Liquidity Rewards Explained
UP Token
Liquidity rewards are dispensed as UP tokens - a blockchain specific liquidity mining token earned by liquidity providers. Smart contract governed minting ensures once mined, UP can only go UP in base token redemption value. The redemption value is different on each blockchain, and is labeled by the token name. For example, UPeth is UP with an Ethereum redemption value, and UPbnb is Binance Smart Chain’s UP with a BNB redemption value.
UP’s redemption value offers unique security and sustainability to Unifi's tokenomics. UP also includes automatic yield farming and requires no staking, which greatly reduces network fees. In addition, UP provides exclusive access to protocol specific opportunities to migration, allowing liquidity providers to earn the governance token, UNIFI.
UP is available on any chain uTrade V1 or uTrade V2 is on. Each UP has its own redemption value - you can check the current value of each on Unifi Report.
Trading Fee Breakdown
uTrade V2 is unique in that 100% of the trading fees go to liquidity providers. The following represents the target percentages for the whole ecosystem. It is important to note that this is not exact, but a strong guideline. This is due to a host of factors such as when UP is claimed, rounding, as well as the amount of volume in the ecosystem. In addition, different pairs offer different incentives - some with greater rewards such as Super Pairs. The current trading fee is 0.3% on most pairs, and 0.1% on stablecoin to stablecoin pairs such as USDT/BUSD.
Global Average Trading Fee Breakdown
Percent of Trading Fees | Percent of Trade Value (0.3% Fee) | Percent of Trade Value (0.1% Fee) | Use | Description |
85% | 0.255% | 0.085% | LP Rewards | Minted as UP for Liquidity Providers in the pool that is traded. |
10% | 0.03% | 0.01% | Super Pair Rewards | Minted as UP for the UNIFI "Super Pair" as rewards for UNIFI holders. |
5% | 0.015% | 0.005% | UP Redeem Increase | Added to UP Redeem Value |
0% | 0% | 0% | Unifi Protocol Team | No developer / team fee. |
LP Rewards
85% of trading fees are minted into UP, and allocated to liquidity providers of the pool where the trade occurred. This is referred to as the effective mint rate - the percent of trading fees that in minted into UP and returned to liquidity providers. Liquidity providers are rewarded based on their share of the total pool. For example, if Gene holds a 40% share of a liquidity pool, Gene is entitled to 40% of the fees that liquidity providers earn.
Super Pair Rewards
Approximately 10% of trading fees from all preferred pairs are minted into UP, and allocated to uTrade's "Super Pairs". Super Pairs are liquidity pools that are extra incentivized by receiving rewards from trades that occur on that uTrade V2 blockchain. For example, a liquidity provider for a Super Pair that is on Binance Smart Chain will receive extra UPbnb from every trade in a preferred pair that occurs on uTrade V2 BSC. Preferred pairs are pairs that mint UP as a liquidity provider reward.
UP Redeem Increase
5% of all trading fees are added as a base tokens to the UP Smart Contract, which increases the redeem value of UP on every trade. The base token redeem value of UP can only increase. Additionally, this serves as a deterrent to minting attacks. Any minting of UP tokens will result in a partial diversion of provided fees to the increase UPs redeem value.
Unifi Protocol Team
Absolutely 0% of all trading fees go to the Unifi Protocol Team. Unifi was developed by a team focused on finding community centered approaches to blockchain projects. When the community benefits, so does the team, and so does Unifi Protocol. This means there is no need to divert fees to the team, a treasury, or any other name some AMMs might use to disguise this fee. 100% of all trading fees are used to reward participants in the Unifi Protocol ecosystem.
UP Liquidity Reward Calculation + Examples
The amount of claimable UP is calculated in the following way -
Rewards = Trading Fees * LP Reward Percentage * Share of Liquidity Pool
UP Claim Amount = Rewards / UP Redeem Rate
The UP Redeem Rate that is used is the current redeemable value when the UP is claimed.
A) Let's say Gene provides 100% of the total value of a liquidity pool on uTrade V2 BSC. Since adding liquidity to the pool, the liquidity pool's volume has totaled 2,000 BNB. Gene is ready to claim his rewards. At a trading fee of 0.3%, 6 BNB will have been spent on trading fees. Of that 6 BNB, approximately 5.1 BNB will spent to mint UP for LP providers, 0.6 BNB will be spent to mint UP for Super Pairs, and 0.3 BNB will be used to increase the UP redeem peg. Assuming a 10 BNB per 1 UP mint rate, Gene's claim will be for 0.51 UPbnb.
5.1 BNB = 6 BNB * 0.85 * 100%
0.51 UP = 5.1 BNB / 10 BNB
B) Let's say Genette provides 100% of the total value of a liquidity pool on uTrade V2 ETH. Genette plays it safe, and prefers stablecoin pairings due to the reduced risk of divergence loss, so they have added liquidity to a USDC / USDT pair. Stablecoins have a lower trading fee. Since adding liquidity to the pool, the liquidity pool's volume has totaled 1000 ETH. Genette says it is time to cash out! At a trading fee of 0.1%, 1 ETH will have been spent on trading fees. With an effective mint rate of 85%, 0.85 ETH will be used to mint UP for liquidity providers, 0.1 ETH will be used to mint UP for Super Pairs, and 0.05 ETH will be used to increase the redeem value of UP. Assuming an UP redeem rate of 4 ETH, Genette's claim will be for 0.2125 UPeth.
0.85 ETH = 1 ETH * 0.85 * 100%
0.2125 UP = 0.85 ETH / 4 ETH
C) Let's say Genezilla provides 50% of the total value of a liquidity pool on uTrade V2 TRX. Since adding liquidity to the pool, the liquidity pool's volume has totaled 100,000 TRX. Genezilla wants those sweet rewards. At a trading fee of 0.3%, 300 TRX will have been spent on trading fees. At a rate of 85%, 255 TRX will be used to mint UP for liquidity providers, 30 TRX will be used to mint UP for Super Pairs, and 15 TRX will be used to increase the redeem value of UP. As Genezilla provides 50% of the total value of a liquidity pool, Genezilla's share of those fees is 127.5 TRX. Assuming an UP redeem rate of 15 TRX, Genezilla's claim will be for 8.5 UPtrx.
127.5 TRX = 300 TRX * 0.85 * 50%
8.5 UP = 127.5 TRX / 15 TRX
UNIFI Super Pairs
Super Pairs are highly incentivized liquidity pools on uTrade V2. In addition to UP liquidity provider rewards, every trade in a preferred pair on mints UP which is sent to that blockchain's Super Pair liquidity pool. In other words, Super Pairs receive a portion of trading fees from many pairs on uTrade. For example, let's say a regular pair on uTrade Binance Smart Chain earns 50 BNB in trading fees. Of that, 5 BNB will be used to mint UP for a Super Pair, and be claimable by liquidity providers of that Super Pair, as well as their usual UP liquidity provider rewards. In the future, Unifi Protocol plans to have the UNIFI token available on every blockchain uTrade V2 is on. In the event that UNIFI is not yet available on the blockchain uTrade V2 is on, the Super Pair bonuses will be stored, and retained until UNIFI is available on that chain.
UP Non-Mintable Pairs
An edge case occurs if two custom tokens are listed in a pool without a routing path to the base token. In this case, UP will not be minted, and instead 90% trading fees will be dispensed to the liquidity pool. Rather than UP, liquidity providers earn the tokens that make up the pool. For example, let's say two custom tokens are pooled together on Binance Smart Chain as KittyKat (KAT) Token and DoggyDog (DOG) Token, therefore creating the KAT/DOG pool. KAT and DOG have no other pools on uTrade, therefore no BNB can used to mint UP.
The trading fee on UP Non-Mintable pairs is 0.5%, of which 90% is added to the pool reserves. Each LP token represents a share of this pool. For example, let's say a pool contains 1000 KAT and 1000 DOG. Geneasaur wants to acquire some DOG tokens and spends 100 KAT tokens to buy DOG tokens, the pool will earn 0.45 KAT Tokens in trading fees.
Formula - A Deeper Dive
The most accurate measure of the expected LP rewards is the effective mint rate, which represents the percentage of total fees that are used to mint UP for liquidity providers.
Each pool will display the percentage of fees that go towards the UNIFI Super Pair, the UP Redeem value, as well as to liquidity providers by hovering off the trade fee question mark on the exchange fee page. Simply enter the two tokens on the exchange tab to discover these percentages.
Effective Mint Rate Calculation
(Trading Fees * Global Mint Rate % * Local Mint Rate %) / UP Redeem Rate = UP Minted
UP Minted * (100% * Super Pair %) = Effective Mint Rate
The current global mint rate is 95%. The local mint rate is 100%.
Currently, the respective opposite values of 5% and 0% are used to increase the redeem value of UP. In other words, these values are sent to the UP Smart Contract as native currency, therefore increasing the amount of native currency backing each UP Token. Following that, UP in minted using the BNB trading fees to be claimable by Super Pairs as well as the Liquidity Providers.
As an example of this in practice, let's say 10 BNB is spent in trading fees on a pair with a 10% Super Pair allocation.
10 BNB Trading Fees * 95% Global Mint Rate = 9.5 BNB
First, 95%, or 9.5 BNB will be used to mint UP at the global mint rate. 0.5 BNB will be used to increase the UP Redeem Value by being sent to UPbnb smart contract.
9.5 BNB / 10 BNB UP Redeem Value = 0.95 UP
Then 9.5 BNB will be used to mint UP at the current UP redeem value.
Let's say the current redeem value is 10 BNB. Therefore 9.5 BNB will mint 0.95 UP.
0.95 UP - 10% Super Pair Rewards = 0.82935 LP Rewards
Of the UP Minted, the Super Pair will receive 10% of the minted UP, or 0.095 UP. The liquidity provider would therefore receive 0.855 UP,. Therefore, the effective mint rate is 85.5%.
Querying the Smart Contract for Mint Rates and Super Pair Rewards
You can retrieve the effective mint rate through read functions of uTrade v2 Smart Contracts. The effective mint rate can be calculated as a factor of the getMintRate and getPairUPFee function of the pair from the UnifiController.sol contract.
Mint Rate
The function getMintRate returns the share of trading fees that is used to Mint UP token as a percentage factor of 10,000. Therefore, if the mint rate is 95%, the uint value returned will be 9500.
MintRate = 9500
Fees = 100
(MintRate * Fees) / 10000 = Fees to Mint UP
(9500 * 100) / 10000 = 95 to Mint UP
As an example, assuming a 10 BNB to 1 UP redeem value, the above would mint 9.5 UP from 95 BNB in trading fees.
Super Pair Rewards
The function getPairUPFee returns the share of UP rewards minted by this pool to be shared with the Super Pair as percentage factor of 10,000. The following assumes a 10% share of UP to Super Pairs.
PairUPFee = 1000
UP minted = 9.5
(PairUPFee * UP minted) / 10000 = Super Pair Share of UP minted
(1000 * 9.5) / 10000 = 0.95 UP to Share to Super Pair
Therefore, the above 9.5 UP will be split with 0.95 UP going to the Super Pair, and 8.55 UP going to the liquidity provider.
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