LP Reward Program

The more liquidity you provide, the more CHRMAs you get!

Objective of the of LP Reward Program

The LP Reward Program is a strategic initiative designed to foster active participation from Liquidity Providers (LPs), the linchpins of the protocol DAO, right from its inception. The program is structured to airdrop points to LPs in proportion to the liquidity they provided, and the points can be converted into CHRMA tokens after listing on the DEX. The CHRMA token is scheduled for a DEX listing through a launchpad in the first half of 2024. Until the TGE, there will be a UX provided to check the CHRMA acquired (refreshed every 5 minutes).

Basic Principles of the LP Reward Program

In the context of Perp DEX, the axiom "the larger the liquidity, the lower the fees" holds true, enabling immediate liquidity provision. However, an excessive accumulation of liquidity can dilute LP returns. Hence, the LP Reward Program operates temporarily and on an ad-hoc basis, during liquidity shortages rather than continually, ensuring a balanced liquidity scale.

Given varying liquidity conditions across markets/pools, the LP Reward Program operates on a per-market/pool basis during liquidity deficiencies.

The LP Reward Program is designed to last for over six years after the protocol launch, allocating 8,000,000 CHRMA (8% of the total token supply). The program is front-loaded with more rewards in the early stages to stimulate protocol activation, with a gradual tapering of reward allocation over time.

Two-Steps of the LP Reward Program

The LP Reward Program, while executed temporarily on a market/pool combination basis, undergoes two distinct stages in each execution.

The first stage is the 'Warmup Period', a phase dedicated to liquidity recruitment. The liquidity amassed during this period is deposited into the actual liquidity pools upon the end of the warmup period.

The second stage is the 'boosting period'. During this phase, the liquidity garnered through the warmup is deployed in the actual liquidity pools. It remains locked during the boosting period and can be freely withdrawn upon its conclusion.

Note that liquidity can be added or removed at any time, not just during the warmup period. However, only the liquidity collected during the warmup period is eligible for CHRMA rewards in proportion to the supply.

Liquidity Warmup Period

The warmup period can be accessed through our bespoke UX. If a warmup period is in progress, liquidity can be deposited via the UX. To prevent potential abuse by whale LPs, the liquidity accumulated during the warmup period is locked and cannot be withdrawn. The warmup period is defined by the following parameters:

Start & End Date

These are the commencement and termination dates of the warmup period (based on UTC 00:00). The warmup period is confined to this duration, and only the liquidity collected within this timeframe is eligible for CHRMA rewards.

Max Cap

This is the maximum amount of liquidity that is intended to be collected. It represents the maximum target amount for each pool. If this amount is reached, the warmup period ends immediately, regardless of the end date. Any amount exceeding the max cap is not deposited. For instance, if the max cap is $100 and currently $98 has been collected, and Alice deposits $10, only $2 will be deposited and the remaining $8 will be returned to Alice's wallet.

Min Cap

This is the minimum amount of liquidity that is intended to be collected. If the end date arrives and the collected liquidity is less than the min cap, the warmup period is deemed unsuccessful. The collected liquidity is refunded, and no CHRMA rewards are received. The refund process is facilitated through the UX provided.

Liquidity Boosting Period

Upon successful completion of the warmup period, the accumulated liquidity is immediately supplied to the liquidity pools for operation and remains locked during the boosting period. Upon the end of the boosting period, the accumulated liquidity can be converted into the liquidity pools' CLP tokens via the UX we provide. From this point forward, liquidity can be withdrawn at any time, offering flexibility and control to the liquidity providers.

LP Reward Settlement

LP rewards are calculated at the culmination of the warmup period and can be verified through our UX.

LP Reward Distribution

The LP reward formula, rooted in the quadratic funding mechanism, is as follows: Starting from the rounds after 0:00 on March 12th (UTC), the distribution method of LP boost rewards will change from quadratic-based to proportional.

Where

• $r_i$ : The quantity of CHRMA that LP $i$ will receive

• $L$ : The total quantity of CHRMA allocated to the pool

• $n$ : The total number of LPs participating in the warmup period

• $h_i$ : The total amount of liquidity supplied by LP $i$

• $x_i$ : Additional boosting rate of LP $i$. Additional boosting benefits can be obtained through participation in the Liquidity Boost Program pre-registration.

Example Scenario

Let's take a look at an example to better understand the rewards allocation mechanism. During the warmup period, Alice provides $25 of liquidity and Bob provides $100 and Bob participated in the Liquidity Boost program pre-registration and received an additional 20% boosting benefit. The reward quantity allocated for this program is 150 CHRMA. According to the formula, at the end of the warmup and the start of the boosting period, the quantity of CHRMA rewards that Alice and Bob will receive is as follows:

$$r_{alice} = 150 \times \frac{25 }{25 + 100 \ \times (1+0.2)} ≅ 25.86 \ CHRMA$$

$$r_{bob} = 150 \times \frac{100 \ \times (1 + 0.2)}{25 + 100 \ \times (1+0.2)} ≅ 124.14 \ CHRMA$$

It's important to note that despite Bob providing 4 times the liquidity of Alice, he only receives about twice the reward. This is due to the quadratic funding mechanism, which ensures a fair distribution of rewards.

LP Reward Vesting

The vesting stipulations for the LP rewards are the same as those for the Trade Reward Program.

LP Rewards Program Season 1

LP Reward Program Season 1 runs until March 31, 2024. (Note: The schedule is subject to change with prior notice).

The allocation for LP rewards in Season 1 is 1,000,000 CHRMA, which corresponds to 1.0% of the total token supply. If the LP Reward Program experiences low participation and the allocated amount is not fully utilized, the remaining rewards will be rolled over to the next season.