GameFi developer Sky Mavis intends to reduce liquidity provider (LP) rewards on its Katana decentralized exchange (DEX) built on the Ronin blockchain by 50% after a wild surge in the price of RON tokens.
Per the announcement on February 15, rewards for Phase 1 will be reduced by 50% beginning March 1 and by an additional 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%,” To offset the APR, Ronin wrote in support of the reward reduction that the total quantity of pooled tokens in Ronin liquidity pools has not increased proportionally to the price of Ronin tokens (RON). Since the start of the current year, the value of RON tokens has risen by 59%.
“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,” the Ronin researchers concluded.
Ronin anticipates a cost reduction of 2 million RON ($5.72 million) in expenses for the first quarter of 2024 due to the designed LP reductions. “A reduced number of emissions results in decreased inflation in the circulating supply,” Ronin said, noting that the quantity of fixed tokens is one billion.
At this time, Katana DEX accounts for more than 99 percent of the total value locked (TVL) of $200 million in Ronin. While the RON token has regained its peak values from 2022, its TVL has yet to return to the $1 billion level it reached before a catastrophic North Korean breach that occurred two years ago. Following the highly anticipated Binance listing earlier this month, the ecosystem has recovered.
