POP!’s new Tokenomics — a Mathematical excerpt
Dear POP! Town,
Today, we are excited to bring you an article that presents a mathematically sound Point of View (POV), into how Candy Farms are a healthy and sustainable token utility model for our sweet $POP! token. In addition, we will be outlining extra mechanics, that when combined, can ultimately provide a net-positive effect on the ecosystem and the POP! token.
We made sure to use simple-to-understand examples and explanations, such that the entire community can follow what we’re stating.
In a world where Adam has an Apple, which is valued in Dollars, it’s quite simple to visualize how the apple generating “interest” is net-negative for the value of the apple. Let’s look at a simple graph:
Simply put — If the number of apples (in blue) increases while the USD supply (in yellow) remains stable, then the value per apple (in red) decreases.
Interestingly (and somewhat humorously), when we convert this chart to dollars (instead of apples), it’s called “inflation”. But, we shall digress.
When analyzing POP!, we see a similar situation. The problem emerges when POP! tokens get rewarded to people holding no POP! in return. They have no price risk (since they are not forced to hold POP!), combined with the fact that their interest in POP! might be lower than an original POP! participant.
The solution to this issue is rigorous, yet self-solving. First, the POP! token holders should be rewarded in equal (or exceeding) value compared to the people receiving POP! tokens without holding the token itself.
Our primary solution (Candy Farms) provides POP! holders the ability to earn 3rd party tokens simply by staking their POP! tokens. This intrinsically brings utility and value to the POP! token, given it can provide attractive APYs , while ensuring there are no concerns of Impermanent Loss or other potentially limiting factors, which could result in a net loss.
To make sure this concept is clear, let’s look at a simple example.
Let’s assume that Project [A] strives to participate in the POP! ecosystem. As such, they create an MLP together with their partner — Project [B].
Create an MLP between Token [A] and Token [B], where participants can provide their Token [A] and/or Token [B] as liquidity, in order to receive POP! tokens.
Create Candy Farms consisting of Token [A] and Token [B], whereby POP! token holders can stake their POP! in order to receive either Token [A] or [B].
If we apply this approach to the apple example that we started off with, then it becomes rather clear that an attempt to create a closed state space is performed. In other words, for every new apple created, there’s a varying USD quantity added to the ecosystem, which assuming initial calculations and predictive estimates, will seek to converge to an equal value. This concept attempts to safeguard the value of both the apples & USD.
Now, POP! doesn’t just stop there. As an addendum, every participant in every MLP pays a deposit fee, which is used to partially buy POP! off the open market and provided as liquidity. This means there is an infinitely growing amount of open-market purchasing pressure, and subsequently, liquidity for the POP!/WETH pairing. However, this feature is already implemented in the POP! platform, but when combined with the Candy Farms, results in a potentially net-positive outcome for POP! token holders.
Finally, as an additional factor that will attempt to drive towards a net-positive outcome for POP! holders, the emission rate of POP! will slowly diminish as we increase the platform adoption. This will tie into another exciting mechanism that will be mentioned at the end of this article, and further elaborated on in upcoming communications.
To clarify, the first step of this solution (Step 1 + 2) significantly diminishes the downward pressure from POP! and drives towards a mathematical equilibrium in price, where every POP! token is “backed” by future rewards. The second portion of the solution (The converting of deposit fees into POP!) creates sustainable upwards pressure, ensuring that the price floor of the POP! token rises with an increase in participants.
Having explained the logic/flow of the POP! solution, a mathematical example can be seen as follows:
A new MLP is launched with approximately $100k in POP! rewards given out to MLP participants (given the nature of POP!’s varying price, this value could change). This is a net negative for POP! holders, and in an arbitrary scenario where 80% of these rewards are sold, this translates to approximately -$80k price pressure for the entire ecosystem. However, as we explained, 3rd party token rewards are given to POP! holders via staking. This means that potentially $100k is added as a net positive to the ecosystem (again, given the nature of token price swings, this value could change). If we assume that the POP! vault stakers convert 80% of these rewards back into POP! tokens: A +$80k price pressure.
When combined, this breaks down to a net zero effect (-$80k + $80k = 0). However, to create a net-positive effect, there must be some kind of mechanism that actually increases the POP! purchasing pressure.
This is where the deposit-fee comes in. If an MLP has $2M in matched volume, this equates to $32k net purchasing pressure on the POP! LP, where $16k will be used to directly purchase POP! tokens, while the remaining $16k will be matched to provide liquidity. This ultimately makes it harder to move the price down after this bullish influx transaction.
In turn, we believe that this token model is attractive for the projects participating in the MLP. While the conversion of POP! to 3rd party tokens & vice versa might sound bad at first, in reality (as we’ve mathematically displayed), the outcome can be a net-zero event for both parties. In other words, the outcome is exactly the same as if the project simply gave out it’s tokens during a liquidity mining program.
The question then lies — why should a project create an MLP, instead of simply creating their own liquidity mining program, if the net outcome is the same? There are various obvious and non-obvious reasons as to why POP! is farm more beneficial.
How is this model attractive for projects?
If you’ve been paying attention, you’ll have noticed that running an MLP is not “free” for the team, since they are providing 3rd party tokens as rewards. As mentioned earlier, the question then lies — why should a project choose to create an MLP vs creating their own liquidity mining program? Here are some reasons why we believe it is far more favourable for a team to create an MLP.
In order for a team to create their own liquidity mining program, they require solidity developer(s), assuming the project is built on Ethereum — which most are. In the current market state, solidity developers can charge exuberant prices for their work. This is effectively due to the law of supply and demand — and as you may have noticed, there is enormous demand and limited supply. This means that in order for a team to create their own unique liquidity mining program, they will need to pay a high initial capital.
In addition to the cost of hiring solidity devs, one needs to consider the cost of getting your code audited. As I’m sure most readers have seen, the market is riddled with multi-million dollar exploits. This is a very, very real risk. Therefore, should you want to attract significant volume, an audit is paramount. When combining the costs of solidity dev(s) and an audit, it becomes rather clear that an initial capital cost is going to be rather significant. However, POP! provides a “one-stop-shop” for teams to plug into our fully-audited infrastructure and create a unique liquidity mining program that also brings an array of unique benefits, such as single-sided LP and IL mitigation. This is all without having to pay a cent on devs + audits.
In addition to the aforementioned costs, the running costs of a liquidity mining program can also be quite significant. After all, users providing liquidity need to be incentivized. That is where POP! steps in and provides a unique solution (as described by our net-zero concept), that drastically lowers the costs for the team.
To further grasp what was just discussed, let’s have a look at an example. Let’s assume Project A are eagerly searching for a liquidity mining solution. They will have 2 options:
1. Develop their entire liquidity mining solution themselves, using unaudited technology & paying anywhere from $100k to $200k to develop + audit. In addition, they will then have to provide rewards to incentivize participation, which can ultimately vary on duration of program, expected participation and other factors. Nevertheless, this cost can easily range between 6–7 figures.
2. Use POP!, which comes with zero development costs, while providing an array of unique benefits! All they have to do is provide rewards for the Candy Farms, which as previously discussed, approaches a net-zero cost.
Based on this comparison, it should become rather apparent that POP! provides a far more cost-beneficial solution for teams. POP! removes the development work+costs, need for audits, reduces security risks and ultimately provides a solid platform with extra benefits.
Extra — Token Burn
As an extra to this article, we’d like to announce that we are currently discussing a significant token burn that will increase the token scarcity. The exact details of this token burn will be shared in further communications, so make sure you don’t miss it!
After analyzing the mathematics behind Candy Farms, we hope you can understand how this model will ultimately benefit the POP! community and token holders. As we continue to strive for a successful adoption of our platform, we are glad to know that this model will become increasingly effective, thereby rewarding our early believers.
And as always… keep it POPin’!
POP! is a platform that allows 2 projects to objectively display mutual trust and commitment to each other, by locking their respective tokens together and creating a trustless Mutual Liquidity Pool (MLP). In addition, it grants POP! users the opportunity to provide single-sided liquidity, in the form of their favourite token, by matching them with another POP! user and adding their joint liquidity into the MLP.
Powered by Faculty Group, POP! aims to set a new golden standard with regards to partnerships, and how they are perceived in the digital asset ecosystem.