This article covers the tokenomics and fee model of T-Swaps V3.0. The tokenomics revolve around the platform’s utility token: SWAP. In this post we review the core policies that work towards the sustainability of the SWAP token, such as the token’s use cases, price stability (and increase), distribution and supply.
* It is important to note that tokenomics is subject to continuous review.
1. SWAP Value Proposition
The token value of the SWAP token is primarily founded upon two pillars:
- Platform staking of TLOS to REX (Resource Exchange).
- Issuance and distribution of SWAP through Network Fees.
How does the SWAP value increase?
- T-Swaps V3 uses REX returns to augment the TLOS added to the TLOS:SWAP pair. With Telos REX current returns being approximately 13%, this augmentation will greatly enhance the liquidity and price on the TLOS:SWAP pair. It is not possible to estimate the impact of this price support mechanism, but it will be better for both liquidity providers and SWAP holders than the APR offered by Telos REX.
- A portion of the Network Fee collected on every trade on T-Swaps is added to the TLOS side of the TLOS:SWAP pair. This ensures that there is always TLOS available to buy back SWAP issued.
- On pools that support SWAP rewards, the ratio that is paid out in SWAP is equal to the TLOS fee paid. If the SWAP value goes up, the value of the rewards would exceed the fees that you pay.
2. Price Stability of SWAP
An APR of up to 140% on the SWAP token is achieved through the intelligent use of Telos REX returns within the T-Swaps platform.
2.1 REX (Resource Exchange) Returns
- Telos offers substantial REX returns (in excess of 10% APR) when staking TLOS to REX.
- T-Swaps currently holds approximately 1 160 000 TLOS.
- Assuming 90% of this is added to REX and yields a 10% APR
- This will generate 104 400 TLOS per year (which is 8 700 TLOS per month)
- It is proposed that this TLOS be used for price support on the TLOS:SWAP pair. Currently the TLOS:SWAP pair holds a TLV of 74 411.3368 TLOS.
- The income from REX for price support on the TLOS:SWAP pair will concentrate the proceeds of REX income. The yield will be 11.6% per month or 140% APR based on the numbers provided above.
These substantial REX returns stabilize and increase the value of the SWAP token and should create a strong incentive to add SWAP liquidity instead of swapping out for rewards.
For more information about REX refer to: Why are Telos REX staking rewards so high?
2.2 Network Fee
For every swap transaction, 0.125% of value swapped is added to TLOS:SWAP pair for SWAP price support. More information is provided in the fee section of this post.
2.3 SWAP Use Cases
SWAP is used in the following ways:
- To pay the listing fee when listing a new pair.
- To pay for new services which are being added to the platform.
When we refer to supply, we differentiate between several types. Let’s look at a breakdown.
- Maximum supply : 250 000 000 SWAP
- Total supply : 80 101 417 SWAP
- Circulating: 476 457 SWAP
- Reserved: 79 624 959 SWAP
3.1 Initial supply
80 million SWAP were minted at project launch. These tokens are reserved for:
- Marketing — 30% (includes Airdrop tokens)
- Product build — 20%
- Liquidity — 20%
- Strategic partners — 10%
- Private and public sale — 12%
- Team — 8%
3.2 Minting of new SWAP
New SWAP tokens are minted and issued on an ongoing basis against network fees on all trades happening on T-Swaps. This creates an environment for a stable SWAP price.
T-Swaps allows for additional SWAP to be issued on promoted pairs to derive a benefit to SWAP token holders. (This is negotiated with project owners).
4. T-Swaps Fee Model
T-Swaps charges a network and trade fee on all swaps. These fees are used to reward liquidity providers and for the functioning of the SWAP tokenomics. T-Swaps currently charges the following fees:
- Network (Protocol) fee: 0.25% of value swapped
- Trade fee: 0.5%
4.1 Network fee (protocol fee)
This fee is used as follows:
- SWAP token price support: 0.125% of value swapped is added to TLOS:SWAP pair for price support.
- SWAP tokens issued to the trading account against this portion of the fees collected
- Ongoing platform development: 0.125% of value swapped is used to fund maintenance and development of T-Swaps contracts and software.
4.2 Trade fee
The trade fee is used to compensate liquidity providers for providing liquidity. The trade fee can be set individually on each pair at the discretion of the pair creator or platform admin account. The default trade fee is 0.5%.
- This fee is used to reward liquidity providers for the liquidity they add to a pair.
- The default trade fee can be adjusted up or down in the range 0% — 2.5%. Low trade fees provide little incentive to liquidity providers but offer low cost swaps. Higher fees offer better returns to liquidity providers at a higher cost to traders.
4.3 General notes on fees
Fees compared to other platforms:
The T-Swaps default total fee of 0.75% may seem quite high when compared to other swap platforms (eg. Uniswap 0.3% for most pairs) and centralised exchanges. However, when comparing fees on T-Swaps against other platforms the reader should consider:
- Unlike EVM based swap platforms that have gas costs which need to be accounted for in the total cost of a trade, T-Swaps does not have any hidden costs. The fee charged on the trade is the only cost to the user.
- Centralised exchanges may offer substantially lower fees than T-Swaps but in this case the bid/ask spread is a hidden “cost”. The fees on T-Swaps are effectively the same as having a 1.5% spread on orders in a traditional order book. This is substantially lower than what is available on most other Telos markets. The problem of bid/ask spread becomes even more pronounced with low liquidity pairs where it is not uncommon to see spreads in excess of 100%.
Against this backdrop the current fees on T-Swaps are considered fair, providing a good yield to liquidity providers while also providing better pricing to traders than what is available on other markets.
The upgraded tokenomics of T-Swaps V3.0:
- Gives an excellent incentive for users to hold SWAP
- Highlights a fee model that rewards liquidity providers
- Offers reasonable swap value for traders
We expect this platform to continue to become more sustainable and solidify as Telos native’s primary swapping platform.
Tokenomics: The tokenomics (token economics) of a platform is the policy at the core of a currency
SWAP: SWAP is the currency used and issued on T-Swaps
REX (Resource Exchange): Tokens can be staked (locked) for a period in return for revenue based on the investment
APR (Annual percentage rate): The monetary value or reward that investors may earn by making their crypto tokens accessible for loans, taking into consideration the interest rates and any other fees that borrowers must pay
Liquidity Pool: Liquidity pools are crypto assets that are kept to facilitate the trading of trading pairs on decentralized exchanges.
Liquidity Providers: Liquidity providers are decentralized exchange users who fund a liquidity pool with tokens they own.
** Refer to https://coinmarketcap.com/alexandria/glossary for more in-depth explanations.