Introduce ERG reward payouts on Spectrum Finance

[kranebitt]

Summary

This feature request proposes the introduction of reward payouts in ERG, the native token of Ergo platform, at a discount compared to SPF, the native token of Spectrum DEX, as an option for liquidity pool providers on the Spectrum network.

Motivation

The motivation behind this proposal is to diversify the reward payout options and attract a broader user base to Spectrum DEX. By offering ERG rewards at a discount, we can incentivize participation from the Ergo community and potentially increase the liquidity and volume on Spectrum network. Also, the Ergo community and token holders benefit from a higher demand for ERG coming from Spectrum DEX users requesting ERGs to pay for swap and provider fees. The entanglement of Spectrum and Ergo should ensure sound tokenomics and a high degree of reliability.

Changes

The changes proposed in this pull request are as follows:

1. Reward Contract Update: The reward contract will be updated to support ERG payouts. The contract will check the user's preference for payout in ERG or SPF.

2. Discount Mechanism: A mechanism to calculate the discount for ERG payouts will be introduced. This will ensure that ERG payouts are always at a discount compared to SPF. The Spectrum team benefits from the discount, Ergo holders are willing to accept in order recieve payouts in ERG. Also, any Spectrum network fees paid in SPF should be discounted compared to the fees paid in ERG for the benefit of network operators.

3. User Interface Update: The user interface will be updated to allow users to choose their preferred reward token and display the corresponding reward amount.

References

This proposal is inspired by similar features in other DEXes:

• Muesliswap[^1^][1][^2^][2]: Muesliswap on Cardano already provides a feature to have payouts in ADA, its underlying protocol's native asset, alongside its own DEX token MYIELD[^1^][1][^2^][2].

• IOTA Shimmers' @ShimmerSea Finance DEX: This DEX allows providing liquidity for its native Token LUM for payouts in the DLT's native token Shimmer (SMR). Shimmer is IOTA's testnet. Together with Shimmer, a share of payout is in sIOTA, a Shimmer wrapped version of IOTA, the token of the legacy DLT for which Shimmer is the testnet[^3^][4][^4^][5][^5^][6].

Backwards Compatibility

These changes are backwards compatible. Users who prefer rewards in SPF can continue to receive them without any changes.

Test Plan

A comprehensive test plan will be developed to ensure the correct implementation of these changes. The test plan will include unit tests, integration tests, and end-to-end tests.

Future Work

In the future, once Spectrum network runs its own chain, spectrum wrapped ERGs based on the @anetabtc protocol should ensure payouts in ERG for the future.

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Sources, retrieved from Bing, 9.12.2023

(1) MuesliSwapTeam/muesliswap-myield-contracts - GitHub. https://github.com/MuesliSwapTeam/muesliswap-myield-contracts.
(2) Muesli Yield Token - MuesliSwap. https://docs.muesliswap.com/cardano/tokenomics/muesli-yield-token.
(3) Shimmer (SMR): Seitenprojekt von IOTA launcht heute – das solltest Du .... https://block-builders.de/shimmer-smr-seitenprojekt-von-iota-launcht-heute-das-solltest-du-wissen/.
(4) IOTA und Shimmer (SMR) haben abgestimmt: Finanzzuschüsse für Projekte. https://block-builders.de/iota-und-shimmer-smr-haben-abgestimmt-finanzzuschuesse-fuer-projekte/.
(5) IOTA: Zum Launch von Shimmer (SMR) erscheint spezielle Version von .... https://block-builders.de/iota-zum-launch-von-shimmer-smr-erscheint-spezielle-version-von-wallet-firefly/.
(6) MuesliSwap Yield Token MuesliSwap Yield Token price - CoinMarketCap. https://coinmarketcap.com/currencies/muesliswap-yield-token/.
(7) undefined. https://github.com/input-output-hk/plutus-apps.

[kranebitt]

I am happy to reply to the questions asked in the project's Discord here:

You say pay out ERG at a discount? Where does this ERG come from and who pays the difference to offer it as a discount?

Yes. Once implemented, users should be able to chose liquidity pools to contribute to that offer payouts in ERG. In order to ensure that this works financially for Spectrum, there must be a discount when chosing to contribute to liquidity pools with payouts in ERG or partially in ERG over the same liquidity pools that have payouts in SPF. The latter should have higher APRs in consequence. Liquidity providers can chose if they prefer high payouts in SPF (more chance of gains) over payouts in ERG (fixed tokenomics).
The ERGs paid out come from users of the DEX that pay fees in ERG (at a surplus over SPF) or by converting SPF to ERG for LP payouts in ERG financed by the surplus in fees and discount in payouts. In order to open the first liquidity pairs in ERG it might be useful for Spectrum to initially create a liquidity reserve in ERG in order not to incur into liquidity issues, should the price of ERG increase drastically over that of ERG. Over time, the reserve will be filled with ERGs stemming from fees paid in ERG or savings in discounted SPF fees for ERG payout pools.

Also how can we do this on Spectrum network where the native ERG token does not exist and can never exist due to the nature of blockchain technology

To my understanding, currently, Spectrum operates on the Ergo blockchain and therefore ERG token is a native token. Once Spectrum operates its own PoS blockchain, unless there will be a native bridge like @rosen-bridge to Ergo, ERGs must be wrapped. There are plenty of examples for this. Above, two are mentioned: @anetabtc for Cardano (and possibly Ergo) wrapped Bitcoin that can be used on DEXes and sIOTA (Shimmer wrapped IOTA) in @ShimmerSea Finance for a different DLT.