IMX Tokenomics Update
In the last few months there were many discussions in our community channels around IMX tokenomics and how the increase in protocol revenues could be reflected in the token price. We’ve heard a lot of requests and feedback. Based on that, today we’re excited to introduce 3 new updates!
Protocol Owned Liquidity
Protocol owned liquidity has many economic advantages that help strengthen the token price, in particular:
- deeper liquidity for traders
- lower circulating supply when price decreases
- higher treasury reserves when price increases
- guarantee of future liquidity
For these reasons, and in order to own a diverse set of treasury assets, we have decided to invest a percentage of the protocol profits (up to 50%) in IMX liquidity.
We are also initializing a 1,000,000 IMX Liquidity Reserve Fund from the Protocol Growth and Development assets in order to create the LP tokens. Initially, the process to obtain liquidity will be the following:
- Convert protocol profits to ETH.
- Transfer ETH to the Protocol Owned Liquidity address on Ethereum.
- Pair ETH with the IMX from the Liquidity Reserve Fund in order to add liquidity to the IMX/ETH Uniswap V2 pair.
In future we may change the process by adding new liquidity pairs or by introducing new mechanics such as bonding.
The Protocol Owned Liquidity will be kept at the address: 0x43AB29158297Dcb45D9B4f8d07450A5D5271e442. You can see the details of the liquidity owned on Debank:
Optimized Staking Mechanics
The whole idea behind IMX staking is that it should correlate the IMX price with the protocol generated revenues. Buybacks create buy pressure. The lower is the price, the more impact they have on the market. With a low token price the staking APR becomes higher since more IMX are being bought back, and this incentivizes holders to hold their tokens. This mechanism will eventually create a floor price.
However, despite the protocol revenues increasing by 10x in the last 3 months, the token price has performed poorly recently. The main problem is that the tokens bought from the market are distributed to stakers during the following 90 days (window length). This means that the staking APR is usually stable, and it takes more time for it to grow when the price gets lower. The consequence is that incentives to hold the token are “delayed”. If the IMX price drops quickly, the current mechanism may not act fast enough on the staking APR to provide support.
For this reason we are reducing the window length from 90 days to 30 days. This will result in an immediate increase in the staking APR since more than 500,000 IMX were purchased last month.
This was probably one the most requested features by the community, but now it’s finally live! The main xIMX staking contract will remain on Ethereum, however now xIMX can be bridged and purchased on different chains. In particular, the first chain where you can buy xIMX is Polygon through the IMX/xIMX pair on Uniswap.
xIMX Polygon contract address:
Holding xIMX on Polygon is equivalent to holding it on Ethereum. Therefore, just by holding it on Polygon you can benefit from the protocol revenues distributed on Ethereum.
The main challenge with bringing xIMX cross-chain was getting enough liquidity for it on exchanges. Usually the cost of slippage and trading fees on a normal AMM are too high to justify the purchase of a staked token. However, as suggested by @PhiMarHal, Uniswap V3 solves this problem. Thanks to the recent launch of Uniswap on Polygon we were able to create the IMX/xIMX trading pair with concentrated liquidity and low trading fees. This is a great opportunity for 2 categories of users:
- IMX holders on Polygon can already purchase xIMX from Uniswap for a low premium. IMX holders on other chains can bridge their IMX to Polygon through cBridge and purchase xIMX there. This benefits everyone who can’t afford to pay Ethereum fees for staking.
- The IMX/xIMX pair also creates an arbitrage opportunity. IMX stakers on Ethereum can bridge their xIMX to Polygon and sell them there for a premium. xIMX holders can also use it to provide liquidity to Uniswap and earn an additional yield on it with low impermanent loss.