The decision to slash $5.72 million in quarterly LP rewards comes after a wild surge in the price of RON tokens.
Blockchain GameFi developer Sky Mavis will slash liquidity provider (LP) rewards provided by its Katana decentralized exchange (DEX) built on the Ronin blockchain by 50%. According to the Feb. 15 announcement, rewards will be cut by 50% in phase 1, starting March 1, and reduced by a further 50% in phase 2, for a total reduction of 75% from current emission levels.
"Over the past few months, average APR [annual percentage rate] in Katana liquidity pools has increased from ~20% to 70%," Roninwrote in justification for the reward cut while pointing out that the aggregate number of pooled tokens in Ronin liquidity pools have not increased in proportion to the Ronin token price (RON) to balance out the APR. Since the beginning of the year, RON tokens have increased by 59% in value.
"This means the increase in reward value did not drive meaningful outcomes in DEX liquidity provision and may have gone past the optimal level of incentives," Ronin staff concluded. As a result of the planned LP cuts, Ronin expects to save 2 million RON ($5.72 million) in expenses in Q1 2024 alone. "Fewer emissions mean lower inflation in circulating supply," Ronin said, pointing out that the supply of fixed tokens is fixed at 1 billion.
