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A new way to think about token distribution mechanics and liquidity mining
Traditional strategies of bootstrapping protocols such as Liquidity Mining are not working as intended. Protocols are paying expensive fees to rent liquidity and receive little to no long-term benefits or stickiness.
Fluidity proposes utilising an adaptation to Liquidity Mining titled Utility Mining, to distribute a significant portion of the Governance Tokens. Although Liquidity Mining will still be utilised, a significant portion of the Fluidity governance tokens will be distributed through Utility Mining. Utility Mining utilises Fluidity’s Transfer Reward Function, to provide a fairer mechanism for the distribution of governance tokens, incentivising proactive participation in the protocol and broader ecosystem. Utility Mining rewards users with governance tokens and other incentives such as higher yield when targeted on-chain interactions are taken by a user. For example, using a Fluid Asset.
Other protocols can utilise Utility Mining to distribute their Governance Tokens to end-users and attract new users to their protocols, helping bootstrap themselves.
Fluidity will extend the Transfer Reward Function utility to other protocols that wish to bootstrap users by rewarding them through the TRF mechanism.
In essence, through this program when a user uses a Fluid Asset on another protocol, they may also get exposure to additional yield in that protocol's native governance token.
We believe that this will allow protocols to bootstrap themselves, by rewarding and attracting new and engaged users, instead of passive liquidity farmers.
Dex A decides to distribute a portion of their tokens ($DEX), through utility mining. This may incentivise rational users of for example Dex B to use Dex A for a period of time to maximise their yield.
A user using Dex A will potentially be able to get exposure to:
- Yield distributed in the in-kind currency example: (ƒUSDC)
- Yield distributed in Fluidity Governance tokens ($FLUID)
- Yield distributed in DEX A tokens ($DEX)
However, to claim this yield the user has to learn and understand how to use Dex A and be actively engaged in deriving utility out of Dex A. The user may also be paying revenue to Dex A for the services provided.
Once the rewards are reduced, the user may remain as a long term user of Dex A, as they were able to derive value out Dex A and potentially keep using it for its value proposition.