MESH is a strong incentive reward given to ecosystem participants to provide more liquidity to Meshswap. According to the previously determined inflation rate, yield is distributed among Lenders, Liquidity providers (Lending / Leveraged farming pool), and MESH Stakers.
- Lender deposits assets in the lending pool to lend their supply to leverage farmers in the leveraged farming pool. Lenders are rewarded with distributed MESH in return for their contributions.
- Liquidity provider deposits their assets in the farming pool for traders' trading. Liquidity providers are rewarded with distributed MESH in return for their contributions.
- Staker is rewarded with distributed MESH in return for contributing to the stabilization of MESH circulation by staking MESH for a certain period.
The reward distribution ratio for each ecosystem participant can be adjusted through governance voting. For example, the table below shows MESH inflation distributed to each participant based on the initial distribution ratio (**) and the first year.
The Meshswap protocol has a flexible token economy structure that can control circulation and maximize the value of MESH through the MESH Buyback & Burn mechanism, utilizing the entire transaction fee, based on the AMM basic business model.
- 50% of the transaction fees generated from all liquidity pools in Meshswap will be used to burn MESH.
- Meshswap enables an organic virtuous cycle among Lenders, Liquidity providers, and Traders within one ecosystem.
- Leverage farmer borrows more assets from a lending pool for efficient capital utilization and explosive rewards.
- Accordingly, more deposit interest is distributed to Lenders (increasing Deposit APR), enabling lending pool liquidity inflow.
- Abundant supply in lending pools facilitates lower lending rates (lower Borrow APR), and leverage farm activation that builds a rich liquidity environment within the protocol.
- The protocol's abundant liquidity meets the greater transaction demand, so the protocol incurs more transaction fees.
- As the transaction fee increases, more MESH is burned to form a structure in which the value of MESH continues to rise.
- In addition to Buyback & Burn using pool transaction fees, MESH gets burned under the following mechanisms: ＊Burned by liquidity pool creation: Used to create a new farming pool. The cost will be burned. ＊Burned by Governance Voting Registration: The cost of registering a Governance Proposal is 500 MESH, which will be burned.
Since Meshswap's reward distribution is directly related to MESH value rise and the overall growth of the protocol, it is important to be well distributed among ecosystem participants, especially liquidity providers. Only greater MESH reward allocation to healthy liquidity farming pools with high transactions can raise MESH in value due to its scarcity under the MESH Buy Back & Burn (deflection) system. And as the valuable MESH is distributed to liquidity providers in individual liquidity pools, it brings a synergy effect to increase liquidity size, volume, and further expansion of TVL across Meshswap.
This unique token economics solves the limitations of other existing AMM Exchange Protocols’ Yield Farming; the centralized structure of incentive distribution and the decline in profitability due to protocol participants' expansion.
(1) Through the liquidity pool voting system, MESH Staker can directly decide which farming pools to generate more yields. Voting rights (vMESH) are obtained through MESH staking.
(2) MESH reward distribution ratio is determined by the objective measure of each liquidity pool’s contribution to the rise of MESH value and the total index of burned MESH used as a transaction fee in the liquidity pool. And this MESH inflation redistribution structure increases the value of MESH which is directly linked to the profits of the MESH Staker DAO. Through this structure, it promotes protocol growth by more efficiently utilizing limited MESH resources.