There has been lots of discussion recently within the Minswap community regarding $MINomics. The overall sentiment is that $MIN as a token lacks a use case and a role within the platform. Token mechanics are a pivotal part of the overall health of DEX, a revamp on $MINomics is due and $MIN holders deserve more clarity as well as a big say in the future of $MINomics.
$MINomics have been extensively covered so far in the following 2 articles:
- $MINomics Research Part 1: Exploring Tokenomic Models and Revenue Sources
- $MINomics Research Part 2: Introducing Dynamic Emissions Schedule
The $MIN token is the Governance token of the Minswap DEX. It is rewarded to Liquidity Providers, which are needed to have deeper liquidity to offer more cost-effective swaps. $MIN token holders decide on the future of the platform through Governance. The Daily Rate at which $MIN tokens are distributed (which can be seen on the Farm tab) changes bi-weekly and depends on market factors as was voted in a Governance Proposal.
$MINomics were designed in a community-centric way since the get-go, with no private investors or insiders. The current circulating supply for $MIN is 17.69% of total supply. The different wallets holding each allocation can be seen here.
Current State of $MINomics
Back in June 2022, the $MINomics Part 1 article was posted. Several ideas were expounded there for a better use case of $MIN within the platform. Many of which such as the Batcher Fee Discount were implemented.
In that article it was also mentioned that, sometimes, protocols get lost in the weeds thinking about tokenomics, without focusing on the real objective: to gain users and increase revenue. There were 4 Revenue Generation Sources listed for the Minswap protocol, let’s revisit them:
- LP Fees: currently, Protocol Fees are set at 0.3% for swapping on all Liquidity Pools. Following the activation of the Fee Switch, now 0.05% of swapping fees paid on the DEX are used to zap that $ADA into $MIN/$ADA LP Tokens which go to the DAO Treasury. Since its implementation in December 2022, as of July 21st 2023 approximately 982k $ADA worth of $MIN/$ADA LP Tokens have been accumulated this way. It can be checked real time here.
- Batcher Fee: for every swap (and action such as add/remove Liquidity) on the Minswap DEX, users pay a fixed fee of 2 $ADA. This $ADA is majorly used to cover the transaction costs of batching the orders. The excess Fee is currently directed towards Minswap Labs, to fund development and operations costs.
- Launchbowl Events: Minswap Labs offers the Launchbowl services to projects looking to launch their tokens on Cardano and bootstrap Liquidity for them. Two “Liquidity Bootstrapping as a Service'' Events have been launched thus far for Indigo DAO ($INDY) and Mocossi Planet ($MCOS), both with resounding success. The Minswap DAO Treasury obtains a percentage of the resulting Liquidity Pool as a Fee, which increases and diversifies the Treasury.
Since the first Launchbowl Event in November 2022, as of July 21st 2023 268k ADA worth of $INDY/$ADA LP Tokens was accumulated as well as 76k $ADA worth of $MCOS/$ADA LP Tokens. It can be checked real time here.
- $ADA staking rewards: currently, all $ADA in the Minswap Liquidity Pools is staked according to a framework chosen by Governance. The $ADA staking rewards generated are distributed to Liquidity Providers on the DEX. One could argue that even though $ADA staking rewards come from $ADA staked by LPs, these LPs get compensated in $MIN tokens, and thus a % of their ADA staking rewards could be distributed as revenue as well. However, as of now all these $ADA staking rewards are distributed to LPs. This could change through a Governance vote.
$MINomics V2 — A glimpse into the future
Despite the improvements introduced over time, it is high time for a radical change in the mechanics of the $MIN Token. $MINomics V2 will encompass all those changes that have the following aim:
- Decide on the future of the Fee Switch.
- To commence redirecting Batcher Fees towards the DAO Treasury.
- Evaluate new use cases of $MIN within the platform.
- Iterative improvements on tokenomics.
1. Decide the future of the Fee Switch
The Fee Switch is currently being exclusively directed towards one aim: to increase DAO owned $MIN/$ADA Liquidity. With this Liquidity being close to 14.5mn $ADA worth currently, the case can be made to commence directing the Fee Switch towards another aim. As such, we believe the following choice should be given to $MIN Holders in a Governance Proposal:
- To redirect the Fee Switch towards other Assets (such as Stablecoins) to continue to grow and diversify the DAO Treasury.
- To redirect the Fee Switch $ADA towards $MIN stakers in a framework where $MIN stakers are rewarded for contributing to the protocol in a meaningful manner. This would be by locking their $MIN for either 1, 3, 6 or 9 months. This way, $MIN stakers would be compensated in real yield in $ADA, for the economic risk of locking $MIN for different time periods and with corresponding boosts.
- Keep things as they are now redirecting the Fee Switch towards accumulating MIN/ADA LPs.
A Governance vote will take place on Monday July 31st to decide on this. More details will be provided on the different options.
2. To commence redirecting Batcher Fees towards the DAO Treasury
As mentioned above, Batcher Fees (minus gas costs) have until now been collected by Minswap Labs to fund development and operations costs. This has allowed Minswap Labs to grow a significant runway, to continue hiring during the bear market and establish itself as one of the most reputable development shops building DeFi products on Cardano.
As such, the decision has been made to commence directing 50% of all Batcher Fees generated every month towards the DAO Treasury. While 50% will still be kept by Minswap Labs to continue financing development and operations, the remaining 50% of $ADA earned in Batcher Fees will be directed towards the DAO Treasury. How this $ADA is utilized will be up to the DAO, and there are multiple possibilities (paying contributors, purchasing other assets for a diversified treasury, grant proposals, quarterly distributions, etc).
This will start on August 1st 2023.
3. Evaluate new use cases of $MIN within the platform
In the light of community feedback, it is clear that Governance and Discount on Batcher Fees are not enough of a use case for the $MIN Token. In our view, the use case of the $MIN Token within the platform could be increased through 2 main verticals:
- Boosting of Farming Yields for LPs.
- Increased say in the direction of $MIN Emissions for those who hold $MIN.
Both of these Use Cases are somewhat complex and their introduction would involve different tradeoffs. We will further elaborate on them in an upcoming $MINomics article.
4. Iterative improvements on tokenomics
The first area concerns the control on $MIN emissions and inflation. This commenced with a deep analysis in the DAO and Emissions Report. Since then, the $MIN Daily Emissions Rate is being adjusted bi-weekly:
- During the first adjustment on July 6th 2023 the rate was lowered 7.5% from 670,609 MIN Daily to 620,313 $MIN Daily.
- During the second adjustment on July 20th the rate was lowered again 7.5% from 620,313 MIN Daily to 573,790 $MIN Daily.
Another case regarding improving tokenomics could be made as far as $ADA Staking rewards are concerned. A possibility, to be decided by the DAO, is to redirect a part of those $ADA staking rewards towards $MIN stakers.
Lastly, regarding the $MIN Token allocations:
- As the DAO Treasury commences earning more and more $ADA, The 65 mn MIN dedicated towards Incentives & Partnerships may not be needed anymore (as $ADA could be used instead).
- In addition, if $MIN Yield Farming were continued at the current rate, it would take more than 14 years to use up all the Yield Farming $MIN. This may be too long for what will actually be needed, especially given the rate is expected to decrease as Trading Fees increase organically on the platform with increased adoption.
- The DAO Treasury currently has a 4% allocation remaining, which could be increased for various uses.
Governance Proposals will be needed in order to restructure the token allocations with the aim of increasing efficiency and improving tokenomics.
The future couldn’t be brighter for the Minswap protocol and community. The next months will be filled with Governance decisions and discussions about the future of the $MIN token within the platform. The main ones will be:
- Whether to redirect the Fee Switch towards $MIN holders/stakers in a new Framework, use the Fee Switch rather to continue accumulating Assets for the DAO Treasury, or keep the Fee Switch as it is now.
- Whether to increase the use case of the $MIN token by enabling boosting of Farming Yields for LPs who hold $MIN and an increased Governance say in the direction of $MIN Emissions for those who hold $MIN as well as the parameters around that framework. Some ideas will be published in the next $MINomics article.
- Whether to implement a Fee on $ADA Staking rewards generated by LPs on Minswap and what to do with that Fee.
- Determine the uses for the $ADA that will be accumulated by the DAO Treasury coming from Batcher Fees.
- How and whether to restructure $MIN token allocations.
- And more! Post any ideas you have towards the future of Minswap and the $MIN Token in our Discord!