromanaging the reward calculation process 2; scales well when the number of unique token pairs increases drastically?

Obviously this question is only relevant in the context of the effective conversion of MINt tokens. If any one pool is incentivized by a reward multiplier it can possibly devalue investments committed into another pool if I understand the dynamics correctly?

2 Likes

All for it - stellar idea. Will facilitate increased liquidity across pairs and help establish Minswap as the go to cardano DEX

1 Like

DEXes are the most useful when they have a large TVL of diverse assets. This will become especially important as trading aggregators like 1inch appear on the Cardano scene….the DEX with the best liquidity will win that business. Dexes that focus rewards on their own tokens, in this case MIN, will have a difficult time attracting diverse assets to their pools. We certainly need to have ADA/MIN liquidity, but other assets, even early on, will be important for trading volume.

This proposal gives MinSwap a better chance at attracting more than just ADA/MIN liquidity to the dex, and I strongly support it.

2 Likes

This is a great idea. It has BLADE’s and my approval.
Good job @PGSargent and @long.ngn :smiley:

2 Likes

Great idea guys!

I think you can build further on the LP tokens (after the 90 days lock up) with a lending platform such MELD. Maybe it’s possible to use those LP tokens as collateral for a loan? Or another lending platform which you can use the LP tokens to mint a stablecoin that can be used for other DeFi opportunities?

Yes ofc! Great idea.