Tokenomics Of A New ZK-Rollup Ecosystem - A Fundamental Evolution
NIX is transitioning to a new ecosystem called Mute, to launch a new ZK-Rollup DEX and DAO. The next article will announce a significant rebrand of the entire project.
The NIX ecosystem is going through big changes. Imagine a Robinhood or Cash App for crypto but controlled by its users, rather than a central entity. Imagine a Uniswap DEX that’s way cheaper, more scalable and has private trading, meaning nobody can peek into your activity.
This will be achieved with the transition to the upcoming ZK-Rollup implementation, backed by a new economic model that encourages the capture and retention of value.
- Ecosystem will move to ‘Buyback & Make’ mechanics on both tokens.
- This is funded by the ZK-Rollup trading fee of ~0.3%
- The ‘profit-share’ model that only benefitted validators is superseded.
- Smart treasury being founded alongside Vaults & strategies
- Owners of a set amount of MUTE will pay drastically less trading fees.
- 1% transaction fee distributed directly to liquidity providers.
Buyback & Make — Facilitating the Capture and Retention of Value for Sustainable Growth
By adopting a Buyback & Make economic approach across both tokens, we can retain value within the ecosystem at the same time as establishing a non-inflationary treasury fund for facilitating further growth. It’s a model that benefits everyone rather than just a few early entrants.
MUTE can be thought of as the ‘gas’ that powers the whole ecosystem. The vision is for people to connect into the easy-to-use swap dApp and make ZK-Rollup trades without the friction of needing to have bought MUTE for gas up-front. So by shifting the position of MUTE outside of the trade itself, we can remove this friction entirely while using the fees generated from the native pair to buy back MUTE (and VOICE) from the market afterwards.
We feel this is the most productive route to adoption and ensures there is no unnecessary bloat or friction in the dApp, while at the same time providing a boon for the economic prospects and potential growth of the project.
Dual-Token Buy-Backs, Smart Treasury and Vaults:
- 70% of all trading fees will market buy MUTE from Uniswap
- tokens sent to Smart Treasury.
- 30% of all trading fees will market buy VOICE from Uniswap
- tokens sent to Smart Treasury.
This creates 2 positive forces — firstly, we now have additional buy pressure on both (non-inflationary) tokens, increasing along with adoption of the permissionless DEX. Secondly, we have the formation of a Smart Treasury, driving the ‘make’ portion of ‘Buyback and make’. Rather than instantly burning tokens from the supply, these tokens can be recycled and put to better use — either for funding ongoing liquidity incentives or for funding new strategies in the vaults, which will then attract further value into the ecosystem. Governance will be a driver in how this treasury is used, and we encourage people to get involved in the future direction of this area by campaigning for enough delegate votes to become an ecosystem Controller.
Trading & Transaction Fees
Users of the ZK-Rollup DEX will incur a small fee, estimated to be 0.3% per trade which will be pooled to directly fund regular buy-backs across both tokens. This fee is similar to services such as Uniswap and Sushiswap but with the huge benefit of no ‘gas fees’ within the ZK-Rollup ecosystem itself — meaning during times of high network congestion, users can operate seamlessly within the DEX unaffected by outside events.
Power users of the DEX can qualify for reduced fees by locking a specified amount of MUTE in their wallet, likely ~10,000 MUTE. This is significant as an additional use-case for MUTE while encouraging market-making and high value/volume traders within the ecosystem.
Our goal is to make a permissionless interface for projects and communities to add new pairs to the ecosystem. However, we acknowledge there should be a certain level of barrier of entry to discourage frivolous/fake tokens being added and so are discussing the merits of a registration fee paid in native token(s) for the addition of new pairs.
All transactions of MUTE or VOICE (ie, L1 trading for the ecosystem tokens themselves) will incur a 1% transaction fee that gets distributed directly to LP tokens. The only exception is whitelisted addresses, i.e, the Uniswap and Treasury wallets. Liquidity providers will receive these fees directly to their LP tokens and are not required to stake LP to receive these incentives.
Evolving the Fundamentals — Why Move Away from Profit Share Model?
NIX/MUTE has an army of invested holders who have supported the chain thus far by locking up their holdings in return for a share of perpetual block rewards. This is the de facto incentive structure for traditional PoS blockchains, but it introduces several problems when trying to port this structure over to a non-inflationary token and would be damaging to the growth of the ecosystem moving forward.
Originally we anticipated the need for a separate infrastructure of sidechain validator nodes to facilitate these new ZK-Rollup transactions, helped by on-off ramp agents. However, after research into the requirements of ZK-Rollups and related tech, it’s now unlikely we’ll require this route because it’s an inefficient way of handling the data — there are plenty of turnkey solutions out there already. With this in mind, there were now several major flaws with the idea of running a ‘profit share’ model in the new ecosystem.
These validators would become a relic from the old blockchain, in reality passive holders who aren’t tangibly contributing to the ecosystem but still splitting profits and then moving this value outside of the ecosystem. Rather than carrying these profit-seeking entities at the detriment to well-designed fundamentals, a smarter approach is to evolve the tokenomics in a way that uses these DEX fees in a more productive way. Looking at the DeFi landscape as well as other fee-generating ecosystems, there is no denying that token buy-backs offer immense value. We feel that combining this model with our non-inflationary token supply is a much more interesting proposition, and capturing and compounding value in this way will create a positive feedback loop that can propel this ecosystem to exponentially greater heights.
Some Closing Words..
The new ecosystem needs to work for everybody, so replacing the profit-share proposal with a ‘Buy-Back and Make’ model represents a fundamental evolution of the tokenomics to ensure the economic success of the project.
This will ultimately fund a smart treasury, with vaults, marketing, bounties, liquidity incentives, as well as token burns all on the table through the ZK-Rollup DAO.
We’re excited about this development and want to hear your ideas for the future too.
Next up: Rebrand announcement!
Join the Revolution.