The following FAQ is meant to clarify liquidity mining and vault distributions for the $ILV protocol. Technical terms are in bold/italic, and defined in the glossary at the bottom of this post. The main function of liquidity is to further decentralise the DAO via dispersal of tokens from the Illuvium Treasury over a 3 year period. These tokens are a representation of ownership and governance of the Illuvium DAO.
Up-to-date information regarding the protocol can be found in the whitepaper.
How does governance work?
Please see the Illuvium whitepaper for detailed information on governance*.
*The “eDAO” and “Illuvinati Council” is our initial governance model, and is subject to change. We strive to implement the best models of decentralized and decentralizing governance.
What are the staking pools in the $ILV protocol?
There are 2 core pools (contracts) which you can stake tokens in order to receive additional $ILV tokens, as well as a third type (flash pools). Below is a detailed look at each pool:
$ILV Pool — This pool only holds $ILV. It has a pool weight of 0.2
$ILV / ETH Pool — This pool only holds Sushi LP tokens. It has a pool weight of 0.8
Flash Pools — These only hold the partner token. There is no set pool weight for these (because there can be many different pools), but they are substantially lower than other pools. Their purpose is to provide those outside of the $ILV project with some exposure to it. Each pool will have an announced pool weight before it goes live.
What is the difference between the $ILV pool and the $ILV / ETH pool?
The major differences are what you stake into the pool, the pool weight, and the risk. With the $ILV pool, you stake $ILV. With the $ILV / ETH pool, you first provide liquidity to the Sushi $ILV / ETH pool and receive SLP tokens in exchange. You then stake those SLP tokens. The $ILV / ETH pool receives a larger percentage of the dispersed tokens. By providing liquidity you are increasing the total liquidity in the pool, which has the positive benefit of lowering the slippage when someone purchases from the Sushi pool. In order to somewhat mitigate the risk of Impermanent Loss, you also earn a percentage of the exchange fees from the Sushi pool.
What is variable locking?
In the core pools, you can optionally lock your tokens for a period of up to 12 months. This changes your token weight. By increasing the duration of your lock, you will increase the token weight of the locked tokens. The maximum weight of a locked token is 2, which occurs when you lock for a period of 12 months.
How do I mine liquidity?
First, you must stake tokens into one of the pools as stated above. You can optionally lock them for up to 12 months. From there, the system will accumulate tokens which you can see via the staking interface. The higher the pool weight, the token weight, and the number of tokens you have staked, the higher your token distributions will be. These accumulated tokens must be manually vested by the token holder.
What happens when I vest my rewards?
In order to acquire your accumulated tokens, you must vest them. Vesting tokens costs gas, and as such, you should only vest when you feel like you have accumulated enough rewards for it to be worth it. When you do vest them, they will be locked in the $ILV pool for 12 months and count to your accumulation of new tokens at a token weight of 2. This effectively means that tokens can compound.
How long should I wait before vesting?
This is up to you. There are two things at play here. The sooner you vest your received tokens, the sooner they will be unlocked for you. They will also be counted towards ongoing liquidity mining. But, if you vest frequently in smaller batches, you will pay more gas. Nobody can tell you the exact amount of tokens to wait before vesting.
What happens to tokens after they are unlocked?
They will continue to be staked and count towards your receipt of tokens. Their token weight will continue to be the same as they were when locked. For example, if you lock tokens for 3 months they will have a token weight of 1.25. After they unlock you can withdraw them, but if you choose not to then they will still count towards liquidity mining. You would only choose to lock them again if you wish to increase their weight to something higher than their previous token weight.
What happens to vested tokens after they are unlocked?
The same thing as any other token. They continue to count towards liquidity mining with a token weight of 2. And as with any other tokens, if you withdraw them then that weighting is lost. That means when you decide to stake them again you will have to stake them for 12 months in order to receive the weighting of 2.
What is sILV?
Stakers have the option to claim their tokens in the form of sILV, a synthetic token that is pegged to the price of $ILV inside the game only. sILV, like ETH, can be used as currency to purchase things in-game such as Curing Shard, Skins, Enhancements, and Travel. Unlike $ILV, there is no vesting period on sILV, and they can be used immediately as soon as they have been claimed.
Note: Staking will be live before the game release. As such, sILV will serve no immediate purpose until game launch. sILV will also have to be sent to IMX in order to be used in the game, so there are 2 gas transactions. There will be a warning in the staking interface that even though sILV can be claimed immediately, it cannot be used for any purpose until the game is live.
What is the Vault?
Once the game is live, players will be able to spend ETH in exchange for various in-game items and functions. This ETH is stored in the Vault. Players can also spend money on the IlluviDEX, where they trade ETH for items that other players own. 5% of the value of these transactions go to the Vault.
What are distributions?
Frequently, the Vault will buy $ILV from the Sushi $ILV / ETH pool. This $ILV is stored in the Vault and made available for the token holders to claim.*
You can let this accumulate until the value is high enough that you feel it is worth the gas fee. Pool weight is not used for distribution calculations, and instead, the system counts the total number of $ILV per pool and distributes it accordingly. Inside each pool, the token weight and quantity of tokens determine how much of the total $ILV purchase each token holder is entitled to.
*We use the term claim instead of vest because these token distributions are unlocked and do not have to vest.
Liquidity mining is when you stake a crypto asset into a smart contract in exchange for various benefits, the most common of which is generating additional tokens. Locking is an optional requirement, depending on the protocol and the rules. In the $ILV protocol, locking your tokens when you stake will result in a higher token weight. As Illuvium is designed to be the world’s first decentralised AAA game, our mission is to disperse the tokens amongst a large number of active and interested participants in the project. This will ensure that decisions on the future of the project are made by those with a common goal of healthy, long-term success.
Staking is the act of transferring a crypto asset into a smart contract, usually for the purpose of getting some kind of benefit. Staking into a protocol is often a signal of your support, especially when locking the tokens for an extended period of time.
Locking is when a crypto asset that has been staked into a contract is modified in such a way that you cannot withdraw it until the locking period has expired. In the $ILV protocol, we offer locking periods of up to 12 months, with token weights increasing the longer you lock.
The value of one pool compared to others in the protocol for the purpose of liquidity mining. Pools with higher weights will receive more tokens from liquidity mining. For example, if there are only two pools, one with a weight of 0.2 and one with a weight of 0.8 — then they will receive 20% and 80% of the liquidity mining tokens, respectively. Pool weight is not used to calculate vault distributions.
The seed and team tokens are stored in a separate pool with a pool weight of 0.
Inside of each pool, a combination of the quantity of tokens and the token weights is used to disperse the liquidity mining tokens and the vault distribution tokens. A token weight of 2 will attract twice as many tokens as a token with a weight of 1.
Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss. In this case, the loss means less dollar value at the time of withdrawal than at the time of deposit.
Sushi Liquidity Provider tokens. They represent a share of ownership of the total liquidity in the Sushi $ILV / ETH pool.
Gas refers to the fee, or pricing value, required to successfully conduct a transaction or execute a contract on the Ethereum blockchain platform. Priced in small fractions of the cryptocurrency ether (ETH), commonly referred to as gwei and sometimes also called nanoeth, the gas is used to allocate resources of the Ethereum virtual machine (EVM) so that decentralized applications such as smart contracts can self-execute in a secured but decentralized fashion.
The exact price of the gas is determined by supply and demand between the network’s miners—who can decline to process a transaction if the gas price does not meet their threshold—and users of the network who seek processing power.
Liquidity refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price. The most liquid asset of all is cash itself.
A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. The code controls the execution, and transactions are trackable and irreversible.
Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.
Slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. Slippage can occur at any time, but is most prevalent during periods of higher volatility when market orders are used. It can also occur when a large order is executed but there isn’t enough volume at the chosen price to maintain the current bid/ask spread.
Definitions taken from https://www.investopedia.com/
In the $ILV protocol vesting tokens are those that are owned by the token holder, but are locked for a period of time before they can be withdrawn. They are still used in all calculations, and have the effect of compounding your returns.
There are two types of vesting tokens:
Vesting tokens from liquidity mining. When a person stakes tokens into one of the pools they will begin to accumulate additional $ILV. The token holder must then manually vest them, which stakes and locks them in the $ILV pool for 12 months with a token weight of 2.The seed / team tokens. These are locked for 12 months, and then unlock linearly over the 12 months following that, with all tokens becoming unlocked after 24 months. These are held in a separate pool with a pool weight of 0, so they do not participate in liquidity mining. They do receive vault distributions.
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29. Governance, Liquidity Mining, and Vault Distribution FAQ was originally published in Illuvium Hub on Medium, where people are continuing the conversation by highlighting and responding to this story.