Double2Win episode — Innovation #3: Liquidity Mining 2.0 (LM2) First Implementation

Liquidity mining (aka yield farming) is a crypto native marketing tactic. It was the catalyst during the DeFi summer 2020 that propelled DeFi into the spotlight. As a crypto native project, Double definitely leverages this effective crypto native marketing tool not only to drive the growth but also to contribute to Double’s value proposition of offering “positive risk-adjusted yield”, which is critical to attract massive capital into AMMs especially from institutions and tradFi!

Currently, to attract Liquidity Providers (LPs) to provide liquidity for specific trading pairs/pools on AMMs, token rewards as incentives are distributed based on the size of liquidity positions — Liquidity Mining 1.0 (LM1). LM1 has a few flaws and can and should be improved. A much better liquidity mining incentive design is to distribute reward tokens based on the AMM trading fees earned by liquidity positions — Liquidity Mining 2.0 (LM2). LM2 implementation is a hard problem due to the current token model and reward distribution schedule. Double has the FIRST implementation of LM2!

Double Dip Joy (DDJ) — an ERC20 with no premine and strong native demand

Double Dip Joy (DDJ) is a fungible ERC20 token that is designed like a loyalty point to reward contribution to the Double economy. “Double Dip” vividly reflects Double’s value propositions to capital providers, that literally double dip — earn higher yield and reduce risks, while at the same time, earn loyalty token rewards.

By design, DDJ is a utility token inside Double. It is the only token that can be used to purchase or breed Double Down Club (DDC), a club membership like NFT which capital providers must hold (or have delegations) to supply capital into Double and capture the amazing benefits. DDJ has strong protocol native demand due to the strong market demand of DDC. Also by design, DDJ has no premine. The combination of no premine and strong native demand ensures the high quality of Double’s liquidity mining program!

DDJ Incentive Program — First Implementation of LM2

Since DDJ has no premine, the only way to get DDJ is to use Double, including participating in the Double Down to Genesis program. DDJ will be issued based on users’ contribution to the Double economy, more specifically DDJ will be issued based on the fees collected by Double.

Let’s use an example (Figure above) to explain how the DDJ issuance works in detail.

• A capital provider supplies 1,000 USDC for the AMM pool <DDJ, USDC> and Double will match 2000 DDJ from the DDJ pool based on the spot price of DDJ = 0.5 USDC.
• Then Double creates a LP position on AMM with a pool value of $2000.
• When the position is closed, AMM fees earned by this LP will be $300 in value assuming 15% return of the LP position from AMM Fees.
• The fee collected by Double will be $30 in value based on the 10% commission rate which is configured in the protocol.
• Based on a reward ratio of 1 DDJ per dollar which is configured in the protocol, 30 DDJ will be issued for this LP position.
• Of the 30 DDJ, the capital provider will receive 15 DDJ (50%). And the pool of DDJ will receive the other 15 DDJ (50%), which will be distributed to all DDJ depositors in the pool pro-rata based on their DDJ position sizes in the DDJ pool.

Even though they won’t earn AMM trading fees, token holders will earn DDJ by design! This incentive offers token holders a rare opportunity to earn yields for their unused tokens.

Uniswap v4 Hooks — Coming Soon

LM2 — distributing reward tokens based on AMM fees collected by LP positions, is super challenging for most projects to adopt due to their token models and reward distribution schedule design. By designing a different token model, Double can adopt and implement the superior LM2.

From a technical coding implementation point of view, the token distribution logic is triggered right after Double closes an LP position and computes the fees earned by the LP position. Alternatively, the token distribution logic could be triggered at any exact time an LP position accrues fees. It will be impossible to implement such a solution outside the AMM core smart contracts.

The timing of the introduction of Uniswap v4 Hooks could not be better. With Hooks, Uniswap opens AMM core smart contracts to developers and makes it much easier to implement LM2. Double plans to use Hooks to improve its liquidity mining program. Please stay tuned.