Blockchain GameFi developer Sky Mavis will slash liquidity provider (LP) rewards provided by its Katana decentralized exchange (DEX) built on the Ronin blockchain by 50%. According to the Feb. 15 announcement, rewards will be cut by 50% in phase 1, starting March 1, and reduced by a further 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%,” Ronin wrote in justification for the reward cut while pointing out that the aggregate number of pooled tokens in Ronin liquidity pools has not increased in proportion to the Ronin’s (RON) price to balance out the APR. Since the beginning of the year, RON tokens have increased by 59% in value.
“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,” Ronin staff concluded. As a result of the planned LP cuts, Ronin expects to save 2 million RON ($5.72 million) in expenses in Q1 2024 alone. “Fewer emissions mean lower inflation in circulating supply,” Ronin said, pointing out that the supply of fixed tokens is fixed at 1 billion.
Currently, the Katana DEX represents over 99% of the $200 million in total value locked (TVL) on Ronin. Although the RON token has since recovered its 2022 highs, its TVL has yet to recover to the $1-billion levels witnessed before a devastating North Korean hack two years prior. Nevertheless, the ecosystem has since recovered with a much-anticipated Binance listing earlier this month.
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