[xEIP Draft] Energy Reward Optimization


xEIP-2 - xMEX Reward Optimization


A change in swap fee allocation, and a new mechanism of claiming farm rewards, both without changing the current tokenomics for xMEX are being discussed in this proposal. Ultimately, more capital efficiency through autocompounding, higher attractiveness for farmers, users and projects as well as an increase in buying (and burning) pressure for MEX is achieved without affecting the swap fees and farm rewards.


This proposal is building on top of [xEIP-1] - Rethinking (x)MEX in a way.

It would be recommended to implement xEIP-2 on top of xEIP-1, but xEIP-2 can be impelemented in a standalone setting as well (although this is not ideal).


As discussed in xEIP-1, a farm weight voting governance mechanism should be introduced to let everyone (DAO aggregators, projects, yield optimizers, normal users, farmers, etc.) vote for their favorite farm.

If you have not read xEIP-1 yet, I encourage you to do so as it will make this proposal clearer and the motivation behind it very obvious.

1.0 Weekly Energy Rewards

The weekly energy rewards are part of what the ve-tokenomics entail. So it is great they already exist.

However, great improvements can be made here, to make them more efficient, yield higher rewards for users and help MEX gain some price-related momentum (which in turn also fuels the farms APRs).

1.1 The current situation

At the moment, the energy rewards are paid out once a week and are composed of more than a dozen differrent tokens.

This is because some of the liquiditiy pools’ swap volume is set aside for the weekly fees rewards.
Furthermore, not all liquidity pools are affected by this. Especially trading pairs with less liquidity or less volume are not present in the weekly fees rewards.

However, the fact remains that the current situation in which dust amounts of tokens are being sent to the user’s wallet is not ideal, as swapping them would cost more than the token is worth.

Whenever a swap happens, 0.2% go to the liquidity provider, 0.05% is used to buy and burn MEX and the rest of the 0.05% is used for energy rewards.

1.2 How to improve it

A few things:

  1. Adapt the fee ratios:
    1.1 Instead of giving 0.2% to the LP providers, give them 0.15%. The reason being, in accordance with xEIP-1, with the new farm weight voting and farm proposals, an efficient and self-regulating rewards market for the farms will be established. Farmers will likely see way more farms and projects and DAO aggregators will do everything in their power to make them attractive.
    1.2 Instead of using 0.05% of the swap volume for MEX buy and burn, use 0.07%
    1.3 Instead of using 0.05% of the swap volume for the energy rewards, use 0.08%
    1.4 In total, the swap fee has not changed, from 0.3%. However, MEX buy+burn gets a 40% boost and the energy rewards get a 60% boost.
    1.4.1 This will ultimately lead to more mex burning, which means the Exchange can easier reach a level of self-sustainability (which we are far away from at the moment) and purchasing MEX becomes more attractive due to significantly higher rewards.
    1.4.2 Increased MEX buying and burning pressure will ultimately also lead to higher farm APRs, somewhat (or completely, in the ideal scenario) making up for the 0.05 point reduction in swap fee allocation for LP providers.
  2. Use the 0.08% allocation for the energy rewards to BUY MEX instead of giving the tokens “as is” to the user. This can be done at the time of the swap.
    2.1 Aka, allocate 0.15% to the LP provider, allocate 0.15% to MEX buy → from that 0.15%, burn 0.07 points and use the rest as the energy rewards.
    2.2 The users will now get only MEX as their weekly energy rewards.
  3. Use ALL PAIRS for this mechanism. Currently some pairs are exempt from the weekly fees rewards for being too low in liquidity or volume. Under xEIP-2, all liquidity pools with active swaps will be put under the exact same 0.3% swap fee, where 0.15% go to LP providers and 0.07% is used to buy+burn MEX and 0.08% is used for weekly fees rewards (which are in MEX).

Assume, all users claim their MEX from the energy rewards in time and sell the MEX. Then at least the users got to enjoy actually receiving managable liquid rewards where the cost of selling them relative to the value is managable.

However, realistically, not all users will sell their MEX. Any MEX not sold, equates to “successful buying pressure”.

Users are incentivized to lock their MEX for xMEX, because they will receive more rewards, and given the new competitive landscape introduced by xEIP-1, they have even more the reason to do this.
But locking the MEX straight up and giving them locked rewards should not be the goal, as there are too little liquid rewards on xExchange today, as is.

These MEX were purchased using the swap volume of traders. Any MEX NOT SOLD after they have been distributed to users contributes to the price growth of MEX. Just to get any confusion out of the way. Therefore discussing whether more weight should be allocated to MEX Buy+Burn instead of energy rewards can of course be made, but in the long run I personally doubt it will make much of a difference, given how both things (mex buy+burn and the energy rewards) now contribute to constant buying pressure of MEX. And any MEX not sold by users, that received their MEX in their weekly fees rewards will ultimately stay as a positive price impact for MEX.

Any MEX not claimed after 4 weeks will be burned (instead of redistributed as it is the case right now).

1.3 Summary

To sum up this single chapter: We will move from 0.05% allocated for MEX buy+burn to 0.15% allocated to MEX buy, of which 0.07 points are allocated to burn and 0.08 points are allocated to rewards distribution. Any MEX not claimed after being distributed will also get burned. Any MEX not sold after distribution equates to more MEX buying pressure. Worst case: we only have 0.02 points more buying pressure (still a 40% improvement compared to status quo), because 100% of the distributed rewards get sold by users. Best case: we have 200% more buying pressure. Realistic case: somewhere in-between.

The deduction from the fees going to LP providers will be partially made up by xEIP-1, which introduces new features and mechanisms that incentivizes buying MEX in various ways and also by the increased buying pressure to MEX, as has just been explained, which in turn will increase the farm’s APRs.

2.0 Liquid Farm Rewards

At the moment, all farm’s rewards are paid out only in xMEX.
While the xMEX can be unlocked at a 80% penalty, which will basically give you liquid rewards, it is cumbersome for users to undergo this procedure.

The following is proposed:


Users can choose if they want to earn liquid rewards (20%) instead of locked rewards (100%) when entering the farm.

That’s it. They get a lower APR, but they get the rewards right now.


Option B is possibly the easier solution to implement, since no changes are needed at the point of rewards-generation, only when claiming the rewards later (correct me if I am wrong dear xExchange devs).

The following is proposed: when the user claims their farm rewards, they have two options: claim xMEX or claim the rewards as MEX, now.

If they choose the latter, there will be no 10-day unlocking period involved. They will get the rewards now. But obviously, they will only get 20% of what they could have gotten, if they would have claimed the rewards in xMEX.

A popup window or similar might present the user with the two possible options, informing him in one sentece per option what each choice will lead to.

"Claim Your Farm Rewards

You can either claim your farm rewards in xMEX (which is a locked token, but you will get 100% of your farmed rewards) or you can optionally claim your rewards in MEX, but you will only get 20% of what you could have received."

I have written this down in a hurry, this can surely be phrased better and explained much easier so it is in-line with xExchange V3 and the usability improvements and simplifications. The sentence I wrote down here is probably not ideal but should give an idea of what should be written in said popup.

Finally, the user should also get a list of things he would get when he claims the xMEX rewards versus what he gets when he claims the MEX rewards.

Imagine two big buttons, left, MEX, right, xMEX.
The MEX button has the MEX logo on the top and a list of benefits underneath it.
The list of benefits is “Liquid and tradable token” that’s it.

The list of benefits for the xMEX button, with the xMEX logo on top goes along the lines of…
“xLaunchpad eligibility, Weekly energy rewards paid out in liquid MEX, Metabonding rewards, Boosted Metastaking, Boosted Farm rewards, Access to Governance, Access to Proposal and Farm weight voting, Possibility of earning liquid bribes from voting, you can unlock your xMEX at a penalty and go back to MEX etc.” of course everything in a nice bullet-point list, composed of :white_check_mark: instead of bullet points to make it look attractive.

The user is incentivized to choose xMEX, but if he wants he can now also choose to claim his rewards in MEX, which ultimately makes farming much more attractive, even if the yield is understandably lower.

If the user chooses xMEX, logically he can go back to MEX by waiting 10 days. As always. However this NEEDS to be mentioned in the popup, in which the user can decide whether to claim MEX or xMEX as rewards, as it might convince him to choose xMEX.

2.1 Analysis

This change in how farm rewards can be claimed should not interfere with current tokenomics either (as the entirety of xEIP-2 and xEIP-1). It is merely allowing farmers to bypass the 10 day waiting period to get their lesser rewards immediatelly. Farmers who want to farm on xExchange and get liquid rewards are already doing this today, but it is cumbersome and hinders the effect of autocompounding.

Autocompounding is what yield optimizers like Autoscale, JewelSwap and VortX DAO strive for. Allowing autocompounding will ultimately only increase the farm’s possible yield outcome, attract users and allow for an increased capital efficiency, which is needed in an era where DEXes need to optimize everything to stay competitive.

MEX is not negatively affected by this change, since, as already explained, you can already sell your xMEX in the same ratio today, after unlocking it. However removing the pesky step of waiting 10 days as a farmer will attract more farmers and subsequently more liquidity and more liquidity makes it more attractive to trade, which will equal more volume.

To clarify, the 10 day unlocking for xMEX stays in place. But users get the option to bypass the 10-day wait time when claiming farm rewards.

3.0 Overall Analysis

xEIP-2 is acting mostly as an extension to xEIP-1 (but it could be implemented as a stand-alone upgrade too, but it is not recommended due to some dependencies in the farm APR area influenced by MEX buy+burn and the additional utilities brought by xEIP-1).

xEIP-2, if implemented together with xEIP-1, would increase the amount of MEX bought from the market massively, and the amount burned still significantly.

xEIP-2 also makes liquidity provision more attractive through the liquid MEX reward claim option and allows for manual compounding and yield optimizer protocols to more effectively implement autocompounding on top of xExchange. More projects building on top of xExchange will ultimately enhance xExchange’s value and utility.

Please feel free to comment.
And please stay on the topic (which is xEIP-2, and if contextually relevant xEIP-1).


Ok so this xEIP is also a better version than what we currently have and if it’s easy and take little time to implement for the xexchange team then it’s a bandage we could apply for now.

But we should go beyond that after and the fee ratio should be way more dynamic and elastic than it currently is or proposed here.

A volatility based fee is better to protect liquidity providers/boost xExchange earnings overall and allow traders to get better prices in low volatility period.

The fees redistributed to XMEX holders should be proportionate to the fee applicated at the base trade at point T (i agree with your numbers here for the repartition of the fee but the base fee in itself should change)

A range of 0.05 or 0.1 to 1% fee ratio should be implemented after for any token pair.

This is to protect liquidity providers against IL, to boost xexchange and XMEX holders earnings :

Impermanent Loss Mitigation

When users provide assets to a liquidity pool and the price of the assets change, the pool composition also changes. As the pool composition shifts, users often end up having less total value than if they had never provided liquidity in the first place. Since such a loss is realized when users redeem liquidity tokens - this loss of value is called impermanent loss.

Factors That Impact Impermanent Loss:

  • Volatility: Volatility increases fees earned from trading but creates more risk of impermanent loss.

  • Liquidity Concentration: Concentrated liquidity provides IL risk when the LP positions jump out of the determined price ranges.

  • Uneven Pools - Price volatility creates a lower risk of IL when the asset ratio exceeds 50%.

An active liquidity fund manages concentrated liquidity positions to allow users to mitigate impermanent loss while benefiting from higher trading fees.

This is a strategy wich also has Auto Risk Management built in, protecting against costly arbitrage & market shifts by using market indicators

For xExchange

You could see it like this :

Fee ratio → 0.05 to 0.1% for stable pairs
Fee ratio → 0.1 to 1% for volatile pairs

Concentrate liquidity in a tight range → Managed by an active (or passive aka with algorithms) liquidity manager

Option A :

Classic Pairing (Token A and Token B)

With a strategic rebalancing occuring whenever is treshold is met based on volatility and range

Determine two price bands based on volatility : WIDE and NARROW (behind)
Any fees earned between the tighter bands will go to the NARROW strategy
Any fees earned between the higher bands will go to the WIDE strategy

Behind the scene to not bother users with this → The liquidity manager should handle both strategy behind the scene with around 75% allocated to NARROW and 25% for the WIDE strategy (Percentage Numbers could be subject to changes adapting to the volatility period the market is in).

Aggregate all fees and then redistribute proportionnally to each position and liquidity provided.

Option B :

A bit more complex to apprehend but more easy to understand for a user experience (single deposit asset)

Algorithm Design


The purpose of the rebalancing strategy is to accumulate the token of choice (aka target token or deposit token, as it is the token that the user deposits into the vault). The return profile and user experience is similar to a staking product, but instead of earning additional tokens that contribute to value dilution, Yield IQ depositors earn token rewards in the form of trading fees from liquidity pools.

With this design, the depositor’s return can be calculated elegantly and effortlessly, represented as deposit token denominated IRR.

State Archetypes

The rebalancing strategy uses the token composition and volatility to categorize the vault into 5 states:

  1. Healthy State

  2. Over Inventory State

  3. Under Inventory State

  4. High Volatility State

  5. Extreme Volatility State

Depending on the state, the rebalancing strategy will allocate the token and designate token concentration accordingly.

  1. Healthy State: This is the state the rebalancing strategy is trying to keep the vault in for as long as possible. This means the price is moving within the price range where we position the concentrated liquidity, and thus efficiently accumulate the deposit token through earning concentrated trading fees.

In a healthy state, this is how the tokens are allocated and concentrated:

  1. Over Inventory State:

This state (and corresponding concentrated liquidity provision) is triggered when there are too many deposit tokens. When the vault is in the over inventory state, the rebalancing strategy will position the vault in a way that it prioritizes the sale of the deposit token to get it back to the healthy state.

As illustrated, when the paired token spot FX increases by a small %, the concentrated position will sell a much larger size of the deposit token when compared to a similar move of the spot FX to the other side.

  1. Under Inventory State

This state (and corresponding concentrated liquidity provision) is triggered when there are too few deposit tokens. When the vault is in the under inventory state, the rebalancing strategy will position the vault in a way that it optimizes for buying the deposit token to get it back to the healthy state.

As illustrated, when the paired token spot FX decreases by a small %, the concentrated position will buy a much larger size of the deposit token when compared to a similar move of the spot FX to the other side.

  1. High Volatility State

Differences between fast 5 mim and slow 60 min TWAPs as well as between current price and fast TWAP will be used to detect such price movements. By default, a 6% difference triggers the high volatility state.

In the high volatility state, the liquidity will be spread out into full range for both tokens.

  1. Extreme Volatility State

Difference between fast and slow TWAPs as well as between current price and fast TWAP will be used to detect such price movements. By default, a 25% difference triggers the extreme volatility state.

In the extreme volatility state, the strategy will lock itself and prevent further deposits into the vault. Note that in this case the vault is not rebalanced at all - human intervention is needed to assess the situation and decide when and how to rebalance.

I know this is a bit complex to apprehend but this is actually working better than a classic concentrated liquidity.

Expect around 15 to 30% more earnings with those rebalancing strategies.

I like both proposals, I would use my voting power in favor of xEIP-1 + xEIP-2

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This is not a bad idea but has nothing to do with xEIP-2. Please post it in a seperate xEIP. it’s already complete just copy paste it.

Well this go beyond of your proposition yes !

And of course it’s a copy pasta from 2 good protocol.

Anyway the xEIP you have posted will be redirected towards general category by xExchange team as they have always done this from every other posted xEIP.

What? What a shame. Okay i guess we won’t vote on this anytime soon. This is not how xEIPs should be handled.

I totaly support this proposal and I would vote for it !

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