Title
xEIP-2 - xMEX Reward Optimization
Summary
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.
Description
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).
Context:
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:
- 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. - 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. - 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:
OPTION A
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
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 
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).
