Liquidity mining

Reasons for rewards

From its inception, the goal of IPOR Protocol has always been to become a fully decentralized, autonomous organization. On the way to achieving that, there are several obstacles to tackle: launching a useful product, successful bootstrapping of liquidity, and building a high-quality, engaged community that could take ownership of the ecosystem in the long run.

Rewards in the form of IPOR tokens will not help build a functional product on their own. Still, it has become widely understood in the crypto community that rewards can significantly aid liquidity provision and help develop a high-quality community with skin in the game and long term commitment.

This is why liquidity farming and staking programs will be launched along with the generation of the IPOR token. In this chapter, you can learn about the solutions employed and the reasons for which they are used.

Distributing IPOR ownership within the community of users

The first reason is to distribute tokens to the involved users of the IPOR Protocol. The IPOR protocol was developed with the belief that the IPOR Index and Interest Rate-based products should be controlled by those the most closely engaged with the project. The IPOR token thereafter is a measure of community commitment to the IPOR ecosystem. Farming rewards are one of the most effective ways to get tokens into the hands of those with the most interest in the project's success.

Bootstrapping liquidity

Liquidity providers play a central role in underwriting a risk that swap takers offload. Surely liquidity providers are compensated for this service, and that overlaid with the conservative strategy and sound protocol performance should be sufficient down the line to ensure long-term market functioning.

At the inception, when the protocol is bootstrapping, however, the LPs have a limited way of knowing how the protocol will perform. Still, if the protocol wants to be useful to the traders, it must maintain a stable liquidity pool. Liquidity farming is a tool to encourage liquidity providers to engage with the protocol and provide the system's lifeblood.

Inflation

Often seen among crypto projects, massive token price fluctuations are usually caused by not having the adequate velocity of token distribution leading to dramatic price increases caused by a moderate demand and minuscule supply (so-called pump). The pump is followed up by a "dump" where the early large holders offload their tokens onto the retail investors lured in by rapidly increasing prices. The strategy developed for the IPOR token has been crafted to avoid such dramatic and unsubstantiated price actions. The inflation is designed to be growing alongside the project's growth, putting a solid foundation under the token.

Mechanics of staking

Step 1 - Provide liquidity.

The first and fundamental step to start receiving liquidity rewards is to become a liquidity provider and receive liquidity tokens. The liquidity tokens are already a possible source of rewards on their own (via PnL of the pool, trading fees, etc.). But to get higher rewards, you need to stake them.

Step 2 - Stake liquidity tokens

ipTokens (ipDAI, ipUSDC, ipUSDT) are fungible and fully transferable. You can also redeem them for the underlying asset whenever you want. If you want to participate in the additional protocol liquidity rewards, you will need to stake the ipTokens to the rewards contract. When you do that, they are no longer transferable. You will be able to see your balance on the smart contract, but you cannot send your tokens before you unstake them from the rewards contract.

After you start staking the ipTokens, you will start earning liquidity rewards on a block-per-block basis proportionally to the amount of liquidity you have staked. You can always check the balance of rewards you're entitled to via the smart contract or on the IPOR web application.

Step 3 (optional) - Acquire IPOR tokens

The IPOR liquidity rewards smart contract allows for improving the effectiveness of your rewards by staking IPOR tokens. Suppose you wish to take advantage of a possible higher rate of liquidity rewards; you will need to obtain the IPOR token. IPOR tokens can be bought on secondary markets such as Uniswap or via a liquidity rewards program.

Step 4 (optional) - Stake IPOR tokens

Once you have obtained IPOR tokens, you need to stake them to convert them to Power IPOR. Staking can be done via the IPOR web application interface or by direct interaction with a smart contract. Once you stake your IPOR token, you can power up your liquidity rewards.

Step 5 (optional) - Power up

After obtaining Power IPOR, you can now participate in everything that power Token allows you to do. Besides the governance or sharing protocol profits, you can power up liquidity rewards.

In IPOR Liquidity Rewards Program the Power IPOR allows you to increase the effective weight of your liquidity. The exact mechanism relies on a ratio between your staked liquidity and the amount of Power IPOR delegated to the particular stake. If you provide liquidity only in one token, say DAI, you can delegate 100% of your Power IPOR to your DAI stake. If you're delegating more than one token, you should consider what the most effective distribution of your Power IPOR should be.

Staking Rewards Curve - Power Up

As mentioned in "Step 5" above, the rewards contract uses the ratio between your liquidity tokens and Power IPOR tokens to calculate your effective rate of rewards. The ratio between tokens does not have a linear progression, in other words increasing the amount of Power IPOR in relation to liquidity will not lead to a proportional increase in the power-up. Rather the progression is logarithmic. In practice, it means that there is a point at which you would be better off providing liquidity than adding more Power IPOR tokens.

The rationale behind this type of solution is to promote retail liquidity providers and further decentralization of the IPOR token distribution. Moreover, this method of calculating incentives for providing liquidity should lead to a more "leveled" token market demand, at least that driven by the liquidity rewards.

Please check the "underlying math" in a dedicated section for more detailed info on how the rewards are calculated.

Claiming the rewards

Because the rewards are calculated in real time the balance of available rewards changes constantly. If the user decides to claim the rewards they are paid out immediately. Claiming rewards is done always in the form of pwIPOR. Rewarding liquidity providers with staked IPOR allows for much greater gas efficiency and enables them to immediately delegate tokens to a pool of their choice.

stEHTLiquidity mining case

Using liquidity mining using stETH works largely the same way as with other assets. The only difference is that when calculating the user power-up, the Chainlink ETH price oracle is used to inflate the itpstETH count on par with other assets. In consequence, the calculated power-up depends on ETH price and may periodically not fall exactly on the curve. If you want to rebalance your power-up, you can manually call updateIndicators function. It will recalculate the power-up.

https://etherscan.io/address/0xCC3Fc4C9Ba7f8b8aA433Bc586D390A70560FF366#writeProxyContract#F19