If you’re interested in SWTH tokenomics and it's use cases, jump straight in.
What is the Switcheo Token?
SWTH is the native token of the Switcheo TradeHub Protocol, a custom built sidechain. This is the underlying blockchain that Demex runs on. The TradeHub protocol utilises a Proof of Stake (PoS) consensus mechanism that differs from Bitcoin's Proof of Work. In Bitcoin’s POW mechanism, miners compete to solve computationally intensive puzzles to validate transactions and create new blocks. This is inaccessible, non-scalable, and encourages centralization among large miners with greater mining power.
With PoS, validators who run nodes serve a similar role to miners, except that instead of mining, they stake SWTH on the network. Validators are randomly selected to propose a new block. The probability of them being selected is proportional to their total stake.
When you stake SWTH, you delegate the voting power of your tokens to your chosen validators.
As of 19th Feb 2021 11:07 AM SGT,
- Total Supply*: 1255 Million SWTH
- TradeHub Supply: 1106 Million SWTH
- 76.86% of SWTH supply is bonded (i.e staked)**
*Total Supply includes Neo-wrapped SWTH which has yet to be converted to native SWTH on the TradeHub Chain. If you need to convert your nSWTH (aka SWTHOLD), check out this guide.
**Stakers have an unbonding period of 30 days before they may retrieve their funds. This ensures that price volatility of SWTH is reduced, and facilitates long term development and safety of the protocol.
The Value of SWTH
Ultimately, Switcheo TradeHub is a public entity owned and controlled by all SWTH holders, whose value captured is distributed back to token holders and users. This is achieved via the following mechanisms:
SWTH delegators are able to vote, submit, and implement proposals to change the parameters and features of the TradeHub Protocol. This ensures that TradeHub operates as a full Decentralized Autonomous Organization (DAO) and is thus not vulnerable to the risks associated with Centralized Exchanges.
Governance in the TradeHub Protocol is entirely on-chain, meaning that proposals can be enacted immediately, without approval of any admin/multi-signature committee.
Collection of Network Fees
Instead of paying high gas fees on the congested Ethereum network, traders who use the Switcheo TradeHub protocol have to pay an affordable amount of network fees to transact on the protocol. A trade, for example, costs 1 SWTH (around $0.04 USD). These network fees are paid back to validators and delegators as their reward for verifying on-chain transactions.
Collection of Trading Commissions
Traders using the Switcheo TradeHub protocol also pay taker fees in the underlying currency exchanged. These taker fees are similarly distributed back to validators and delegators.
In PoS, validators and delegators accrue base rewards for making blocks. These are fixed base rewards that decrease at a weekly rate, and is also known as the SWTH inflationary supply. This means that users who stake are guaranteed a minimum rate of return on capital. Block reward distribution began on 12th August 2020, with APYs illustrated in the table below.
Open Collateralized Debt Positions
SWTH will also be used in future as collateral to open Collaterized Debt Positions (CDP), in a design similar to the Maker Protocol. SWTH holders can then leverage SWTH holdings to mint/borrow assets such as stablecoins native to the TradeHub ecosystem. Traders can then use these assets to trade.
I have SWTH, now what?
- Stake SWTH by delegating SWTH to validators.
You earn: Network fees, trading commissions (taker fees), Inflationary rewards.
The following table may better visualize the rewards that accrue to stakers, assuming an average taker fee of 0.25%. Note that taker fee for each market is a parameter that can be changed on-chain.
Note that there is a 30 day unbonding period to unstake one’s SWTH.
2. Provide liquidity on Demex.
You may pool SWTH tokens on Demex, the front-end developed to utilize our TradeHub protocol, or our partnering platforms such as Flamingo Finance, and earn swap fees which increase as trading volumes increase.
To bootstrap liquidity on the TradeHub protocol itself, we have allocated additional “Commitment Rewards” for users who provide liquidity on Demex. These rewards may be extended or made permanent via governance decisions.
You earn: Swap Fees, Commitment Rewards (Demex only)
Here’s a high-level overview of SWTH circulation in the TradeHub economic system.
*The percentage of rewards accruing to validators (and stakers) that are diverted to Liquidity-providers as LP Commitment Rewards depends follows a decreasing reward curve. The liquidity mining campaign may or may not be extended.
*10% of rewards accruing to validators (and stakers) are also diverted to the Switcheo Development Fund to bootstrap projects in our ecosystem.