Ronin Ethereum Sidechain Announces Reduction in Token Rewards for Liquidity Providers on Katana DEX
Ronin, the Ethereum sidechain known for its focus on blockchain games, recently revealed its plans to decrease RON token rewards paid to liquidity providers on its decentralized exchange (DEX) called Katana. The decision to reduce rewards aims to manage the number of tokens entering the circulating supply each day and establish a better balance for token prices.
Sky Mavis, the company responsible for Ronin and the popular blockchain game Axie Infinity, intends to cut liquidity pool token emissions in several phases, with each phase reducing the daily token rewards by approximately 50%. The move comes as the network observed that although the average annual percentage rate (APR) for providing liquidity has risen from 20% to 70% in recent months, the increase in rewards did not result in a significant growth in the amount of tokens pooled. This suggests that the higher reward value may have surpassed the optimal level of incentives without achieving substantial improvements in DEX liquidity provision.
To implement this strategy, the first phase of reward reduction is scheduled for March 1. During this phase, emissions will be reduced by over 60,000 RON per day or around 5.4 million RON per quarter, equivalent to a reduction of more than $174,000 worth of tokens per day or $15.6 million per quarter. Further reductions are planned throughout 2024. The aim is to decrease "over-incentivization" of liquidity providers and redirect more RON tokens towards other initiatives aimed at boosting user growth.
Upon the announcement, the price of RON experienced a positive market reaction. Following the news, Ronin's price increased by 7% to $2.90, demonstrating a 30-day gain of 56%. This surge in price is partially attributed to the recent increase in active users on the network. One contributing factor to this growth was the blockchain-based farming game Pixels' transition from Polygon to Ronin in October. The game has plans to launch its own PIXEL token through a play-to-airdrop campaign.
Analyst comment
Positive news: The announcement of the reduction in RON token rewards is seen as a positive move to establish a better equilibrium for token prices and allocate more tokens for user growth initiatives. The market reacted positively, with the price of RON increasing by 7% and showing a 30-day gain of 56%.
As an analyst, I expect that the market will continue to respond positively to this move, as it addresses over-incentivization and aims to stabilize token prices. The reduction in rewards may also encourage more token pooling and overall liquidity in the DEX.
