Liquidswap, the decentralized exchange (DEX) from Pontem Network, is one of the most prominent DeFi protocols on the Aptos blockchain. The protocol is launching the Liquidswap DAO and its corresponding LSD governance token to bolster Liquidswap’s adoption, expansion, and decentralization strategies.
In this article, we’ll explain what LSD is, the governance token’s utilities, its initial allocation, and airdrop plans.
What Is LSD Token
The LSD token is the utility and governance token of Liquidswap. LSD token holders will be able to govern the protocol and community treasury, and decide on future developments through weighted voting.
The LSD tokenomics will strengthen community ownership and decision-making for Liquidswap to facilitate self-sustainable platform growth. According to initial plans, users can stake tokens through a voting escrow (VE) mechanism to participate in Liquidswap’s governance.
How Does LSD Work
The Liquidswap team is experimenting with the VE system to secure the protocol through LSD staking. VE staking will enable users to lock their tokens for a predetermined period, ranging from weeks to several years.
The voting power is proportional to the duration and amount of LSD tokens a user will stake on Liquidswap. Thus, users will have more voting power and other benefits if the staking or lock-up period for LSD tokens is longer.
For example, a four-year staking period will give users more voting power than a one-year locking period.
When a user stakes LSD, they’ll get veLSD tokens in return. These veLSD tokens will boost user rewards, incentivizing them to lock their tokens for longer periods.
Liquidity providers and LSD token holders on Liquidswap can get higher yields if they have more veLSD tokens. To put things in perspective, Liquidswap’s LSD will function like Curve’s CRV with the voting escrowed veLSD similar to veCRV.
Now that you know how LSD works, let’s understand the LSD allocations for different stakeholders within the Liquidswap ecosystem.
LSD Tokenomics: An Explainer
Liquidswap will initially mint 42 million LSD tokens which will become accessible to users over three years. From 42 million coins, 40% of LSD tokens will go to Liquidswap community members and 60% to early protocol contributors.
Community Distribution Statistics
Liquidswap will allocate 40% LSD tokens for the following purposes in predetermined proportions:
- Airdrops and Staking Incentives– 15% will go towards airdrops and staking rewards. From the 15% share, 5% is for initial retroactive airdrops, 2% for testing VE staking incentives, and 8% for the DAO. The DAO will control and make decisions on future airdrops and staking rewards.
- Treasury– 16% of LSD tokens will go to the Liquidswap treasury and remain vested with the protocol for 36 months. Liquidswap will use this share to provide ecosystem grants, fund strategic partnerships, invest in governance initiatives, and distribute additional user incentives.
The DAO will set LSD token inflation rates to manage the protocol’s economic growth. Any surge in LSD tokens through inflation will go to the treasury for community distribution.
- Exchange Liquidity– Liquidswap has set aside 8% of LSD tokens for exchange liquidity. This allocation is for centralized and decentralized exchange listings with professional market makers managing their distribution.
- Initial Exchange Offering (IEO)– 1% of LSD tokens will be available for IEO, where Liquidswap will conduct fundraising by selling LSD on crypto exchanges. Within this 1% LSD, 40% of the tokens will be liquid during TGE, which will remain vested with Liquidswap for three months.
The LSD IEO will remain at the same price as the last fundraising round or at a lower valuation.
Early Contributor Shares
Liquidswap will allocate the remaining 60% of LSD tokens to the primary stakeholders in the following ratios:
- Private Investors– 46.74% of LSD tokens will go towards private investors with a 1 year cliff period and 2 years of vesting. Liquidswap made this allocation to recognize their contributions in the last three years during challenging conditions and a longstanding bear market.
It further strengthens the investors’ role as integral community members and ensures their continued support for the protocol’s long-term success.
- Founding Team– Liquidswap has allocated 13.26% of LSD tokens for its founding team with a 1 year cliff period and 3 years of vesting. The long token lock-in period will ensure their skin in the game for long-term contributions towards the protocol.
It will also ensure that the founding members devise a tokenomics model that structurally prevents pump-and-dump schemes.
The LSD Token Airdrop
Liquidswap will retroactively airdrop LSD tokens to early protocol adopters for using the product and becoming community members.
To qualify for the LSD airdrop, users needed to add liquidity, have high trading volumes, register activity from referrals, hold DooDoo and RETuRD meme tokens, and own Pontem NFTs like Pontem Space Pirates, Dark Ages, and DooDoos OG.
However, the airdrop parameters are not final and may change before the airdrop. The snapshot date has passed and Liquidswap will share a detailed breakdown of the airdrop distribution before launch.
Strengthening Decentralization With LSD
Over the last two years, Liquidswap has registered over $1.3 billion in cumulative trading volume with over 14 million total swaps. As one of the most used dapps on Aptos, Liquidswap’s LSD token launch will further secure protocol usage through decentralized governance and additional utilities.
