Recently, we have noted a number of concerns raised within the Kaia community regarding the trading competition reward distribution and MBTC liquidity range. We believe that issuing a statement to explain and clarify these issues is a good and fair approach. This will also enhance the understanding of our strategies within both the Kaia community and the KaiaSwap community.
This announcement will address the following topics:
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Trading Contest Rewards Distributed to Market Makers
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The KLAY/MBTC Pool Liquidity Range
Trading competition rewards
We commenced our trading competition on July 23, which concluded on August 1. The total rewards, amounting to 200,000 KLAY, were announced following the competition's conclusion. The results were made public, including the reward addresses and amounts awarded. The top 9 addresses, predominantly market makers, collectively received 163,758 KLAY.
As a DEX, our operations rely on liquidity providers, referred to as makers, and transaction executors, known as takers. It's crucial to incentivize both groups to foster a dynamic trading ecosystem. This strategy also mirrors practices in CEXs, as demonstrated by events like the Bitget KCGI 2023 Spot Trading Competition and the Binance World Championship. Based on industry-standard strategy and our experience on multi-chain, we invited a partner market maker to join the trading competition. This required them to first integrate with the Kaia chain and subsequently support Kaiaswap. Throughout the competition, the MM not only covered the swap fees but also bore the arbitrage risks. Importantly, we did not take any incentives from the trading competition.
Furthermore, we plan to introduce a leaderboard that allows users to monitor real-time trading volume and track accumulated rewards once we have sufficient bandwidth.
KLAY/MBTC Pool Liquidity Range
To successfully introduce MBTC into the Kaia ecosystem, we initially launched the KLAY/MBTC trading pair on KaiaSwap. Given that KLAY is the gas token of the Kaia ecosystem, we believe this facilitates the adoption of new assets. However, due to the high volatility of KLAY, MBTC holders are particularly susceptible to experiencing impermanent loss. When introducing new assets into a new ecosystem, it is essential to provide incentives, especially when LPs face significant risk exposure. To retain MBTC and mitigate the IL suffered by MBTC LPs, we initiated farming incentives for the MBTC/KLAY trading pair as compensation.
In the farming initiative for the MBTC/KLAY trading pair, LPs are required to inject bi-sdie assets to qualify for incentives. Previously, we set a ratio for MBTC and KLAY injections to retain MBTC holders, but now all the liquidity is within the range, and the LPs are providing bi-sided liquidity rather than single staking.
For the DLAMM DEX, liquidity is not evenly distributed and does not resemble the states shown in Figures 3 and 4. Instead, it is deployed at each price point in the form of a normal distribution and exponential distribution, as illustrated in Figures 1 and 2. Regarding MBTC, KLAY experiences significant price volatility;
When KLAY's price changes dramatically, such as dropping by 30% or more, MBTC will automatically buy KLAY, meaning that MBTC's liquidity is not idle. In this case, the impermanent loss would be 53% or higher. A 30% drop occurred between August 27 and September 7.
Additionally,we're doing our best to respond to Discord promptly, even though we don’t have enough budget to support a dedicated community manager. Moving forward, we plan to use Telegram for community engagement.
These concerns were raised by the community, and we hope our clarification resolves any questions from our supporters. Our operational strategies are tailored to boost trading activity. While we reserve the right to provide additional explanations, meanwhile, we deeply respect the community's viewpoints.
References:
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Bitget KCGI 2023 Spot Trading Competition: https://www.bitget.com/en-GB/support/articles/12560603796042
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Binance World Championship: https://www.binance.com/en/support/announcement/binance-world-championship-trade-in-the-spot-trading-tournament-to-s