Liquidity Mining
Liquidity mining, often referred to as yield farming, is a mechanism where liquidity providers earn token rewards in return for the liquidity they offer to the platform. Liquidity mining serves to create an additional revenue stream for liquidity providers, offsetting the potential for impermanent loss (IL). Furthermore, implementing liquidity mining also helps nascent platforms bootstrap initial liquidity, which attracts traders with less slippage. Onboarding more traders is essential as it leads to higher swap fees that are distributed to liquidity providers, generating higher returns on their deposits.
Liquidity providers may engage in liquidity mining by staking their positions in a dedicated liquidity staking pool. It is important to note that a position only earns swap fee rewards while it is active, meaning that the current price of the pool is within its price range.
GnoSwap offers two types of liquidity mining incentives for its liquidity staking pools:
1) $GNS Incentives
GnoSwap distributes newly minted $GNS tokens to incentivized pools on a per-block basis, with further details available in the Emission section. During the initial launch, the GnoSwap team will select these incentivized pools from among the pools that hold tokens essential to the GnoSwap platform. However, the authority to add or remove incentives from pools will be transferred to the GnoSwap DAO governance in the future.
2) External Incentives
GnoSwap enables third-party projects to inject tokens as rewards to liquidity staking pools to incentivize liquidity providers. The incentive provider must specify the type of the token, its quantity, and a period for the staking contract to automatically distribute rewards to position stakers.
GnoSwap offers this functionality to help new, low-capital projects that lack credibility or reputation become an incentivized pool to bootstrap liquidity for growth.
Warm-Up Periods
Warm-Up Period is a novel reward mechanism that applies a dynamic multiplier to each staked position based on its total duration staked in range, which is taken into account when calculating the staking reward. This mechanism is designed to encourage long-term liquidity provision while offering flexibility for those who often need to adjust their price range to remain active due to liquidity concentration.
Understanding the Warm-Up Period Mechanism
Keep Staking for Higher Rewards: A penalty is applied to a newly staked position, which decreases gradually over time in 4 ranges. To earn maximum rewards, the position must be staked for more than 30 days.
Unstaking Resets Your Progress: Unstaking your position will reset your progress to the lowest multiplier. Once you reach the highest multiplier, you must keep your position staked to maintain maximum rewards.
Residual Rewards Are Rolled Over: Rewards that are undistributed due to penalties are automatically rolled over to the next block. For external rewards, any remaining rewards at the end of the distribution period are returned to the deployment wallet.
Multipliers are divided into 4 different ranges as the following:
0 to 5 days:
estimatedRewards * 0.36 to 10 days:
estimatedRewards * 0.510 to 30 days:
estimatedRewards * 0.7More than 30 days:
estimatedRewards * 1.0
Unvested internal $GNS rewards, which occur before staked positions reach 30 days for full rewards, go to the protocol fee contract. The unvested rewards from external incentives go to the incentive provider's address once the incentive duration, set by the incentive provider, ends.
This mechanism strikes a balance between encouraging long-term participation in staking and accommodating the needs of those who seek flexibility for their staked positions.
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