Analyzing the new token governance system: Utilizing Balancer weighted pools to achieve deep liquidity and reduce impermanent loss.

Analyzing new token governance: Using Balancer pools for liquidity and reduced loss.

The common token governance model is the voting custody model, but it leads to poor liquidity in various exchanges. Now a new token governance system has emerged, and the cryptocurrency KOL Voxam has written an analysis to explain the principles and mechanisms of this system.

Solution: 80/20 Balancer Pool Token (BPT) as a governance token, where: 80% is represented by the native token (e.g. $RDNT), and 20% is represented by the quote token (e.g. $ETH).

Advantages of the model: 1) deeper liquidity, as users stake BPT instead of the tokens themselves, allowing for underlying liquidity to actively participate in exchanges. Once users stake their tokens, available trading liquidity increases rather than decreases. 2) better incentive programs and swap fees, eliminating the need to split liquidity across multiple markets and to disperse incentive measures and directly allocate them to multiple decentralized exchanges. 3) the protocol can dynamically set swap fees to its unique position, where a portion of the fee flows to LP as an incentive for providing liquidity.

You may ask: why 80/20 instead of 90/10, 70/30, or a simpler 50/50? The 80/20 pool seems to be the best option for facilitating trades while providing investors with: asymmetric exposure to the protocol token; reducing impermanent loss; and using the quote token as a hedge.

Maturity Adjustment (MA8020) variant: as positions mature, the protocol (e.g. Beethoven X) can increase voting power and rewards instead of rewarding token locking. Once reaching the highest level of maturity, users can unlock maximum power. Additionally, receipt tokens can be implemented to unlock additional levels of composability, such as secondary markets.


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