We at Sigmadex had two questions on our mind when creating our Web 3.0 liquidity protocol: 1) How can we offset, or outright eliminate, common problems that have always plagued DeFi within the crypto-industry, and 2) How can we incentivize the propagation of that platform through maximizing profit margins for our early supporters?
Our first question, specifically through negating DeFi-related cruxes including Impermanent Loss, Rug Pulls, lack of liquidity, and Frontrunning, is explained in great detail within our previous article here.
This article will concentrate on the 2nd question; Namely, how can we provide monetary rewards for those who preemptively support our trailblazing efforts.
Let’s get right into how our community capitalizes on numerous avenues of profitability within Sigmadex.
The Difference in Being a Sigmadex Liquidity Provider
While, like other DEXs, validators on the network will be rewarded with a portion of every transaction that occurs on Sigmadex. However, unlike other DEXs, our community earns monetary rewards through both deflationary and inflationary mechanisms within our ecosystem.
While our infrastructure to disincentive common DeFi problems within the crypto-space works as intended, there is a nuance involved in our systems. This nuance revolves around the fact that our native token SDEX is paired with every token within the network, so as to provide a modulating coin within every pair to negate adverse situations such as capital lost by Liquidity Providers (LP) when Impermanent Loss occurs to a liquidity pool.
As you can imagine, with more liquidity pools, we will need proportionally more SDEX minted within our network. This results in inflation of SDEX, and theoretically would reduce its purchasing power if systems weren’t put in place to counteract this.
We at Sigmadex have gone farther than simply counteracting this inflationary by-product of our DEX; We turn the dial on inflation by actually enhancing profitability margins for our community based on the degree of inflation. This monetary reward enhancement is to an extent that far surpasses any reductions in purchasing power of SDEX that may lead to loss of capital acquisition for our LPs.
When an LP provides liquidity, the %APY of LP rewards will increase in accordance with the rate of SDEX inflation, which will be inferred from the length of time one’s liquidity is locked up. This %APY to our LPs, as explained before, will provide profitability enhancements well above the loss incurred from SDEX holders due to its inflation (see graph and chart below for %APY earnings based on the duration of time-locked liquidity being deposited).
One thing to note about this %APY is that it is completely independent of the rewards dealt out to LPs for transactions occurring on the network, meaning this profitability avenue will not fluctuate according to activity metrics within Sigmadex, thereby significantly reducing the volatility of this earning model for LPs.
On One Hand: Amplification of Liquidity Provider's Reward Pools
Now, you may be wondering where the token paired to SDEX, from the penalty fee incurred from a LP undergoing early withdrawal of liquidity, is being shuttled into. The paired token will be injected into the rewards reserve pool, which will act to amplify earnings for LPs that hold their liquidity for the full duration of the liquidity smart contract pooling. This means that the same mechanism that increases SDEX value in the marketplace, through deflation, will simultaneously amplify passive earnings to every liquidity provider within the network who actively follows the rules involved.
These rules, as you learned in article #2 here, are absolutely critical to negate Rug Pulls and lack of liquidity within the network and, therefore, the incentivization for these rules to be upheld within Sigmadex will be in the form of enhanced profitability margins for our LPs.
With Sigmadex weaving together multiple streams of profitability within the network for our LPs, along with providing breakthrough technology to bypass the most damaging by-products of being an LP within a DEX, we plan to be the most actively utilized liquidity protocol in all of Blockchain.
Alongside this goal, our ecosystem will inherently become one of the most profitable spaces in DeFi for LPs that are comfortable locking in their liquidity for the mid-long term, and our earliest supporters will be assured to obtain the lion’s share of these monetary rewards.
Read our other articles in this series to learn exactly how each of these mechanisms works to create the new-age DEX within the DeFi crypto-space. For the savvier mathematical and/or computer science readers, check out our Lightpaper for an in-depth explanation of each of our components; The validity of which is verified through auditable mathematical models.