Introducing $ION
As veterans since the earliest days of DeFi summer, the Ionic team has witnessed the rise and fall of countless DeFi protocols plagued by faulty tokenomic designs and misaligned incentives. We believe that innovation in the DeFi space has been hindered by putting the protocol’s native token behind the development of the protocol itself. This choice has opened DeFI users up to governance-only tokens and predatory liquidity farming, which not only destroys trust, but ultimately propagates a system of capital flight out of the protocol once yields/emissions dissipate.
At Ionic, we treat the token as a product – not the product but a cornerstone to our overall product development. Thoughtful token design is proven to have the power to make protocols sustainable for the long term by rewarding useful engagement and alleviating early stage liquidity bootstrapping (cold-start problem).
With that in mind, we have researched numerous tokenomic designs in an effort to create a robust system that aligns incentives across all of the protocol’s stakeholders. To ensure that we have remained on track during our design process, we established a set of key goals, which we share with you:
Incentivize health protocol use & reward real users
Ionic’s long-term goal is to become the most capital efficient money market in DeFi. The only way we can get there is by stepping away from current yield farming metas to provide the best experience for not only lenders and borrowers, but also protocols looking to increase the velocity of their token. Thus, we have taken a Velodrome-style voting mechanism to create a competitive free market for yield boosting through token emissions. Additionally, as you will see below, our system is designed to emphases risk management, rather than promote simply high utilization, via the Ionic Score.
KPI benchmarking to minimize zero-sum emissions
Over the last few years, we have seen numerous promising DeFi protocols stack the deck against themselves by emitting too many tokens too early in their life. The fact is that every token emitted has a cost. If a protocol misses its growth projections, but continues to emit tokens at a high rate, the cost of tokenn+1 > tokenn as tokens circulated per revenue $ steadily climbs. To combat wasteful inflation, Ionic will institute KPI-based inflation. In other words, token emitted per epoch will increase as the protocol’s TVL and revenue grows, creating a non-dilutive reward system.
Liquidity Depth as a Protocol Cornerstone
To combat the ills of both governance-only tokens and mercenary liquidity farming, we have aimed to design a system that holds ION liquidity at the heart of our ecosystem. Thus, Ionic Protocol will allow users to stake their ION LP tokens for $veION. Leveraging LP tokens as the central voting mechanism allows our LPs to earn multiple revenue streams via trading fees, bribes, and, potentially protocol revenue. Our $veION holders will not only earn competitive yields, but will also have the important role of driving ION token emissions to both lenders and borrowers across Ionic’s collateral pools.
Build with the Superchain in mind
We have set out to build a token economy that will not only thrive and help our existing deployments on Mode and Base grow, but enable us to connect the entire Superchain via frictionless access to capital. To achieve this vision, we designed a system that could generate the highest APRs for lenders with frictionless, low-cost capital for borrowers. Additionally, by creating a bribe market for token emissions, protocols can incentivize increased capital velocity for their tokens.
All in all, we believe that ION combines the best from models like Velodrome, Radiant, and Pendle to drive incentives towards protocol users while rewarding liquidity depth in the process. Ultimately, our primary focus is creating the best possible money market experience through the following incentive flywheel:
Yield for LPers encourages users to LP ION
Access to bribes to enhance yield and encourage users to lock veION and vote on emissions
Emission flow to lenders increasing TVL
Emissions flow to borrowers increasing utilization rates
Higher utilization rates increase revenues
Higher revenues incentivizes users to buy and stake ION in LPs
In the following sections we aim to expound on all facets of the ION flywheel.
Last updated