Earn ATOM for Providing Liquidity — Farming Incentives on Gravity DEX
Since its launch on the Cosmos Hub in July 2021, the Gravity DEX protocol has taken its first steps to becoming the center of the cross-chain financial ecosystem, enabling permissionless token swaps and liquidity providing. With its secure audited technology and superior pricing model, the Gravity DEX protocol integrated with Emeris or Cosmostation allows users to experience the power of Inter-Blockchain Communication (IBC). They can interact with multiple chains, take part in cross-chain DeFi, and get a taste of the powerful features to come.
However, currently, users can only earn rewards for participating in liquidity pools in the form of swap fees. They are unable to earn farming rewards as this module is not yet available on Cosmos Hub. This highlights a clear need to incorporate an incentives methodology that distributes tokens based on user activities, encouraging further participation.
Farming Incentives on Gravity DEX
Liquidity pools are one of the most revolutionary innovations of decentralized finance (DeFi). In today’s current macro environment with near-negative interest rates in a bank, despite the volatility involved in liquidity providing, the chance to earn a competitive yield by becoming a liquidity provider (LP) is even more attractive. For context, there’s currently more than $25 billion of locked value spread across decentralized exchanges — a number that’s constantly growing.
In order for the Gravity DEX to offer a compelling reason for users to interact with it, then, we must provide this important farming feature. Farming incentives on the Gravity DEX will greatly increase user adoption and liquidity, allowing LPs to earn rewards on their pooled tokens and providing an additional incentive for more chains to integrate with the protocol.
More chains integrating with Gravity DEX expands the capabilities of cross-chain DeFi and makes farming incentives imperative. The upcoming integration with top-15 cryptocurrency project Terra, for example, will unlock $18bn+ of assets from its vast ecosystem, including its native LUNA token and range of stablecoins and synthetic assets, that will flow into the Cosmos interconnected IBC ecosystem.
Access to a growing number of popular tokens coupled with farming incentives will allow the Gravity DEX to compete on an even footing with other popular DEXs, and lend additional utility to the ATOM token, thereby enhancing the value of the Cosmos Hub for the entire community.
For the Cosmos Hub to be able to support farming operations, we need to add two new modules: Budget and Farming. Both of these modules have been in the works by the Tendermint team for several months and are now ready to be showcased to the community to collect initial feedback. If the community agrees to adopt these two modules, they will have an option to approve them through a governance vote.
How the Budget Module Will Work
The Budget module will be used to collect a given percentage of the ATOM inflation and gas fees that will then be redirected to the defined module accounts for different objectives, including Gravity DEX liquidity incentivization.
Adjustments to the plan may include the total ATOM rewards, the list of pool tokens to be incentivized as we integrate new chains, and a budgetary rate adjustment if necessary. The implementation of the Budget module can be found at this GitHub repo together with the documentation.
How the Farming Module Will Work
How the Farming module will work will be determined by the community through a governance proposal that defines certain key parameters. These include the staking coins (pool coins) involved, the reward distribution weights, and the total amount of coins distributed per epoch. Both the pool coins and percentages will be set through governance as voted by the Cosmos Hub community.
Because the cryptocurrency industry evolves rapidly, particularly in the bleeding-edge area of DeFi, flexibility is vital. We need to be able to adjust, adapt, and innovate at pace while working in line with the community’s wishes. We will, therefore, be suggesting updates to the farming and budget proposals periodically so that we can adjust the plan based on the prevailing economic situation.
The addition of these two modules on the Cosmos Hub is necessary to allow the Gravity DEX to evolve and attract more users and deeper liquidity through solutions like Farming. With incentives for investing in liquidity pools and the ecosystem of IBC-enabled chains continually growing, the potential of DeFi on Cosmos is limitless.