TLDR: -98% less emissions weekly for LPs and transition to transaction subsidies for Step AMM swappers (‘Transaction executors’ in our tokenomics docs) over time.
Step Finance recently ended our 3 month commitment to Raydium’s Fusion pools for the STEP/USDC pair. In our last blog we proposed to our fellow Steppers what the current options were for stakers and over the last few weeks we get about 4 questions a day in discord about where to stake next.
The obvious answer to that will soon be ‘on the Step AMM’ which will have every currency on Solana paired against STEP and act as a giant liquidity sink for the token and also force constant fee revenue for STEP stakers from price movements, a similar model to what Bancor pursued with their AMM. So while STEP staking used to consist of only one pool which had emissions, there will now be STEP staking opportunities for every currency on Solana. The definition of a ‘STEP LP’ will switch from being related to a particular pair to the entire AMM.
We have also seen a 3x increase in DAUs since the STEP farm ended, likely tied to the 3x+ appreciation in token value for STEP which could no longer be part of a parasitic delta hedge strategy of long/short. The new STEP pools and emission schedule destroys the business model for such delta neutral ‘farm and dump’ strategies and this is beneficial to growing our overall DAUs and user base which is always our goal.
What are LP Emissions?
When a project pays LPs in a native token it is a form of customer acquisition, commonly known as “Pool 2 farming”. A project is hoping that a few things happen A) You catalyse interest in your project with juicy APRs B) That interest in the token becomes interest in your actual product C) The interest in the product prompts ppl to use it and proves it is deserving of value thereby generating sustainable revenues D) These revenues increase to the point where you don’t need to pay people to use your product anymore with emissions and can instead optionally reward users from revenue.
We think that while generally we have followed most of that cycle, paying people to use a product is a very inefficient (and lazy) way to capture attention and it is not guaranteed that a significant % of LPs will use the product after being paid let alone add more value than they extracted in rewards.
Switch Emission model to Transaction Executors
We are moving to a better way forward that doesn’t rely on paying people with a less than 100% chance of using the product and instead rewarding people who have already used the product, which in our original tokenomics document we called ‘Transaction Executors’. This model will be rolled out over the coming months at first on our AMM where people executing a swap will be rewarded with a portion of STEP.
This model aligns the interest of token holders much more firmly with the development of the platform. When everyone is using the platform there is a small increase in amount of tokens in circulating supply, when nobody is using it there is zero increase. This is much better than paying people regardless of the platform generating revenue or not which only puts excessive sell pressure on token holders. Of course this emission isn’t forever it reaches a cap at some stage and potentially this reward could be paid from revenue too causing a deflationary token supply over time.
This means the token supply that was previously allocated to LP emissions will instead be merged with the supply available for Transaction Executors according to our docs and eventually the LP emissions will be phased out entirely.
We still intend to follow through with some Steppers who have been requesting a new staking pool so for a limited time will continue the LP emissions but in a much reduced capacity, in the realm of about -98% less weekly emissions than originally planned in our v1.2 tokenomics doc. This will begin when the Step AMM is live and continue for about a month, at which stage we may take the decision to end emissions for LPs. The short term emissions will help kick off the AMM launch, move liquidity to the new pools and introduce people to the many opportunities on Step to earn a yield with an LP. The exact changes will soon be available on our docs page.
We will also as an interim measure be launching a dual yield pool with Orca for SOL/STEP which will be incentivised for a 2 week period. This will be an interim measure until the STEP AMM is launched and ready.