LQ Tokenomics Update & Airdrop

Official LQ Policy ID: da8c30857834c6ae7203935b89278c532b3995245295456f993e1d24

Community alignment and protocol incentives are complex governance topics; the Liqwid core dev team has invested an incredible amount of effort researching the tradeoffs across multiple DAO bootstrapping methods and governance models. Every DeFi protocol team must establish sufficient processes for future stewardship of the system by its DAO community members during the launch phase. The need for human input drives the need for system incentives which drives the need for fees; this framework for decentralized networks holds true for Bitcoin mining, Cardano staking and most DeFi protocols in their current instance. DeFi teams building collateralized debt position (CDP) protocols are particularly reliant on community governance to decentralize the risk management practices related to protocol changes. This is critical because risks from protocol changes are not isolated. A group of stakeholders must rigorously analyze new assets to determine what collateral is added to the system as one bad collateral type could adversely impact the global state. We have constructed an open governance system for protocol users, community developers and all LQ holders who collectively form the Liqwid DAO to propose and vote on changes.

It’s often up to the core dev team to decide to lead a protocol-centric or community-centric strategic approach with respect to early decision making. The outcome of these approaches resonate in every component of the protocol from the governance system functionality to the tokenomics to the DAO structure. We firmly believe the best DeFi teams strike a key balance across both protocol and community centered tactics to activite efficient DAO ecosystems. With this goal in mind the Liqwid team has dedicated resources to exploring innovative ways to attract long-term liquidity to the protocol while rewarding community members who have played instrumental early roles in growing the project.

We fully embrace the Cardano ethos of value creation through research driven protocol development and we understand the importance of creating aligned incentives for early community members. To that end we are excited to introduce the updated LQ tokenomics, DAO Treasury launch strategy, and discuss the airdrop distribution process.

LQ Tokenomics Update

The main update to the tokenomics structure is the combination of the User Distribution (Aquifer) and Yield Farming (Hydroponica) as described in this earlier article on liquidity incentives. The initial Aquifer program allocated 60% of total LQ token supply for a three year linear distribution to borrowers and suppliers. The initial Hydroponica program allocated 10% of total LQ token supply for a six month linear distribution to suppliers only. We developed these tokenomics in January and did not fully consider the implications of a supplier only incentives system for Yield Farming and a linear emission schedule. A fairer model for LQ community distribution rewards borrowers and suppliers equally and incentivizes early adopters while managing sufficient rewards in the DAO Treasury reserves for future users. This is exactly the system we are moving to.

We built the DAO Treasury validator logic to support a unified LQ rewards model called Community Distribution. The DAO Treasury script allows us to combine the 60% of tokens set aside for User Distribution and 10% set aside for Yield Farming into a singular 70% (14.7M LQ) Community Distribution program, released over three years and including a yearly halvening. The halvening is built into the Community Distribution LQ rewards logic and is introduced to more aggressively incentivize early protocol users with system ownership and voting power.

Liqwid DAO Treasury

The DAO Treasury script will be the first component of the Liqwid protocol deployed on mainnet with it’s primary logic developed to manage LQ reserves, distribute daily LQ rewards to Community Distribution through governance contract interactions with ability to upgrade to a new governance contract.

The LQ tokens allocated for daily rewards via Community Distribution through the governance system are stored in the LQ reserves component of the DAO Treasury. The daily epochs release and halvening logic is another subcomponent of the DAO Treasury with the core team’s LQ allocation as the final piece.

Once the governance contract security audit phase is near completion we will share additional details on the DAO Treasury’s upcoming testnet launch and audit ahead of mainnet. All of the onchain logic required to deploy the treasury script to mainnet is already developed and functional, the core devs will continue working towards a production PAB solution to activate the DAO from an offchain standpoint.

Liqwid Discord Community Members

It was important for our team to make this decision on initial token release in the best interest of the Liqwid community while maintaining our commitment to a fair token launch. Giving all community members and protocol participants an equal opportunity to earn the majority of LQ tokens is very much in line with our social contract to the Liqwid community.

To bootstrap Liqwid Governance, 1.5% of the LQ token supply (315,000 LQ) will be distributed to Liqwid Discord members, some of which have been active participants for 1 year+. Starting today, you can complete the 1st step qualifying for the airdrop here.The rest of this article explores in detail how the airdrop distribution was calculated, how it will function, and its implications on LQ Tokenomics.

Liqwid Discord community members are people who have contributed to Liqwid through sharing new ideas, proposing future product integrations, giving feedback on protocol strategy and crafting intricate memes. We believe that the majority of these early community members will end up becoming the most active Liqwid governance members, and should be rewarded as such. Instead of forcing community members and future protocol users to purchase LQ in a token sale or compete with smaller stake pools business models in an ISO we collectively decided to airdrop it for free to Discord members who we have defined as key early value creators.

While we set aside 1.5% of total LQ supply for the Discord members, we wanted a way to further reward the most passionate community members; the community managers who have spent countless hours educating new members, answering community questions, reviewing protocol docs, and helping Liqwid expand into other DeFi ecosystems building on Cardano. These sixteen individuals have volunteered their time for free to work with our core team and serve as the community’s first resource for understanding Liqwid and we wanted their airdrop distribution to reflect this. For this reason we are setting a 4x bonus multiplier on the LQ amount community members receive compared to all other Discord members. The process to becoming a community manager was completely open to every member of the Discord server and announced several times across multiple channels. These users stepped up to carry the proverbial baton and this is one small token of appreciation for our core dev team to express our gratitude to them.

The total amount of tokens each verified Discord user and community manager will receive will depend on the final count of addresses who successfully complete both steps to qualify for the airdrop distribution.

A snapshot of the current Discord members has been completed and for safety measures we have frozen the ability for new members to join via invite link (this will be resumed shortly).

The steps to qualify are as follows:

  1. Complete the initial Google form here requesting your Discord ID and Cardano ADA payment address (must be a Shelly address). You will have one week to complete this.
  2. Verified Liqwid Discord members will receive a randomly generated six digit code with instructions to: a. send themselves a transaction with 2 ADA plus the six digit code using the payment address entered in step 1 and b. the link to a second Google form requesting a Cardanoscan transaction hash link. You will have two weeks to complete this.
  3. Qualified addresses will have a one-time ability to harvest tokens from the DripDropz platform using the Phyrehose tech developed by Cardano SPO Andrew Westberg.

LQ Vesting

The start of this token distribution will also initiate the accumulation of LQ rewards for suppliers and borrowers meaning the daily epoch LQ rewards from Community Distribution will begin vesting (but not distribution) at the same time the 1.5% of tokens is made available to the Discord community members. At v1 launch on mainnet the DAO Treasury Community Distribution ‘switch’ will be turned on to begin distributing the vested amount on top of the daily epoch LQ rewards. The daily vested will be linearly distributed over six months to borrowers and suppliers on top of their daily LQ distribution rewards. We decided on six months as an ode to the inspiration behind the original Hydroponica yield farm program.

The Core Team will also gain access to one week of vested LQ tokens equal to 0.24% of total supply (50,480.76 LQ) during the airdrop distribution before entering a cliff until the v1 protocol is deployed on mainnet. This will ensure our core team is fully aligned with the community as we finalize the development workstreams required to launch v1 on mainnet. These tokens will not be available to the team until completion of the airdrop distribution.

This amount is derived from the two year linear vesting schedule which will begin accumulating during the airdrop and similar to Community Distribution will be distributed linearly to the Core Team over the first six months on mainnet.

Updated LQ Tokenomics

It’s notable that this pivot allows us to remain true to our fair launch principles; there are no early investors, VCs or insiders who had an opportunity to acquire LQ before the community. An equitable token release program is maintained by this key theme of fair accessibility and ensures the early LQ token distribution will be fairly balanced and not skewed towards the few.

To Summarize:

  • 70% of total LQ token supply is allocated for Community Distribution to protocol suppliers and borrowers at launch (50% to suppliers, 50% to borrowers)
  • Community Distribution lasts three years with a yearly halvening schedule included
  • Community Distribution initial vesting beginning with the start of the airdrop distribution
  • 1.5% of tokens initially allocated to the DAO Treasury will now be airdropped on Liqwid Discord members
  • DAO Treasury script will be the first piece of the Liqwid protocol deployed on mainnet
  • Core Team is unlocking 0.24% of tokens available after the completion of the airdrop distribution
  • Core Team is on a cliff from the initial unlock until the v1 protocol is deployed on mainnet

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Liqwid Finance

Liqwid Finance

Liqwid is an open source, algorithmic and non-custodial interest rate curve protocol built for lenders, borrowers and developers.