Alkimi Liquidity Pool (LP)
High liquidity is a fundamental part of any financial-based system as it gives participants the security of transacting with minimal slippage.
Decentralised AMM liquidity pools have the added incentive of enabling transactions without counterparty risk.
The liquidity pool will help the ecosystem to grow while allowing early adopters to benefit the most from that growth.
Alkimi’s liquidity pools also enable more participants to enter the ecosystem, creating a more even distribution of $ADS tokens.
The Alkimi Liquidity Pool will further improve decentralisation and help provide longer-term liquidity for the entire network.
We have decided to incentivise (revenue share with) an 80:20 Pool ($ADS:ETH) pool on Balancer.
Alkimi has chosen the 80/20 pool:
- Lower Impermanent Loss
- More accurately expresses a bullish conviction
- Better performance in volatile trading conditions.
Weighted pools are an adaptation of the classic 50/50 (x*y=K) primarily used by Uniswap and other DEXs.
Weighted Pools are suitable for general cases. However, a Balancer Weighted Pool will allow Alkimi to offer a Liquidity Pool with a ratio of 80:20 (ADS:ETH), reducing impermanent loss.
For an explanation of Impermanent loss, see the Balancer Documentation here.
Using a weighted pool from Balancer allows Alkimi LP providers to choose their preferred level of exposure. Giving them the ability to express sentiment towards $ADS tokens while gaining exposure to the volatility of the fees generated.
Uses of the Liquidity PoolPrimary
- $ADS token buybacks from fees generated from the buying and selling of ads on the Alkimi Exchange (AlEx)
- DEX Liquidity
- CEX Liquidity
Liquidity providers are $ADS token holders adding $ADS and ETH to a liquidity pool in the ratio 80:20. In return for adding liquidity, they will receive a token representing their pool share. The standard designation for this LP token is stADS.
Rewarding Liquidity Providers
The proportion of rewards allocated to Liquidity Providers / stADS holders will be distributed as LP tokens. stADS holders can stake (farm) their tokens on the Alkimi Labs website to receive their share of these tokens.
The equation LP = 1-NR defines the split of rewards between Liquidity providers and Node Operators
Eg. If NR = 0.1 (10%), then LP = 0.9 (90%)
Meaning 90% of AlEx fees will be added to the liquidity pool (and 10% to Node Operators) as per the calculations below.
Fees from AlEx Users and secondary income streams will be invoiced and received in FIAT currency. Alkimi will convert this to ETH.
Given that the liquidity pool holds $ADS:ETH in the ratio 80:20, for every $100 in fees allocated to the Liquidity providers, $80 of the ETH will be used to buy back $ADS. These $ADS will be combined with the remaining $20 ETH and added to the pool.
The LP tokens emitted will then be distributed to stADS stakers on Alkimi Labs.
Initially, token buybacks will be split between the Treasury and the open market to minimise arbitrage opportunities and liquidity leaching from the $ADS ecosystem.
Some of the ETH raised from treasury sales will be used by Alkimi to deploy their $ADS to the liquidity pool. (see Alkimi self-sustainability section below).
Token buybacks will allow Alkimi to increase liquidity as we onboard new network participants. Rewards are generated from actual revenue, so yields will not be inflationary and will provide consistent network growth while avoiding hyperinflation.
Due to payment and reward periods, token purchases will utilise a Time Weighted Average Price (TWAP).
Using a TWAP for token buybacks maintains the payment schedule of the rewards whilst reducing the potential for price manipulation.
Alkimi will facilitate the creation of API keys so users can monitor the level of buybacks and may also include these numbers on a dashboard in future. The fees and buybacks the protocol completes are written to the blockchain for transparency.
In addition to farming yield from fees generated by AlEx, LP providers will earn trading fees as liquidity is added and removed from the balancer liquidity pool.
Buy Backs will commence 20th November 2023.
LP Providers Rewards Formula
The following section outlines the fee distribution between Node Operators and Liquidity Providers.
The total income share from the above-mentioned streams equals TI with a maximal value of 1 (representing 100%).
The Liquidity Provider reward fraction is defined as LP. n = number of Guardian nodes + 4*number of Master nodes The equation calculates the fraction allocated to Node rewards (NR):
LP = 1 - NR(n) = sin(n/50)
LP is between 0 - 1, with 1 representing a 100% share.
When LP = 0.8 - Liquidity Providers will receive 80%, and Node Operators will receive 20% of all fees.
n = will be set by Alkimi based on throughput requirements. Due to the fixed supply of $ADS, the current maximum value of n = 5000. (1000 Guardian nodes + 1000 Master Nodes*4) = 250 clusters.
As n increases and the network grows, Node operators receive higher rewards, and Liquidity Providers receive a lower percentage.
n = 50 (10 Master and 10 Guardian nodes) then NR = 1.74%: LP = 98.26%
n = 2500 (500 Master and 500 Guardian nodes) then NR = 76.6%: LP = 23.4%
As an organisation, Alkimi requires an income to fund salaries, marketing, sales and further expansion. Alkimi intends to derive this income from holding and farming LP tokens like every other $ADS holder derives yield, aligning Alkimi and all $ADS holders.
Alkimi intends to employ the following strategy to build an LP token holding:
- The $ADS side of the Alkimi LP token will come from the $ADS initially set aside for Reserve, Staking Rewards and Platform Rewards.
- The ETH side of the Alkimi LP token will be derived slowly as the treasury $ADS are sold to buybacks.
As the buybacks progress and ETH becomes available, more and more of Alkimi’s $ADS will be paired 80:20 and added to the Liquidity Pool until all Alkimi’s $ADS are staked.
This update supersedes the previous tokenomics around platform rewards and $ADS incentives for AlEx users.
There will be no more token inflation via the platform rewards (discontinued) or incentives for publishers/advertisers (discontinued).
Higher liquidity ensures high stability, reducing large swings in the token price due to large trades.
By providing additional liquidity in the Alkimi order book, Alkimi can reduce the price impact of both buy and sell orders, reducing unwanted price swings while generating fees to reward LP providers over time.
In any functioning economy, liquidity is crucial to allow frictionless value exchange.
Alkimi’s Exchange (AlEx) is taking $700* bn per annum digital ad spend on-chain by utilising AlEx, including the Ads Explorer, Node Operation and Liquidity Pools to create a decentralised programmatic ad exchange.
Liquidity pools enable the protocol to take fees generated from activity on AlEx and distribute them trustlessly.
Liquidity Pools enable centralised business functions to operate as decentralised services. The Liquidity Pool, the Node Operations and our community and industry governance architecture create the mechanisms for Alkimi to become a self-sustaining ecosystem.
Alkimi’s self-sustaining business model will become ubiquitous as Web3 proliferates. Alkimi guarantees the future of the Open Web by providing a transparent and efficient marketplace for ads to fund the Internet.