In april 2021, chainguardian partnered with pancakeswap to distribute the MIX token and incentivize its liquidity with CAKE rewards. The purpose of MIX is simple: burn it to mint the Mixie NFT that can be used in the chaingardian dapp ecosystem. The minting curve is decreasing: early Mixies require more tokens to be burnt. Unfortunately, after more than a year, only 14 / 101 Mixies have been minted.
This can be explained by two factors:
- 2 whales hold a lot of tokens and don’t use them to mint, provide liquidity or dump. While their behavior is clearly toxic for the majority of users, one could argue they are int their right to do that given they own these tokens. Also, their behavior might be explained by the second factor.
- The liquidity is extremely low, up to the point no one except the third largest holder could buy enough MIX to mint the next NFT. It’s an issue to buy, but also to sell. We don’t know if the 2 whales want to sell at a higher price, or if they just can’t sell at the current price level because liquidity is low both sides.
Unfortunately, decentralization makes it hard to communicate with holders. But an obvious starting point would be to increase liquidity on the MIX token and observe the market behaviour in response.
Liquidity has become very low after the end of CAKE rewards incentive. Obviously for this kind of token, scarsity is important. You won’t put your tokens in liquidity, risking high impermanent loss both side, without incentive to do so. Swap fees are not an option as volume will always remains low, especially if liquidity is low making it very hard to range trade the token.
What would a higher liquidity allows ?
- whales could dump with less slippage
- medium size holders could buy enough tokens to mint the next NFTs and free up slots for smaller holders
- range traders could buy low sell high and make the market healthier
So the goal is to increase liquidity on the MIX token, and for that we need incentives. Given the risks, these incentives must be quite high in term of APR. A good target would be at least 100% apr, but more is better especially early on. So, how can we do that ?
In 2022, the ve(3,3) model for exchanges have been introduced by Andre Cronje for Solidly on the Fantom chain. While the initial attempt did not work very well in terms of tokenomics, other projects have forked and improved the system with more or less success. Two notable examples are Velodrome on Optimism and Dystopia on Polygon. They both chose different ideas to iterate on the ve(3,3) concept, and launched approximately at the same time (may/june 2022 if I recall), in different contexts (Optimism almost had no DEX while Polygon already have an important ecosystem)
More recently, Cone exchange have been launched by the Dystopia team on BSC (the team is also behind Tetu).
The basic idea of ve(3,3) is the following, and I take Cone as example for clarity. The Cone token is emitted to incentivize liquidity on LP pools. It can also be locked as veCone to acquire voting power. Each week, veCone holders can vote to increase/decrease emission on the pool of their choice. This the ve model introduced by curve. An additional important mechanic is the rate of emission. The more Cone tokens are locked, the lower the rate of emission. So if very few actors are locking, the price will dump, making it easier for new actors with lower capital to buy and lock. In theory, the goal of farmers is to provide liquidoty, farm & dump, and the role of protocols is to buy, lock & vote to incentivize liquifity ln their token. Finally, actors can also bribe voters on specific pools to try to attract more votes on a single pool. When the reward token is too expensive to buy and lock, it might be more capital efficient. Can be good also to incentivize for a few weeks only.
Cone has encountered mitigated success. This can be explained by the fact BSC already have a very large ecosystem, with a strong leading DEX pancakeswap. But an immediate consequence of this is that it gives opportunity, with a small capital, to incentivize liquidity on any pair. And who needs liquidity ? Mixie of course.
I’ve decided to try to do that by risking my own capital, and as a proof of concept it can work. I think a few weeks are enough to know if it works or not. I’ve managed to get MIX whitelisted on the exchange, and I’ve informed the Cone team of what I want to do.
I’ve created the pool, provided a bit of liquidity, bought approx 2% of the total veCone supply, and voted for the pool to get a high APR.
Now I’m farming Cone that I plan to use for several things:
- repay myself of the capital injected
- lock more to incentivize more
- buyback MIX to increase the token price (might attract whales to sell, or even very small holders having dusts)
- bribe the pool for more vote (with boughback MIX, or farmed CONE)
Based on the market behavior, I’ll choose different actions. For example, if the operation work I’ll be diluted quite fast so I’ll increase my LP position to earn enough CONE and lock more to try to keep the APR high enough.
I hope to observe the following behaviors:
- as liquidity remains low on cone, apr will be high. It motivates new entrants to buy the token, which increase the price, and increase the liquidity at this level as they pair.
- it motivates holders to put their coins in liquidity, offering others the opportunity to buy for minting, or sell for exiting.
- it will create trading activity on pcs and cone, allowing people to notice the existence of the operation and offering more incentive to be an LP.
I think MIX have healthy tokenomics as long as liquidity is incentivized. Some toxic actors might still play the game of buying the token and not minting, but it will then increase the price, making other holders more “rich”, so they can dump at a good price on the money the whales would have usedd to to buy the token.
The vote snapshot was at 2022-10-27 00:00:00 UTC. Trading activity already occured in the following hours, probably from Cone users noticing the high APR. Approximately half of PCS liquidity has been moved to Cone and the price increased a bit (there was pumps and dumps).
As of 2022-10-27 07:45:00 UTC, the APR is between 642% and 2568%
Cone implements a boosting system (similar to Curve), by default you have the x1 APR (642%) but you can increase to x4 (2568%) by buying and locking Cone. Note that my APR is 1096% with ~1M votes.
Right now the total available liquidity on MIX is 6394 tokens, splitted as follow:
PCS MIX-WBNB pool: 2126 tokens
PCS MIX-BUSD pool: 1502 tokens
Cone MIX-WBNB pool: 2766 tokens
I’ll try to keep the incentivizing running on my own for several weeks and keep you inform on a weekly basis here.
If the DAO has some funds to allocate to this, then they can buy and lock Cone to vote, or bribe the pool if they do not want a long term position on Cone (bribing can be done with MIX, BNB or CONE). Note that even a 500$ bribe can attract a lot of vote since Cone mcap is very low (64k). The DAO can also approach Cone team for partnership, they often accept to match bribes or votes for partnership. Could also lead to a partnership on Dystopia (Polygon side). Finally, the DAO can also do the necessary communication of social networks to advertize of the operation.
About risks: like any defi op, there are smart contract risks, rug risks, etc. So do your own research about Cone and only put your token in LP if you accept these risks.
As a disclaimer, I’m not affiliated with Cone exchange. I’m only a user of their products, and holder of their token. I don’t particularly believe this exchange will succeed, neither fail, but I recognize it offers the necessary tools to incentivize liquidity on a trustless and market efficient way. So let’s try to use them to free Mixie, and maybe more if that leads to partnerships, new users for cone exchange, and yields for farmers.
What if that does not work ? Well for now only my capital is at risk, so as long as I’m farming CONE I should be able to repay myself, or increase my voting position on this protocol.