🌞A Tale of Two Models: Why zkSwap Finance Embraced Linear over Halving Emission.
TL,DR: Sustainability!
ZF has chosen the linear emission model for our tokenomics. In our opinion, this is better suited for a DEX like zkSwap Finance.
Let’s delve into the halving model. In this approach, the project would utilize a substantial portion of the token supply during the initial phase and halving after a period of time. The token supply is akin to the project’s funds; excessive use at the outset leads to resource scarcity in later phases, undermining the project’s sustainability and competitiveness.
Specifically, in the halving model, the exponential reduction of incentives and the significant emission during the initial phase have a substantial impact on the Total Value Locked (TVL) and trading volume (VOL) of a DEX, as well as the token price. Initially, TVL and VOL may experience rapid growth, but as time goes on, the token price plummets due to excessive token emissions. This triggers a downward spiral for the project: falling prices lead to reduced incentives, which in turn decrease TVL and VOL. Consequently, the declining intrinsic value of the platform further drives down token prices, creating a continuous loop. This cycle often spells the demise of many DeFi projects.
⏰”Haste makes waste” — the intrinsic issue of the halving model lies in its exponential reduction.
From our perspective, a token’s fair value should be anchored in the intrinsic value of the project, rather than relying solely on the ‘artificial’ scarcity derived from its tokenomics. Certainly, tokenomics remains a pivotal factor in determining a project’s sustainability, as we have previously highlighted in our tokenomics series.
The intrinsic value of a (DEX) project hinges on its earnings, which, in turn, rely on at least two key metrics: TVL and Volume (ensuring a delicate balance between the two). Consequently, the incentives for Liquidity Providers (LPs) and Traders (Volume) should remain stable and consistent throughout the linear development and growth of the project. Disrupting tokenomics, as with the halving model, often negatively impacts the economic foundation of incentives and, by extension, the project itself. Linear emission models address the issue of the exponential decline in incentives associated with the halving model.
✅In conclusion, the choice between the halving and linear emission models for tokenomics carries profound implications for the sustainability and longevity of a project, particularly in the dynamic landscape of decentralized finance. While the halving model may offer temporary excitement and rapid growth, it inherently harbors the risk of a downward spiral, ultimately undermining the project’s viability. On the other hand, the linear emission model, as embraced by ZF and zkSwap Finance, aligns incentives with a project’s intrinsic value and fosters a stable and enduring foundation for growth. In the linear emission model, the incentives for the LPs and traders are maintained at a constant rate. This drives the growth of the project and increases its intrinsic value while the token emission is paced slower, thus reducing selling pressure and stabilizing token price. Alongside a significant initial supply and liquidity, a buyback policy, and constant improvement of the platform’s services, this ensures better sustainability than the halving model.
🚀By prioritizing consistency over artificial scarcity, our project can adeptly navigate the challenges of the DeFi space and chart a secure path toward success and sustainability in the future.
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