[xEIP] Revision to MEX tokenomics for xMEX/MEX Conversion

xEIP Drafts
1

# Summary

Brief summary. It is strongly advised to read the full proposal to grasp the thoughts and further reasoning behind it.

All dedicated voters are strongly advised to read the full proposal.

*** A new liquidity farm EGLD/MEX shall be created ***

This new farm will only allow MEX and EGLD tokens (unlike the existing farm, which allows xMEX-EGLD to be added as farming tokens)

The old and existing farm will not immediately cease to exist. It will be progressively phased out and replaced by the new EGLD/MEX farm.

*** Adjustment to xMEX ā†’ MEX conversion fees ***

Current tokenomics: When unlocking xMEX to MEX (or reducing the lock period), the user who is unlocking the xMEX is being charged a fee. Of this fee, 50% of the xMEX gets burned, and the other half distributed to xMEX holders.

New tokenomics (proposed): Do not burn xMEX ā€“ and instead distribute 100% to existing xMEX holders.

### Summary: Reasoning

Allowing xMEX for liquidity provision was not appropriate being a locked govenance token. It is not common in the industry to allow locked tokens to provide liquidity. Locked tokens should stay locked. In its current situation, the xMEX used for liquidity provision hinder significant upside movements and significantly weaken any buy pressure.

  • The new EGLD/MEX farm, due to only allowing MEX as liquidity, will have less TVL. Therefore, given the reallocation of rewards given to the farm, the APR will be increased.
  • The existing EGLD/MEX pool will see a gradual decrease of liquidity due to the XMEX-EGLD and LKMEX-EGLD farm positions leaving the old farm in lack of incentivisation.
  • This incentivizes buying MEX to be able to participate in the EGLD-MEX pool (buy pressure).
  • Furthermore, the protocolā€™s buying pressure (from swap fees) will now go to a pool that is gradually exclusive to MEX-EGLD (no xMEX used for liquidity). Therefore, all protocol-driven buy pressure is amplified (smaller pool, buy pressure will lead to larger price movements). * The burnt xMEX from the early-unlock fees (or reduced energy)are not buying pressure for xMEX, as these xMEX already exist. Burning them does not add value to existing holders.Instead, distributing them to existing holders, they will earn twice as much xMEX from the early-unlock fees (or reduced energy), which creates more value for holding xMEX.

Description

Today, we want to push two major points in this proposal that have already been discussed on the agora.

Due to their significant short, mid- and even long term impact, they need to be discussed now and implemented soon. Therefore I am publishing this proposal to hopefully get a good amount of feedback before it gets posted on the xExchange Governance Portal.

## Part 1 - New EGLD/MEX

Right now, the EGLD/MEX pool (and farm) that exists on xExchange is counterintuitive.

One of the plans of xExchange is to increase buy pressure and increase utility - of both, MEX and xMEX.

Letā€™s evaluate the current situation.

Right now, the EGLD-MEX pool allows liquidity to be added using three different token pairs:

  • MEX-EGLD
  • LKMEX-EGLD
  • XMEX-EGLD

This is problematic for multiple reasons:

  • Allowing the provision of liquidity using locked tokens allows for a deeper liquidity, but subsequently weakens all price movements significantly (as evident during mid 2023 and mid 2024 with positive price movement of MEX against EGLD)
  • The smart contracts handling the pool are very complex due to the fact that three different MEX tokens are allowed in the pool (xMEX, LKMEX and MEX).
  • LKMEX and xMEX are supposed to be locked tokens. xExchange is the only DEX that allows locked tokens to be used in liquidity provision. In general: Locked tokens are not counted as part of the circulating supply and should, under no circumstances, be tradable. Tradability of locked tokens (by providing them as liquidity) undermines the very concept of a locked token. Furthermore, it actually undermines even the circulating supply statistics, as all xMEX used in liquidity pools should be counted towards circulating supply, but isnā€™t because the token is supposed to be locked.
  • Providing LKMEX and xMEX could potentially be used maliciously, to unlock part of your provided liquidity prematurely and cost-free. In addition, providing liquidity in locked tokens and suffering impermanent loss due to rising prices can be abused to unlock parts of oneā€™s locked tokens.
  • Unlocking tokens through liquidity provisioning would ultimately affect the price negatively by creating more sell pressure as they were supposed to remain locked.
  • All the protocol-driven buy pressure through fees is thus also significantly weakened

INFO: ā€˜Unlockingā€™ the tokens is the technical implementation of providing locked tokens in the liquidity pool (as there is no proper other way to implement it, given how impermanent loss affects AMM pools).

So, as evident, multiple issues arise, from code complexity, over circulating supply incorrectness to weakening buy pressure and allowing users to bypass lock restrictions.

As a solution we propose the following:

  1. A new EGLD-MEX farm is created, linked to the existing EGLD-MEX liquidity pool. This new farm will only allow adding liquidity with MEX-EGLD tokens (no LKMEX or xMEX allowed).

  2. The ability to add locked tokens to the pool (xMEX-EGLD or LKMEX-EGLD LPs) will be turned off permanently.

  3. This new farm will get a part of the farm rewards from the old EGLD-MEX farm at first. Progressively, more and more of the farm rewards will be allocated from the old farm to the new farm. Eventually, the old farm will no longer receive farm rewards at all.

  4. The old farm (that allowed farming with locked tokens) will be fully paused at that point, so that no more locked farm positions can be created and no further rewards will be given any longer. Users are still able to withdraw their existing locked farm positions. Once this is achieved, the xMEX and LKMEX will gradually leave the old farm and pair in lack of incentivisation, thus MEX coming out of these removed XMEX and LKMEX positions will no longer be used as tradable liquidity. The exact timelines, communication and durations for each phase are purposefully not part of the proposal. The xExchange Team will decide appropriate timelines and deadlines for each step in the process based on userā€™s reactions, public perception and to adhere to professional change management standards, that are part of good information security measures.

The new farm will receive an xMEX allocation that will lead to a farm APR that is expected to be higher than the current one after the launch of the new farm.**

The ideal target is to provide more than the same APR, to make the farm more attractive to farmers, but this is subject to dynamic decision making, as it is mostly dependent on how much liquidity will actually migrate to the new farm.

In fact, we expect the new farm APR to be higher than the old farm APR, due to increased fees rewards and through higher xMEX farm rewards.

The increased rewards on the pool+farm are expected to be higher. Assuming equal volume, less liquidity will mean a higher relative liquidity provision APR. Also, we aim to provide a higher farm APR (using xMEX incentives) after the migration is complete, but the absolute minimum is to provide at least the sameAPR (using incentives) as the old farm.

We strongly believe that it is important to grow the overall liquidity, and more incentives in other core farms are direly needed. The team will decide on what farms will receive incentives. It is in the interest of the team and of the xExchange community to incentivize farms which lack liquidity, yet pose high importance to a thriving ecosystem, such as BTC, ETH, or other high marketcap tokens and stablecoins, just to give examples. This gives an idea of how the rewards will be utilized.

By approving the proposal, you wil allow the xExchange Team to initiate and execute this process. Exact timelines are, and again, not part of this proposal.

We expect the new EGLD-MEX farm to offer higher APR rewards and increased pool fees rewards.

Less liquidity in the pool means more fees rewards relative to the pool size - and the allocated xMEX will also lead to a general rise in APR. Both of which can lead to increased buy pressure in MEX, as the farm becomes more attractive.

## Part 2 - Unlock Early/Remove Energy Fees

At the moment, when unlocking xMEX early for MEX, or reducing its lock time, a fee is charged (up to 80%).

To clarify: This fee will remain in place.

However, we want to change the way this fee is used.

Currently, the collected fees are used in this manner:

  • 50% get burned (reduces xMEX supply)
  • 50% get allocated as weekly rewards to all xMEX holders.

We strongly believe that the burn of xMEX does not lead to any significant value generation to xMEX holders. The burn of xMEX does not lead to any buy pressure, as they are simply removed from the supply.

By assigning 100% of the collected energy removal fees to existing xMEX holders, additional value gets created. The received weekly rewards from energy removal fees are doubled for everyone.

Furthermore, with this change, it becomes easier to accumulate xMEX for potential future xLaunchpad Ticket categories, grow into higher Energy Leagues and more easily achieve (and maintain) fully-boosted farm rewards for farms and dual farms.

Not only does the direct benefit for xMEX holders increase (by earning more weekly rewards), but also the other implications of owning more xMEX and being able to more easily accumulate them helps all xMEX holders that actively use the xExchange and participate in xLaunchpad IDOs.

So in summary, it is not the introduction of a new utility per se, but existing utilities get amplified, including the weekly rewards, more easily achieving and maintaining fully boosted positions and growing oneā€™s Energy League (which affects the xLaunchpad ticket allocations) as well.

The cost on the other hand is that part of those fees will no longer be burned, however we believe that the benefits outweigh the cons and that the burning of xMEX does not provide as much value to xMEX holders as the new solution proposed here.

# FAQ

Q: What will happen to my existing liquidity in the old EGLD/MEX farm? Will I need to manually migrate it to the new farm?"

A: Yes, migration will not be possible.

Keep in mind, only MEX-EGLD LPs can be migrated. Any xMEX or LKMEX locked LP paired with EGLD cannot be migrated. These can only be removed.

Q: Can you provide more specific estimates on how much higher the APR might be in the new EGLD/MEX farm compared to the current one?"

A: It is hard to predict. New users will likely join the MEX-EGLD farm with MEX they had previously not used (sitting idle in their wallet). It is impossible to predict accurate supply estimates for the new farm, as it is impossible to predict how the masses will react and how much of the existing farm positions up to $14.18M as of 22/10/2024 will end up migrating. Also there is the possibility of brand new liquidity joining the pool.

There are too many variables to be able to say anything profound here.

Q: How will this change affect the overall liquidity of MEX in the market? Is there a risk of reduced liquidity during the transition period?"
A: The new liquidity, once the process is complete, is expected to be lower than the EGLD-MEX liquidity currently in the pool, due to the removal of locked tokens from liquidity provision.

We see the risk as quite low, due to the fact that enough liquidity should remain in the end to support efficient swaps. And given the current circulating supply marketcap of MEX, which is 14 million USD, the current liquidity of 14 million USD is significantly large (matching the marketcap!). Too high to move the price of an asset of this marketcap.

Q: Are there any potential risks of price manipulation in the gradually smaller EGLD/MEX pool? How will these be mitigated?"
A: The liquidity should still remain large enough to make significant price manipulations hard to achieve. More importantly, the misuse of locked tokens as liquidity (which allows free early unlocks with impermanent loss) are mitigated, which is more important than the larger possibility of price manipulation.

It is noteworthy that MEX has now also been listed on multiple centralized exchanges, enhancing the liquidity further.

Q: Can you provide more details on the timeline for phasing out the old farm and fully implementing the new system?"
A: As mentioned, this will not be possible due to dynamic decisions the team will have to make to properly communicate this change, within the guidelines of proper change management.

Q: How does this proposal align with the long-term vision for xExchange and MEX tokenomics?"]
A: We are focused on growing xExchange, growing MEX, adding utility to MEX and xMEX.

With this proposal, a unique utility is added to MEX, and only MEX, which is liquidity provision.

xMEX doesnā€™t get new utility per se, but existing utility gets enhanced such as the weekly rewards and its subsequent implications. We do not consider making xMEX no longer capable of being used for liquidity provision as a removed utility, as it should not have existed in the first place. In fact, removing xMEX from liquidity provision will fix all the mentioned issues in the proposal that locked tokens in liquidity provision cause.

Q: Will there be any changes to the current lock-up periods or mechanisms for xMEX as a result of this proposal?"
A: No

# Conclusion.

The new EGLD-MEX farm is a strategic decision we considered and, going forward, will be of great significance together with the full reallocation of the Unlock Early/Remove Energy Fees to xMEX holders.

## Open to Feedback.

We invite all community members for a period of 7 days between Oct 23rd and Oct 30th to review this proposal and share their thoughts, suggestions, and support for the Revision to MEX tokenomics for xMEX/MEX Conversion

9 Likes
2

This is an excellent and well thought out proposal.

It addresses the root of the issue: excess liquidity that should be locked actually being part of the circulating supply in a stealth mode through AMM via the DEX LPs

The 100% redistribution to holders heightens the game theory dynamics - do holders further accumulate or ā€œcash outā€ the excess, causing further distributions to the true holders

With this proposal, MEX becomes a first class citizen again :clap:t3::clap:t3:

5 Likes
3

A thing to consider is that old xmex LP position holders suffered a significant impermanent loss along the way up to here, gaining xmex as rewards.
Will these holders able to benefit from the long hoped price rebound of mex against egld?

As an example, a user might have invested more than 300 egld in an LP with lkmex and then xmex, should he have kept his position along the past 2.8 years, they would have most likely less than 100 egld left in his LP position. He would be forced to close his farm position and thus would not be able to benefit from the farm when the impermanent loss would have started to be somewhat recovered.

It may feel like thanking current locked LP position holders for the liquidity provided until now, and asking for new liquidity or preferring and rewarding more the new liquidity providers.

Other than that the proposal looks good

1 Like
4

xMEX LP holders though gaining xmex rewards do get more EGLD up to this point of time. The user can choose to keep/maintain his liquidity provision as only the current EGLD/MEX farm is phased out.
MEX is the utility token while xMEX is the governance tokens. They are positively correlated to each other.

1 Like
5

Pretty excellent proposal. I donā€™t have any open questions here except: why only create a new farm and not also a new pool (that only allows mex-egld) and deprecate the old pool at some point so that itā€™s no longer used for swaps?

I guess there is a technical reason behind this because the proposal outlines so nicely how locked tokens shouldnā€™t be used for liquidity provision. And i agree with it. So yeah, probably not possible?

Anyways if this were up for voting Iā€™ll vote for it. This is well written and leaves no uncertainties.

6

The existing EGLD/MEX LP which allows for xMEX is actually EGLD/MEX, but thereā€™s a proxy in between the LP and Farm that converts XMEX to MEX. And the technical design does not allow the creation of LP for an already existing pair. Hence, the creation of a new EGLD/MEX farm specifically for MEX.

2 Likes
7

We could also go for additional liquidity pool as well, if really needed, and simply remove the existing pair when the new one is created. But both of them cannot coexist at the same time so the transition would be quite brutal, canā€™t be done gradually. The other thing is that the technical implications to do the transition from the old liquidity pool to the new one is quite hefty as this particular liquidity pool is very connected with a lot of internal exchange mechanisms, so the dev cost of transitioning this particular LP is significant enough to raise questions on feasibility.

But, on another more important hand, I for one would rather opt for only having a new farm and deprecating the old one while giving the existing XMEX/EGLD and LKMEX/EGLD LP providers the fair chance of recuperating their impermanent loss and allowing them to only exit these positions whenever they consider. Clearly, this will lead to a gradual decrease of the LKMEX and XMEX supply from the pair, which isnā€™t ideal going forward from DEX strategical point of view, but itā€™s the fair way for the users.

8

While these users wonā€™t benefit from further farm rewards for this pair, they can withdraw their liquidity position from the pair whenever they consider fit. This means that these users will still benefit from their LP position rewards (the swap fees) until they remove that liquidity position themselves.
This gives them a fair chance and option to still keep they existing XMEX/LKMEX liquidity inside the pair thus leaving them the option to manage their potential impermanent loss whoever they see fit.

9

Yes, thats correct.

  1. 2 EGLD/MEX LPs cannot coexist at the same time.
  2. Existing EGLD/xMEX, EGLD/LKMEX LP providers can continue to maintain their position, status quo, or they can choose to withdraw their xMEX in view of the increase in xMEX rewards from the xMEX-MEX conversions.
1 Like
10

Yes. Thats correct. They have the option to maintain status quo.

11

Keep a small part of burn should be essential, we need a deflationmary Mex, donā€™t you think ?

What about voting on mex emission is that still ongoing at year 4 or 5 ?

1 Like
13

The burning of xmex from the energy fees rewards is not really helping. It doesnā€™t induce buying pressure.

Instead we need more ā€œbuy+burnā€ pressure to truly make mex deflationary but that is out of scrope of this proposal and has more to do with getting more liquidity, more volume and thus more fees.

1 Like
14

I think that is what will happen with the 0.05% of the trading fees. They will be used to buy mex, burn 50% and distribute the other 50% to xmex holders(from all token pairs, not just 20). Which is great. In addition, giving 100% of unlocking mex to xmex holders is great as well, because its increasing the competition between xmex holders. Xmex holders who have more xmex locked for 4 years will get the most out of those rewards, which will incentivize xmex holders to buy and lock more mex.

15

I mean buy and distribute 0.05% Mex and buy and burn 0.05% Mex from the trading fees*

16

Colleagues, you may well be right from a technical point of view. And this proposal may well be the breakthrough. I am not a tec professional but just an investor who believes in the project.
If you look at this proposal from the MvX story, I think it is disastrous. But please correct me if Iā€™m wrong.
When switching to xechange v2, MvX stipulated that only those who switch to xmex and thus receive energy also receive rewards. I say almost everyone has switched to xmex to receive rewards with LP. Now it should be reversed again. Only mex will receive rewards at LP. Whereby when converting from xmex to mex the 80% (at 100% energy) should be due. This is a devaluation without equal. Even if the fees are paid back 100% to the LP, it is a shift in value from those who have few LPs or energy to those who have many LPs or energy.
Whatā€™s the point?
Do you want to destroy the credibility of MvX?
Please correct me if Iā€™m wrong. Also show it with examples.

17

Thatā€™s false. LKMEX holders also were grandfathered and also received the same rewards als xMEX holders - and that was always communicated.

No, nothing about the rewards xMEX receives changes

xExchange is now a standalone company

You misunderstood the entire proposal i think

1 Like
18

Hi, yes, maybe I misunderstood it.
Lets make an example.
100 LP with 100 egld and 100 xmex.
Rewards should continue
What has to be done? And what consequences has it?

19

Great initiative to gradually remove the incentive for xMEX<>EGLD LP, Iā€™m a long-time advocate of this choice for all problems this pool pairing brings (and especially the potential locking of tokens already locked that was bought in LP). It would be interesting to follow the evolution of liquidity migration over time.

For the full redistribution of the ā€œunlocking feeā€, I was rather on the other side, burning everything, but after much reflection, I think itā€™s the right choice. This will allow us to redirect supply to holders who constantly keep 4 years of lock. This becomes a game of ā€œlast man standingā€, and drastically increases the incentives to hold and perpetual lock in the long term, as even xMEX that have already been redistributed and then unlocked again will return to the pool of diamond lockers.

2 Likes
20

Only 1 thing is missing now. All fees rewards(from all token pairs) given in Mex. After that, Mex will be very attractive for new holders to buy.

1 Like
21

its part of our plans.

1 Like