Leveraged Yield Farming — Product Tokenomics
A look into the long and short-term tokenomics of our Leveraged Yield Farming product as well as our total value locked attraction plan.
Here are the details for Kalmar's first product to be launched — leveraged yield farming.
Of the total 6,000,000 KALM tokens allocated as rewards to our products (60% of the total supply), we are looking to reserve:
- 800,000 KALM tokens for our leveraged yield farming product as rewards that will be released linearly over a period of two years
- 150,000 KALM tokens to be given to users as extra rewards in the first 45 days of farming as an incentive and help gain a healthy foundation of TVL.
TVL and tokenomics strategies
TVL attraction model at launch
The launch phase of any project is crucial, with user trust and confidence lying in the balance. We believe that this dictates how a project will be utilized in the long run.
To amplify Kalmar's introduction, an extra 150,000 KALM tokens (1.5% of the supply) have been allocated for the launch phase of Kalmar.
On top of constant rewards for the first 45 days of launch, these tokens will be distributed among lenders and borrowers as extra rewards to provide more benefits and better incentives for users to invest.
Instead of providing short-term rewards or minting an inflationary token with no proper purpose or utility, we have been dedicated to constant, long-term rewards with calculated inflation.
This allows us to keep KALM's tokenomics healthy and stable for the long haul. It will also provide us with enough tokens to support our upcoming products we have in the pipeline.
We are aiming to provide more rewards for lenders (640,000 KALM tokens, 6.4% of the supply), which effectively gives users an incentive to provide more capital. By doing so, we solve multiple problems at once:
- Borrowers should always have assets to borrow while keeping the utilization rate from reaching over 95% due to the high amount of locked Binance Coin (BNB) that we are expecting to have. This will allow users to receive better rewards from the yield farming process.
- While decreasing the possibility of reaching a 95%+ utilization rate, to provide earning potential to the lenders, they will instead be able to receive constant rewards (KALM tokens), which will actually provide better returns in the long-term
Learn more about the borrowing interest rates of the product: https://docs.kalmar.io/leveraged-yield-farming/borrowing-interest-rate
As for the borrowers, 160,000 KALM tokens (1.6% of the supply) have been allocated to be similarly distributed.
At first glance, it may seem that borrowers are to get an insignificant amount of extra rewards. However, with our plan to keep the utilization rate below 95% at all times, borrowers will be able to get significantly higher returns in the long-term.
Consider these examples:
- Rewarding borrowers without incentivizing lenders would cause the utilization rates to surpass 95% quite easily. This would leave the borrowers with no proper benefit since they would only be getting approximately 20% of their yearly returns.
- By focusing on incentivizing lenders as well, in return, they will help provide enough capital to keep the utilization rates below 95%. This will also benefit borrowers by allowing them to keep an optimal rate of their leveraged returns
Projections and expectations
Launch phase and the short-term
The following is a projection of our short-term strategies and results for the project considering the following parameters:
- A $50 million market capitalization for the KALM token.
- A total of $50 million worth of assets provided by lenders.
Furthermore, our plan to release an extra 150,000 KALM tokens gradually for the first 45 days will provide lenders with an approximately extra 20% optimal rate of yearly returns. This is an additional percentage on top of the base returns of the protocol as well as the constant extra rewards.
One of the most crucial problems of offering rewards during a launch is the expected TVL drop that most projects in decentralized finance experience once the offer is over.
To combat this, we will gradually decrease the daily rewards by 5% of the previous day's rewards - starting with 8,328 KALM per day - during the duration of the launch event. This will help to make the APY-decrease feel as natural as possible for users.
Long-term and beyond
Kalmar is a project that prioritizes and prides itself on the long-term, striving to provide a sustainable and predictable environment for its users. We believe that these elements are a key part of making cryptocurrency adoption easier.
We also made projections for our long-term strategies and results considering the following parameters:
- A $400 million market capitalization for the KALM token.
- A total of $200 million worth of assets provided by lenders.
With that in mind, our plan to linearly release a total of 800,000 KALM tokens over two years will provide lenders with an extra ~6.38% in yearly returns on top of the base returns of the protocol.
By using Alpha Homora as our main example of the leveraged yield farming market's supply and demand and factoring in the possibility that users will arbitrage the opportunities between projects, we expect our utilization rate to stay around 90% with the corresponding expected annual percentage yield for lenders at around 14%.
Factoring in additional constant rewards, we expect the annual percentage yield to be around 20.3%, which is approximately 44% more than the average return of Alpha Homora, which currently sits at around 14%.
The team would like to add in closing that these are our preliminary plans for the product. From experience in DeFi, it would be safe to say that we will always be looking out for ways to improve and adjust the product to benefit both our users and the Kalmar platform in the long run. Be assured that any future updates will be announced and discussed in detail.
Until then, we are excited for you to start putting our leveraged yield farming product to work!
To make sure you're notified about every update, join our Telegram group and follow us on Twitter.
To learn more about Kalmar, read our documents and blog sections.