Liquidity Flywheel
Quick Overview
Saber's system uses two types of tokens, SBR and veSBR, to help protocols increase their liquidity. Here's the gist: if a protocol has enough veSBR and starts with some liquidity, they can boost their own pool's attractiveness by voting on it. This leads to higher rewards and APY (Annual Percentage Yield), attracting more liquidity.
The Liquidity Cycle
The idea is simple: more liquidity means more rewards, which in turn brings in even more liquidity. Here’s how it works step by step:
Start with liquidity and veSBR tokens: Protocols need some initial liquidity and veSBR.
Vote on your pool: Use veSBR to vote on your pool, making it more appealing due to higher APY.
Earn and lock rewards: Earning SBR rewards through your initial liquidity, you can then lock these for more veSBR, increasing your voting power.
Attract more liquidity: Higher APY from more voting power draws in more liquidity, which can lead to a self-sustaining cycle of growth.
Example
Imagine you start with 100 million veSBR, getting you 1% of the vote. If the total SBR given out daily is 500K, and your liquidity is worth $100K, you’d get around 5K SBR a day. That’s about $18,250 a year at $0.01 per SBR, or an 18.25% APR.
Locking all your rewards for more veSBR can increase your vote to 1.18%, bumping your APR to 21.53%. As others jump in for the high APR, they add liquidity until the APR balances back to 18.25%.
Extra Ways to Boost Liquidity
Swap Fees: Half the swap fees go to liquidity providers, adding another way to increase liquidity.
Bribes for Votes: If a protocol prefers, they can use sites like Vota.fi to offer incentives for votes on their pool, pushing up APY and liquidity further.
Want to Join?
Setting up a pool on Saber or need more details? Get in touch on Discord.
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