Sky Mavis, the developer behind the Blockchain GameFi project, has decided to reduce liquidity provider (LP) rewards on its Katana decentralized exchange (DEX) by 50%. The reduction will be implemented in two phases, with a 50% cut starting on March 1 and a further 50% reduction in phase 2, resulting in a total decrease of 75% from current emission levels.
The decision to slash rewards was justified by Ronin, stating that the average annual percentage rate (APR) in Katana liquidity pools has risen significantly from around 20% to 70% in recent months. However, the total number of pooled tokens in Ronin liquidity pools has not increased proportionally to balance out the APR, despite the 59% increase in value of RON tokens since the beginning of the year.
Ronin staff concluded that the increase in reward value did not lead to meaningful outcomes in DEX liquidity provision and may have surpassed the optimal level of incentives. By implementing the planned LP cuts, Ronin expects to save 2 million RON ($5.72 million) in expenses in the first quarter of 2024. They also pointed out that fewer emissions would result in lower inflation in the circulating supply, emphasizing that the supply of fixed tokens is set at 1 billion.
Currently, the Katana DEX represents over 99% of the $200 million total value locked (TVL) on Ronin. Although the RON token has recovered its 2022 highs, its TVL has not yet reached the $1 billion levels seen before a devastating North Korean hack two years ago. However, the ecosystem has made a comeback with the highly anticipated listing on Binance earlier this month.
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