The DeFi world does not stand still and strives to constantly respond to the challenges arising on the path of its development. One of the most important tasks in modern market conditions is to maintain stable liquidity. Therefore, in the process of analyzing and searching, many developers have come to the conclusion that the optimal solution is a transition to a self-sustaining model of projects that will start the transformation of DeFi into DeFi 2.0.
In this article, we will discuss the structure of the self-sustained model, its advantages and differences from the deflationary model, and what such a model would bring to Biswap and its community.
Biswap DEX Meets DeFi 2.0
DeFi 2.0 projects address structural issues like liquidity and revenue instability. The platforms use new approaches beyond token burning, such as smart tokenomics, lock instruments, decentralized funds, and backup protocols to cope with them.
BSW Investment Pool aims to decrease BSW circulation supply through the new lock mechanism to ensure the stable value of the native token and create the Biswap Protocol Own Liquidity (POL), which meets the DeFi 2.0 concept.
So let’s first look at what the deflationary model and the self-sustaining model are.
Token Burn & The Concept of Deflationary Model
Token burn refers to the deliberate and permanent removal of a certain number of tokens from circulation. This is typically done by sending the tokens to the ‘burn address’ where they cannot be retrieved or used again.
The primary purpose of token burning is to reduce the token’s total supply, which, in turn, can lead to increased scarcity and potential price appreciation due to a reduced supply-demand ratio. Token burning is often used as a deflationary mechanism to counterbalance inflationary pressures caused by token issuance or mining.
Token Lock & The Idea of Self-Sustained Model
The self-sustained model is a broader concept that involves creating a system where the token’s ecosystem can support itself without relying on external factors.
In an independent model, the token’s utility and demand are designed so that users actively participate in the ecosystem, driving value and ensuring its longevity. Instead of relying on token burning or external interventions, a self-sustaining model focuses on creating inherent value and incentives for users to hold and use the token within the ecosystem.
The Difference between Deflationary & Self-Sustained Models
The token burn and self-sustaining model are two different approaches used in the context of cryptocurrencies to manage their supply and maintain the stability of the ecosystem. The differences between them are the following.
The Purpose
Token burn aims to reduce the total supply and potentially create scarcity to influence the token’s value. The self-sustaining model establishes a self-sufficient ecosystem where the token’s utility and demand are generated from within without periodic supply reductions. Also it aims to maintain the value of the token and the stability of the ecosystem without relying on the reduction of token supply.
The Mechanism
Token burn involves the removal of tokens from circulation, while a self-sustaining model relies on the token’s inherent utility, network effects, and ecosystem development to maintain its value.
The Approach
Token burn is a specific action the project or community takes to influence supply dynamics. In contrast, the self-sustaining model is a comprehensive design strategy to build and maintain a thriving ecosystem over the long term.
How does Token Burn Affect BSW?
The effectiveness of token burning relies on burning more tokens than those entering the market through emission. However, the current BSW token burn, while reducing circulating supply, doesn’t impact the liquidity of the DEX.
As the purpose is to decrease the Biswap token circulation and establish the protocol’s liquidity (POL), moving away from inflationary models towards self-sustaining becomes essential.
To achieve this, we need to reduce BSW circulation by introducing the BSW Investment Pool and temporarily pausing the regular BSW token burn. This pause will persist until the BSW emission gradually decreases to zero. At that point, reactivating the BSW burn mechanism will be an efficient approach to reduce the token’s total supply directly.
The Role of POL in Biswap Transformation
One of the main roles in the transition is acting the Protocol Owned Liquidity (POL). The BSW Investment Pool contains POL as a part of its ecosystem, where the POL model refers to an approach in which the DeFi protocol owns and controls a certain amount of its liquidity. Instead of relying solely on external market participants to provide liquidity, the protocol itself holds and manages reserves of tokens.
📍️️ Biswap POL — BSW/USDT liquidity that belongs to the Biswap DEX.
The main goal of the Biswap POL model is to provide constant liquidity and BSW stability on the market. Moreover:
- decrease pressure on BSW price thanks to enlarged BSW/USDT liquidity;
- reward users with Real Yield from the POL instead of emission (a share of POL tokens is directed to the Treasury).
POL rewards are a key aspect of Biswap operations. By owning a liquidity pool, Biswap can receive LP rewards as a Liquidity Provider. These funds support the Real Yields rewards, ensuring users benefit from the platform’s success.
The result of the POL implementation should be creating a constant income that makes it possible to refuse a yield too high by token emission.
What does POL Consist Of?
The POL is restocked using BSW and USDT tokens obtained through oBSW staking and exchange mechanics.
- BSW: once the oBSW points burn, the backed-up BSW tokens are sent to the POL.
- BSW: once the 30% discount for the oBSW exchange gets to 0% in the Real Yield Pool, the backed-up BSW are sent to the POL.
- BSW: BSW charged as a 50% penalty fee for early withdrawal and consequently directed to the POL.
- USDT: when users exchange oBSW to backed-up BSW at a 30% discount through the BSW Investment Pool, they pay USDT, which is sent to the POL.
- USDT: when users exchange oBSW to backed-up BSW at a discount through the Real Yield Pool, they pay USDT, which are sent to the POL.
Conclusion
The article explored the advantages and distinctions between deflationary and self-sustained models on Biswap DEX. While token burn can offer short-term scarcity, the Biswap project focuses on a self-sustained model that ensures long-term viability and user-driven value, utilizing POL rewards and ecosystem incentives.
