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NEURONswap has implemented a sustainable DeFi ecosystem.
Since the success of Compound Finance, the governance token incentive system has become the standard in the DeFi market and Uniswap, Sushiswap, Aave, Yearn Finance led the opening of an open financial protocol modeled on the Liquidity Mining.
Many new DeFi projects have adopted Liquidity Mining in an attempt to secure the liquidity. However, the liquidity provided through the Liquidity Mining system has a major drawback. Due to token inflation, the incentive for additional liquidity inflows is diminished, making it very difficult to create a sustainable ecosystem.
When liquidity providers who seek the short-term profits dump the governance tokens which causes other liquidity providers to exit, the project token price and protocol ecosystem collapses. Other DeFi services claiming to be DeFi 2.0 try to solve this problem by reducing the liquidity supply volatility through liquidity staking, but this method has not solved the underlying token inflation problem.
A way to fundamentally solve this problem is to increase the utility of the governance token to increase the number of new governance token holders, or to increase the number of actual users of the service and continuously burn the governance token with the fee generated from it. It is to increase the amount of tokens to be burned over the amount of tokens to be minted.
There are three major entities in the AMM-based DEX: liquidity providers, governance token holders and traders.
Liquidity providers create an environment where users can trade on DEX by providing token liquidity. Governance token holders invest in the protocol with mid- to long-term vision, participate in the protocol’s important decisions and receive a share in the revenue generated by the protocol. Traders pay a fee to the protocol for the use of service.
All three entities are important to sustain the DEX ecosystem. However, the tokenomics of existing swap services focus only on governance token holders and liquidity providers, rather than the traders.
NEURONswap team rewards governance tokens to all three entities for their contribution to the ecosystem. By providing token incentives to liquidity providers, we will create a pleasant transaction environment with less slippage, and provide additional mining revenue for long-term governance token stakers for contributing to the rise of governance value.
Finally, by providing token incentives to traders, we will reduce the burden of high fees in the DEX environment to enable smoother user-to-user transactions.
The most of the transaction fee incurred will be accumulated as a buyback fund. As the trading volume increases, NR tokens are bought back to increase the token deflation rate and increase the asset value of the project, thereby increasing the motivation for liquidity inflow to continuously create a smooth trading environment
NEURONswap has implemented a DeFi ecosystem that enables a virtuous cycle as the Neuron protocol develops that leads to an increase in token burning volume, an increase in token value, an increase in trader incentives and an increase in liquidity provider incentives, an increase of trading volume and the creation of better trading environment.