The Circle of Tokens is proposing that liquidity mining rewards be updated in order to stabilize the $SOV token price, reduce the overall inflation rate of the $SOV token & incentivize increased protocol revenue.

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Sovryn’s new Circle, the Circle of Tokens, was officially launched on Fri 29 April 2022. It was formed with the overarching mission of analysing Sovryn’s token ecosystem, on an ongoing basis, and presenting these findings to the Exchequer, Bitocracy and the wider community. 

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To promote and achieve clarity and transparency around tokenomics within the Sovryn community, the Circle of Tokens has laid out the following goals:

1. Evaluate and present data for the decision making process of the Exchequer Committee and Bitocracy.
2. Provide specific data-driven insights for matters regarding $SOV issuances. This would include liquidity mining rewards, SIP-24 rewards, token lock up periods, and liquidity management through incentives in AMM pools, amongst others.
3. Continuously monitor the ecosystem and the effectiveness of proposed measures or recommendations.
4. Establish a balance between protocol revenue and the issuance rate of new $SOV tokens to protect healthy growth and the long-term security of Bitocracy.
5. Make scripts and other programming tools open-source to allow all Sovryns to verify data regarding the ecosystem and also collaborate in extending these tools.

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The proposal

The Circle of Tokens first proposal is to optimize liquidity mining rewards. This would entail changing reward amounts for various pools, based on trading activity. 

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The proposed new pool allocations are as follows:

BNB/BTC pool:

• Remove the weekly SOV payouts entirely from 15,000 SOV to 0 SOV

ETH/BTC pool:

• Reduce the weekly SOV payouts from 15,000 SOV to 5,000 SOV

MYNT/BTC pool:

• Reduce the weekly SOV payouts from 15,000 SOV to 5,000 SOV

XUSD/BTC pool:

• Increase the weekly SOV payouts from 15,000 SOV to 25,000 SOV

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In total, this will have a net effect of reducing the weekly SOV rewards by 25,000. 

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The big is about to get bigger!

Our largest revenue-generating pool, XUSD/BTC, which has a low cost of liquidity and strong volume, will have a sizable 10,000 SOV rewards added to it, to bring it more in-line with the SOV/BTC pool. 

On the one hand, with this proposal, the biggest revenue-generating pools will be strengthened, while $SOV rewards will be saved on unprofitable pools. 

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The reasoning behind the proposal

When assessing these changes, there were three key questions that we asked ourselves:

1. Were the liquidity mining (LM) rewards supporting any part of Sovryn’s long-term strategic vision?
2. Were the rewards incentivizing revenue generating activities (ideally, that could off-set the cost of rewards given)?
3. Were they supporting any wider security or technical dependencies?

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The goals of the proposal

1. We want to stabilize the $SOV token price in order to maintain or increase the APY of relevant pools.
2. We want to increase protocol revenue and incentivize this by boosting key liquidity automated market maker (AMM) pools. 
3. We want to reduce the overall inflation rate of the $SOV token.

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Small steps towards a long-term gain

Ultimately, the changes as laid out in the proposal are not set in stone but are necessary experiments to optimize the protocol. The Circle of Tokens will be closely monitoring the AMM pools and analysing how the proposed measures affect them. 

Based on these insights, further adjustments may indeed be made in the coming weeks and we’ll be keeping Bitocracy updated with our data findings.

We are cognizant of the fact that the inflation rate of the $SOV token will only be impacted by these measures in the long term, due to the ten month vesting period and all the outstanding rewards. Nevertheless, we think this is an important first step.

In the future, we do expect to reallocate tokens to areas which we feel could optimize and incentivize platform usage. That could include removing or reducing vesting timelines, or making targeted airdrops to wallets that are actually using and generating revenue for the platform.

In the meantime, please check out the proposal as set out on the Sovryn forum. We particularly encourage feedback from active liquidity providers but all feedback and suggestions are welcome!

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Stay Sovryn