DeFi Trading Incentives Explained

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The first fully decentralized trading incentive tools have arrived to DeFi, starting with the Avalanche blockchain.

*Article originally posted on May 17 on Verso’s Medium page*

Verso partners with Pera Finance to boost its trading volume with DeFi’s first ever swap farms.

DeFi is largely shifting its attention to the fact that inflationary liquidity mining efforts are unsustainable. The main liquidity bootstrapping practice in crypto today is one that not only attracts mercenary capital, but also one that is not necessarily the most capital efficient.

Pera Finance shifts this logic by creating a mechanism that allows projects to customize their liquidity incentives for their pools. With Pera, projects’ incentives are directed towards those who generate volume, and consequently, LPs are attracted due to the now higher volume.

Volume is the major metric for an exchange. Through trading competitions and with customizable swap farms, Pera boosts trading volume, improving the capital efficiency for the entire DeFi space.

Verso is excited to announce that our Trader Joe VSO/AVAX pool will be the first ever to benefit from Pera’s fully decentralized and customizable volume-boosting swap farms.

“Let’s turn off the emissions” they say. Wise words.

How do Pera’s Swap Farms work?

By trading the pair on Pera’s platform, you will be eligible for rewards. The higher the volume, the higher the liquidity because of the increase in total swap fees. The underlying VSO/AVAX liquidity pool will still be the same in Trader Joe, but to accrue fees for trading, you have to use pera’s Swap Farm.

Pera focuses on a metric called Capital Turnover Rate (CTR) which is basically a rate of utilization of the liquidity. Why spend capital on farming rewards if no one is trading your pair? By incentivizing traders to trade your pair first, Verso’s rewards will be considerably more efficient, since we would not provide rewards for liquidity that is not being used.

DeFi Trading Incentives Explained

We will closely monitor the performance of the Swap Farms to identify if liquidity in the pools is “financed” more efficiently than simply providing rewards for LPs.

This is an exciting new primitive in DeFi and Avalanche. We are excited to partner with Pera to improve our volume and liquidity across exchanges. 🔷

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