Introducing the WLEO Geyser Model, LEO Token Economy Updates and New Simulation Tool
Wrapped LEO (WLEO) is returning to the LeoFinance ecosystem on November 10th. With this reintroduction, we've made a lot of significant changes to the architecture of WLEO to create a secure, robust and highly redundant system to prevent past events and future reoccurrence.
Prior to the launch, we're going to unveil the different aspects of this new ecosystem. Today, we'll focus on the new geyser distribution program for liquidity provider (LP) incentives. This distribution mechanism was built for the original WLEO ecosystem. The intention was to launch it after the 90 day bounty period expired, but now we'll have it ready to launch at the beginning with WLEO V2.
Providing liquidity is one of the most valuable ways to contribute to an ecosystem like LeoFinance. Without liquidity, there would be no value to the rewards that are distributed on LeoFinance.io. Having deep liquidity allows big investors to step in and buy/sell large amounts of the token. Many have discussed these issues in the past with coins like HIVE that have very low liquidity.
While having low liquidity is great in some cases - namely, for massive price volatility (to the upside and downside) - it also turns off a variety of investors who have personal requirements that they can easily buy and sell an investment.
With WLEO V1, we all saw what happened to the price of LEO/WLEO at launch and in the weeks that followed. Having such a depth of liquidity ($450,000 USD at its peak) gave our community an incredible level of value and ease of access for large investors.
Some major investors like @onealfa are a prime example of how this allows people who want to deeply invest themselves into a project can only get involved when the liquidity is extremely deep. If he tried to buy any number close to the amount of tokens he now holds on Hive Engine/LeoDex, the price would've instantly mooned. The thin liquidity on this niche exchange is well known to all of us who've been involved in the project.
The price of LEO rose from $0.04 to $0.30 during the launch of both our new UI and the WLEO liquidity pool. Depth of liquidity and ease of access can simply not go understated. They are key components in buidling a successful project.
WLEO Geyser Distribution Program
We've been hinting at this fascinating new development for weeks now in the LeoFinance Discord. A number of users are extremely excited about this implementation and what it means for the long-term health and strength of the LEO economy and a number of other users have no clue what this means.
The term "Geyser" is utilized by a variety of DeFi projects on the Ethereum blockchain. For our purposes, it simply describes the overarching methodology in which LEO/WLEO rewards are paid out to liquidity providers on Uniswap (and other exchanges).
As a liquidity provider, you deposit WLEO + ETH (and in the future, WLEO + other cryptocurrencies) into a liquidity pool and then you receive a tokenized representation of your share in the pool - known as an LP token. As investors swap crypto on the exchange, they pay a small trading fee to the liquidity pool which is distributed to LPs based on their % ownership in the pool.
Many projects offer additional incentives on top of the fees collected for being an LP. This is especially important for projects that are newly launching on these exchanges since the volume and liquidity start at 0. In order to spur activity, an "early bird" incentive of sorts makes a world of difference. We've modeled the new distribution system after a number of other projects in the DeFi space but put a few spins on it to make it our own.
The WLEO geyser pool distributes LEO/WLEO tokens to liquidity providers based on the length of time their liquidity is in the pool relative to others.
The more liquidity you provide and the longer provide it, the greater your share of the daily LEO/WLEO incentives pool.
Where Do the Incentives Come From?
Here's where things get interesting. Adding a long-term program for incentivizing liquidity providers in a sustainable way became a focus for us after the launch of WLEO. It's clear that a 90 day bounty program would get a lot of LPs into the pool initially, but then the question becomes:
how do you incentivize users to become a liquidity provider for the long-haul and reward one of the most valuable activities you can do for the LEO ecosystem?
To solve this, we turned to a variety of models and utilized our new LP simulator tool (details below) to play around with them. We ultimately arrived at the following model.
LeoFinance currently operates as a proof of brain based ecosystem. Users create and curate content and earn rewards from a daily pool of LEO tokens which come from a set amount of inflation each day. Other ecosystems have different models of distribution for new tokens, but LeoFinance's remains one of the best models to incentivize content creators who add their valuable posts to our UI and curators who reward the best content.
We've talked about this several times in Discord and other posts: LeoFinance is evolving far beyond a standard PoB-based economy. We're constantly adding new ways to earn, better ways to reward each other and more dynamic sinks and faucets to our ecosystem. The impact of a deep liquidity pool and WLEO's listing on Uniswap (and soon, external exchanges) is immense. We all saw that in the meteoric rise of the LEO price and attention on our platform over the past few months.
The current inflation-based rewards pool works like this:
- 85% of rewards are distributed to content creators and curators
- 15% of rewards are distributed to mining token stakeholders (PoS)
The current rate of inflation for LEO is ~2,000,000 tokens per year. This is quite a lot of tokens and a few users have actually recommended that we lower it. Others like @taskmaster4450 have continually made the case that inflation is only a bad thing when growth doesn't match or exceed the amount of new tokens entering the ecosystem each day.
As we've seen, the LeoFinance economy is tiny. A few updates here and a few more there and we see a major spike in volume and buying activity. Drawing back on the original idea laid out in this post: lack of liquidity is a great thing when some buying pressure enters and sends the token to the moon. Lack of liquidity is not a great thing for big investors or generally anyone who wants to buy/sell with low price slippage.
As a new economy (one that is only 16 months old), having this level of inflation also allows new entrants to "catch up" with the users who have been here for a while. We see this playing out with Bitcoin as the early miners were able to get hundreds of Bitcoins per day with very little work. Now it takes a massive operation to get a fraction of that.
The new LeoFinance economy under the long-term roadmap to rebuild WLEO and list it on Uniswap and major exchanges is introducing a third mechanism for distributing daily inflation: Liquidity Provider (LP) Incentives
- 70% Proof of Brain (Authors/Curators)
- 15% Proof of Stake (Mining Token Hodlers)
- 15% Proof of LP (Liquidity Providers)
This new branch of our ecosystem will allow us to incentivize people who provide liquidity to the LEO economy. Coupled with the geyser distribution model, this makes it incredibly profitable to become a liquidity provider for the long-haul.
A successful ecosystem does not have liquidity providers who continuously jump in and out of the pool. A successful ecosystem is one that finds mechanisms to reward the best behaviors that contribute to the long-term health of the project.
For LeoFinance, this means rewarding LPs who provide liquidity for months and even years on end. The longer they provide liquidity, the larger their incentive. As new pools are introduced (outside of ETH/Uniswap), we'll also be able to branch out with the geyser distribution model and share the LP incentives with those new pool providers.
After spending the last few weeks utilizing a few simulators, discussing our models with some prominent people in the DeFi space and LeoFinance users/stakeholders, I'm extremely excited to unveil the details of this new branch of LEO and also launch our project into the forefront of innovation in the crypto space.
How to Earn LP Incentives
- Provide WLEO - ETH liquidity (on Uniswap)
- Earn rewards
It's that simple. Other ecosystems require you to stake tokens - which is something we may design in the future - but we created a distribution model that doesn't use staked tokens. This saves you on a variety of gas fees for being a liquidity provider and also makes it easier to go into and out of the pool.
All you have to do is provide liquidity to the WLEO-ETH pool. We'll take care of the rest. From there, you'll either earn LEO or WLEO rewards paid out to your Hive account or ETH address each month - payouts are sent on the Hive blockchain or ETH depending on if you HiveLink your ETH address by first wrapping LEO and then providing liquidity.
LP Incentive Simulator Beta
There are quite a few complexities with this distribution model. The formulas can be hard to grasp out of context. With this in mind, we built our own LeoFinance LP Incentive Simulator tool.
Please Note: we put Beta on this tool because it is an early version. There can be bugs and there can most certainly be changes/updates to the tool. Feel free to play around with it and use it as a rough guideline to predict future rewards as a liquidity provider.
You could think of this tool as a "draft" of the future tool that we're building. This one is a simulator to show you how the model works utilizing data from the prior WLEO liquidity pool.
The "Real" or more finalized version of this tool will actually be a real-time product where all you have to do is plug in your ETH address and then see your past rewards as a liquidity provider and also predict your future rewards based on real-time data pulled from Uniswap. The future version is modeled after the Thorchain Skittles project that you may or may not be familiar with.
The intention of this Beta Simulator is just to give a rough idea of how the distributions work and the APY of returns. I feel like we can't stress this enough.
How to Use the Simulator:
There are instructions directly in the google sheets doc, but I'll relay some simple instructions here:
1). Access the Simulation Tool
2). Click File --> Make a Copy
3). Edit ONLY the yellow highlighted text in the "Instructions" sheet
Follow the instructions on the right side for additional details. One aspect which may be a bit confusing is the "Days in the Pool" feature. Note that the "Provider Settings" are to simulate you as a provider in the pool. If you set the global pool settings to say "50" days since the pool launched, then you as a provider must select 50 days or less as being an LP (since you can't simulate being a liquidity provider longer than the pool is operational).
4). View the Table
Overall I think the tool is relatively straightforward but takes some time to dig through. It has some twists and turns and may not seem intuitive at first but plugging in some numbers and seeing the populated data on the table will likely give you exactly what we were aiming to provide: a rough idea of what you can expect to earn as a liquidity provider under the new WLEO Geyser Distribution model. @khaleelkazi will also post a video soon showing off the tool and explaining some key aspects and scenarios.
Frequently Asked Questions
I Don't Want to Mess Around With Simulators/Details. How Do I Maximize My Return?
There are definitely some users out there who fit this category. Nothing wrong with it at all. This stuff can be time consuming and many people just want to provide liquidity and follow the set it and forget it model.
Providing liquidity as early as possible and leaving that liquidity in the pool for as long as possible will yield the highest returns. It's that simple. If you want to mess around with calculations and understand the mechanisms that govern the size and payouts of those rewards, then you're free to do so and I hope we've provided ample tools for anyone who wants to geek out on it.
In future releases, we're aiming to work these APYs and figures directly onto the LeoFinance UI. Our end goal is that you'll go to your wallet page on LeoFinance.io and have a button to provide liquidity and then see your daily returns and projected yearly returns all on-site. No tools required.
What is HiveLink?
HiveLink is a system for linking Hive accounts and ETH addresses for liquidity providers. We developed it for WLEO V1 and the initial 90 day incentive program and have migrated it over to this new WLEO geyser model.
The benefit to linking your Hive account is that your payouts will happen as LEO on Hive as opposed to WLEO on ETH. This will save you some gas fees on distributions and for many users, will allow you to quickly stake the LEO rewards you earn. Others may not have a Hive account or may prefer receiving WLEO on Ethereum as opposed to LEO. For them, they can simply provide liquidity and not worry about HiveLink at all.
To HiveLink your account, you simply need to wrap any amount of LEO into WLEO prior to providing liquidity.
How Often Do I Receive Rewards?
In the prior incentive program, rewards were staggered for ETH and Hive users. This led to quite a bit of confusion so we built the WLEO geyser model with distributions happening 1x per month. Every month, all liquidity providers will earn their respective geyser rewards.
How Are Geyser Rewards Accumulated?
A snapshot of the WLEO-ETH pool is taken every 24 hours. This snapshot records the respective share of LP incentives for each liquidity provider.
What About Content Rewards?
We've discussed these changes to the overall distribution model for LEO/WLEO tokens in prior posts, Discord chats and amongst various LEO stakeholders. It seems unanimously in favor of this change as the recent history of WLEO has proven the value that this brings to the LEO token - and thus, any creator/curator who earns the token.
Some users may still have concerns over the changes to the pool. We want to hear all opinions and openly discuss changes like this. Feel free to continually discuss these changes as we have been doing in the comments/posts/Discord.
The main question is: does having deep liquidity bring more value than 15% of the yearly inflation? To everyone we've heard from thus far, it's a resounding yes. Liquidity providers can and should be rewarded for being a long-term user and value-add to the entire LeoFinance economy.
What's the Minimum for Participation in WLEO Geyser Incentives?
There isn't necessarily a minimum for the geyser incentive program. It is definitely not recommended to provide a low amount of liquidity due to gas fees and other costs associated with being an LP.
For example, if you're an LP with less than $100 in the pool, it's unlikely that your rewards will be significant enough to cover the costs of your gas fees in the first place. Staking LEO/creating content would provide the best return for this type of user.
Do I Have to Stake My LP Tokens in the Geyser?
As mentioned above, most ecosystems with Geysers implemented require you to stake your LP tokens for various reasons. The current implementation of our Geyser program doesn't require LP token staking. You simply provide liquidity and start earning LP incentive rewards. In the future, we may explore a more complex version of Geyser distributions which would require various forms of token locks/staking.
What Happens if I Remove or Add Liquidity to an Established Position?
We purposefully put this in the FAQ section as opposed to the main post body as it can be relatively confusing. As it works now, removing liquidity will not impact any of the remaining liquidity that you have left in the pool. The snapshots are taken daily, so the system will automatically reduce your share of the incentives pool based on the reduced amount of liquidity you hold. However, this doesn't impact the "Days in the Pool" figure for your remaining LP position.
If you add liquidity, things get a bit more complex. We've built in a calculation that averages your new liquidity against your old liquidity and factors in the time that your old liquidity has been in the pool. This impacts your "days in the pool" figure. The current version of the LP incentive simulator does not have an option in the Settings to play around with these effects yet. We're working on the next version of the tool which will have that. We'll post an update when the tool is ready and you can play around with those nuanced mechanisms.
Month-to-Month Roadmap Progress
Follow along as we deliver on our short-term roadmap. The next major update will unveil the details behind WLEO V2 which will be an even lengthier post than this one as we dive into the details behind a more secure version of Wrapped LEO ahead of the November 10th launch date.
LeoFinance is a blockchain-based social media community for Crypto & Finance content creators. Our tokenized app allows users and creators to engage and share content on the blockchain while earning cryptocurrency rewards.
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