An exchange generally has two types of participants – market makers and market takers. Makers supply liquidity to enable trades (supply side), and takers swap between assets (demand side). Liquidity mining or Yield farming is a well-known term for providing benefits to market makers and suppliers of capital.
Liquidity mining/Yield farming has become one of the most popular actions associated with DeFi. Since the primary objective of an exchange is to provide liquidity, DEXs will reward participants who will provide capital to their platform. DEXs emphasize their decentralization by using an automated market-maker instead of order books. An AMM is a smart contract that provides the mechanism for trading, and since the smart contracts are decentralized, users don’t trade the order books of an exchange and instead trade directly with each other.
When trading, DEXs have introduced token swapping; this allows for trading one token for another within a liquidity pool. Every time a trade is made, the user will pay a fee. The AMM collates these fees and distributes them to each liquidity provider (LP) as rewards. This results in an interdependent ecosystem with mutually beneficial cooperation between the groups; the token swapper pays a small fee to use the DEX, and the liquidity provider receives money to provide the liquidity needed for the user to trade.
Uniswap is a prime example of this. The exchange is an automated liquidity protocol that uses a formula for its trading. Anyone can become a liquidity provider for a pool by depositing an equal value of each underlying token in return for the pool tokens.
What’s Trade Mining?
What is a relatively new concept is Trade mining. This refers to providing extra benefits in the form of tokens for the taker side of a market. This is a form of rebate where the user (trader) earns (mines) the native token of the exchange purely by placing trades.
Currently, the existing yield farming options on several platforms are not incentivized to provide liquidity contribution. Trade mining changes this. Just like Liquidity Pool tokens, a user can take their tokens earned via trade mining and then stake them to gain more of the DEXs native token, which in our case would be $VGA.
Introducing Vegaswap Trade Mining
A significant advantage of Trade mining is the ability for users to offset common high Uniswap gas fees. By trade mining our native token $VGA and then further staking the mined $VGA, users can earn even more $VGA, and can trade other cryptocurrencies and stablecoins. This constitutes a wider variety of trading options, and additionally, this allows for even more $VGA to be earned by the users through trading more.
The advantage for the DEX is that user acquisition can happen by incentivizing with tokens that bind users to the platform in the form of the upside of the token. If there is a high expectation that the $VGA token will perform well, there is a strong incentive for users to have as much of $VGA as possible. This will lead to more trading and providing liquidity on the Vegaswap DEX. This will ultimately lead to a symbiotic ecosystem that highly encourages sustained excellence for the $VGA token.
How does Vegaswap Trade Mining work?
A user with an account transacts through the smart contract DEX. E.g., Alice swaps between 2 ETH and 2000 USDT. Alice has a transaction of a total of $2000 amount in the DEX. She receives an additional subsidy of 1% of the tokens, i.e., $20 worth of $VEGA tokens.
Up to 20% of the $VEGA tokens are reserved for trade mining
One of the challenges platforms face is that to airdrop or reward community tokens, the process can often be arbitrary if it’s just based on accounts. To resolve this issue and provide a much fairer system of contribution, Vegaswap has developed a new community reward algorithm:
Vega trading credits (VCS) are earned by providing transaction volume to the platform. 1 Vega credit represents 1 USD traded. The monetary compensation of VCS depends on the context of the account and the market conditions. The most important factors are:
- volume traded of the account
- volume traded on Vega overall
- Boosting through community activities
The Conversion factor (cf) defines at what rate VCS are converted
Vega reward = VCS * cf
This algorithm means that consistently providing high volume trades will be correctly compensated; this further incentivizes increased trading on our platform, which translates to more $VGA being trade mined and the continued flourishing of the platform ecosystem.
How to start Trade Mining on Vegaswap?
Users will be able to generate trading credits. Each dollar amount traded translates into one Vega trading credit (VTC). The conversion ratio of Vega trading credits (VTC) to Vega (VEGA) tokens will fluctuate over time depending on overall demand. The details for the program will be announced through our channels.
Vegaswap Affiliate Program
Additionally, we plan to develop an affiliate program so that traders can earn even more $VGA through bringing new users to our platform. The affiliate program will be an extra incentive for users to earn more $VGA in combination with the trade mining system. All these features combine to ensure our $VGA token is sought after and remains a crucial part of the broader Vegaswap protocol.
Vegaswap is a user-centered automatic market maker that leverages multichain technology, providing users with a wide range of DeFi and cross-chain applications through its platform. It supports and enables seamless token earnings through customizable liquidity pools, dynamic pricing, and an intuitive UI. Vegaswap makes the work of LP providers efficient and profitable by creating provisions for unique smart pools, providing analytics tools, and reducing impermanent loss with adaptive spread.
Connect with Vegaswap and learn more about the platform through our: