Use Voting Pools Instead of Rebasing for KogeX Swap+Bridge

According to a previous proposal, the idea for an added swap and bridge was to increase visibility for the brand and add an additional source of profit for investors. This was originally realized in the KogeX concept, where an OHM fork would be used to drum up liquidity for the cross chain exchange. While this is a novel use case for bonded liquidity, the current fud surrounding OHM forks and their constant stray away from a treasury backed asset has shown that this concept has not aged well.

To top it off, there is a serious problem using a rebased token to attain liquidity in the event of a treasury peg failure. You have to rebase to something, otherwise the price will spin out of control, which is why the treasury of OHM was supposed to back the value of OHM via buybacks to bring the price of OHM back up and save the market cap by sacrificing the treasury. However, in the case of KogeX, that would put all the exchange and bridge liquidity at risk if the market cap for KogeX ever dipped below treasury value.

We need to modify this idea to pull it further away from OHM and solve the treasury backing problem, and I propose we do not back KogeX by a treasury but instead by the right to receive dividends of the exchange. Further, participation in this dividend program creates demand that drives the liquidity bond market.

Sources:

• Proposal for Swap + Bridge
• KogeX Medium Article
• KogeX Whitepaper

The New Concept: Locked Liquidity Rewards

While you still sell your liquidity to the protocol and get the native coin, same as before, no longer will the KogeX be rebased. Instead, it has dividend and voting value. By pairing KogeX into liquidity and locking it up for a period of time, you get rewards from a staking pool receiving trading fees from the swap. The staking pools will act as a vote towards the liquidity of the token in which you wish to receive rewards. The pool’s popularity will create a demand for more bonded liquidity by increasing its discount on the bond market. All bonded liquidity will be KogeCoin LP’s (creating massive demand for KogeCoin) for the swap or single tokens for bridge (whose bond rates are driven by demand).

The token you pair KogeX with for staking in the voting pool will be the token you receive rewards. That is to prevent a zero-risk vote (no skin in the game, no vote). Furthermore, not all tokens are eligible. They must receive a minimum % of popularity in order to be eligible before the Koge team can approve them.

How Will This Work?

Here is an example:

• Sell KogeCoin-Matic for a 5% profit in KogeX.
• Harvest KogeX over the course of 5 days.
• Make KogeX-USDC LP tokens.
• Lock up KogeX-USDC LP tokens in voting pool for 30 days.
• Harvest USDC rewards over the course of 30 days.

Rewards can come from any USDC pool where USDC was sold for another coin, no matter what token was purchased or how it was routed.

Why Won’t Inflation Kill the Price of KogeX?

The real benefit is that the sell pressure of the bond discounts should match the buy pressure in both KogeX utility and buybacks. For every shmuck looking to make a quick buck, there should be a KogeX bull looking for that discount to buy and stake. To offset that balance in favor of KogeX price improvement, the exchange is constantly buying back KogeX with each transaction.

Why Do I Have to Stake KogeX Liquidity?

While it would be nice to stake a stablecoin or bluechip and KogeX separately, it just doesn’t do anything for the protocol and ecosystem if they’re not paired. By making liquidity, you are helping provide liquidity for the discount makers and takers of the bond market and helping provide liquidity for the asset you are pairing with, too. In return, you get dividends of whatever you paired KogeX with.

Isn’t This a Centralized Exchange?

That’s a rather philosophical question, but I believe the answer is… it is a hybrid CEX/DEX. All KogeCoin liquidity is owned (centralized), and all KogeX liquidity is user owned and staked (decentralized).

How Will We Market It As an Exchange?

The easiest way to deliver value to someone using a swap is to take less of their money. The best way to deliver value to someone investing in the swap is to give them more money from the users. This is accomplished by offering lower trading fees but funneling incentives into less pools, leveraging the bond market to create half of those pools. In turn, more liquidity will bring bigger money looking to spread out their price impact, and the exchange will reach a larger, more whalish, user group.

For instance, someone swaps $1000 of USDC for KogeCoin and pays a $1.75 trading fee, which is relatively low for a trading fee. Of that, $1 goes into the USDC dividend pool paying out to KogeX-USDC stakers. That same $1 will go to the USDC dividend pool, whether they would have bought KogeX, Matic, DAI, ETH, BTC, or anything on the exchange. Imagine all the rewards from every USDC pool of a traditional DEX were combined into a single staking pool. This is how KogeX can afford to offer lower trading fees.

Secondly, consider KogeFarm vaults — if someone notices a new vault and wants to invest, having a way to exchange whatever they have into the new asset is going to bring people just from shear convenience.

Lastly, partnerships will be key. Offering temporary whitelisting is a great way to gain new users with every newly supported protocol, especially if they have native tokens to add to the bond market.

What Happens if One of the Coins Paired With KogeCoin or KogeX Falls in Value?

The same thing happens on other exchanges — arbitrage bots. The drop in the price of the paired asset causes bots to sell that asset from other exchanges where it was cheaper. This creates cheaper KogeCoin or KogeX, which bots buy and sell those to other pools to stabilize the price.

This concern is often brought up, since the liquidity of KogeCoin has been linked to certain assets that have not performed well, causing volatile price movements. While it is still a plausible event to be paired with poorly performing assets, it is no longer a great risk, since the creation of this exchange will bring massive diversification to hedge against that kind of volatility one asset may have.

What Impact Does the Swap Liquidity Have on the Bridge Liquidity?

None. They are completely separate. While bridge liquidity may be incentivized by similar bonding and staking mechanisms, the two do not share any assets. The bridge doesn’t take from the swap, and the swap doesn’t take from the bridge. They may be able to use each other, just like how two merchants could bundle their services without borrowing materials from each other.

TimeLine of Events

• Exchange contracts launched.
• Presale for KogeX token.
• Airdrop KogeX to KogeCoin voters and initial liquidity providers.
• Protocol enables first round of voting pools.
• Bond market launches.
• Investors make and sell KogeCoin liquidity (LP) tokens demanded by voting pools and receive newly minted KogeX, linearly vested for 5 days, at the price of KogeX times a bond factor.
• Investors can make and stake KogeX liquidity in their favorite voting pools.
• Investors harvest dividends from pools. Profit.

Fee Structure

0.175% for listed non-Koge sales:

• 0.10% to the voting pools
• 0.05% to buyback KogeX
• 0.025% to the developer/marketing wallets

0.175% for KogeCoin and KogeX sales:

• 0.15% to KogeFarm rewards
• 0.025% to the developer/marketing wallets

0.175% for unlisted non-Koge sales:

• 0.15% to buyback KogeX
• 0.025% to the developer/marketing wallets

0.3% for bridged non-Koge tokens:

• 0.15% to buyback KogeX
• 0.10% left at the bridge
• 0.05% to the developer/marketing wallets

0.3% for bridged Kogecoin and KogeX tokens:

• 0.15% to KogeFarm
• 0.10% left at the bridge
• 0.05% to the developer/marketing wallets

Rules & Maths

• After lockup period is over, investor will no longer receive rewards and will have to renew the lockup period. This can be done mid-lockup to prevent any lapse in reward distribution.
• Unlisted tokens still have a voting pool but do not receive rewards until the pool reaches a fairly large stake, at which point it becomes eligible for a whitelisted token and rewards. I recommend a minimum of a popularity score of 2% and a $50,000 TVL.
• Listed tokens must retain a minimum popularity level within a certain period of time to stay listed. I recommend 1% popularity and $25,000 TVL.
• Not all listed tokens are eligible for the bond market. I recommend a 5% Popularity to start, then DAO approved after that.
• Bond market assets must retain a minimum popularity level within a certain period of time to stay in the market. I recommend a 2.5% Popularity to start, then DAO approved after that.
• Voting pools have a lockup of 30 days, 90 days, 180 days, 1 year, or 5 years
• Bond rate is the factor by which the price of the asset is multiplied by to determine the value of the KogeX given at the time the asset was bonded.
• Bond rate is determined by popularity of voting pool vs. actual liquidity owned by the protocol and the health of KogeX vs. KogeCoin. Minimum is 98% and maximum is nominally 106% (at KogeX Liquidity = KogeCoin liquidity). 99.97% is the default value.
• Bond rates for bridged tokens are not discussed here, but will likely be manually determined and not algorithmic, based on demand and not popularity.
• Popularity is a function of lockup interval and investments.
• Rewards are distributed by lockup period, allocated by Investment and TimeScore.
• TimeScore is designed to be 0.166 at thirty days, 1.000 at one year, and 1.500 at five years lockup.

Bond rate = 1 / ( 1.020408 - MAX( 0.067619 , 0.01 * Popularity * TotalLiquidity / ( TotalPopularity * Liquidity ) ) ) + 0.01 * ( KogeXUSDLiquidity / KogeCoinUSDLiquidity )^2
Popularity = ( Σ( TimeScore * Investment ) )^0.5
TimeScore = ( 1 - ( 1 / ( LockupDays/365 + 1 ))^1.35 ) * ( 1 / ( 1 - 0.5^1.35 ) )
Allocated Rewards =  Rewards * TimeScore * Investment / ( Σ( TimeScore * Investment ) )

TimeScore per Days Locked Up

See “Opportunities” section for a possible alternative to lockups.

Opportunities

• While this form of staking is great to earn a stablecoin or bluechip as dividends, it is difficult to maintain the Koge spirit of autocompounding. Thus, there should be an option to autocompound from the voting pool UI that would not interrupt the lockup period.
• It should be possible to load another protocol’s token up as the reward token for the bond market, making a ripe opportunity for partnerships seeking liquidity. The contracts should have manually adjusted bond rates, made to be like a clearance sale until they sell out.
• To cut down on transaction fees, the breakout in %’s could be called by a cron job daily, even weekly, if the voting pools dividends are dripped at a certain % daily (ie., 6% every day is dripped to the stakers).
  — Getting starting capital for these voting pools can be achieved via weaponized liquidity or incentivizing starting liquidity via initial airdrop.
  — Buybacks should be sent directly to the validators to avoid getting sandwiched in an MEV exploit.
• Weaponized liquidity may be of interest for KogeCoin specifically, given its limited supply, but it will need to be wrapped or redeemed 1:1 as a V2 in order for the token to have that function. Weaponized liquidity allows one side of permanently locked liquidity to be swept, up to the amount unusable under the price floor (as if all tokens were sold, some market cap would still exist and could be recovered by the protocol that would otherwise be unrecoverable).
  — Funds raised in this manner could provide significant starting capital for the initial rewards in the voting pools.
  — We could get rid of the 0.025% to the developer/marketing wallets temporarily if the liquidity could be weaponized, since a small percentage of any added liquidity can be claimed by the developer wallet. This would give an introductory rate of a 0.15% trading fee, which could last as long as the bond market has not plateaued in its effectiveness to produce new liquidity.
  — While a KogeCoin V2 redemption token would work, a brand new capped supply DEX token (ie., KogeZ) launching in tandem with KogeX would technically raise more capital using this method, potentially 5–25x or more, since close to 100% of the token will be in liquidity, bringing the token price close to its absolute floor price, whereas KogeCoin is at 20% or so in liquidity as it stands — not a great starting point in comparison. Creating demand for KogeCoin would still be possible through the bond market, though not as effective.
• EmpireDEX offers a wrapped AMM and yield farm for the transition to your own DEX if you want a transitory DEX. An AMA would help get users used to thinking about weaponized and locked liquidity, perhaps drawing parallels to bonded liquidity.
• I believe the best idea for bridging would be to soft send via oracle network (ie., Chainlink), so that the right to claim on the receiving side could be confirmed by the oracle contracts. Bridging in this manner will be almost immediate and only cost the oracle fee (ie., LINK) required to perform this off chain function. Gas will be paid by the bridgee, not the bridge, since it is “claimed” and not “sent”. This oracle cost could be built into the minimum bridged amount.
• Rather than doing a lockup period, the rewards can be split between two pools: a zero lockup pool and a burn pool. The burn pool is algorithmically designed to reward 1.5x the APR in the zero lockup pool (which means it takes into account the amount invested over the last few blocks). The burn pool therefore acts like an expense of a node that pays out indefinitely. The zero lockup pool does not cast a vote for the popularity function, otherwise it would be too easy to manipulate the bond market.
• This proposal creates an opportunity for centrally owned liquidity but also centrally owned tokens, similar to a reflection token’s transfer tax at sale. Koge teams can use these for partnerships, rewards, payments… but also to provide bridge liquidity. Excess over a certain % supply cap should be burned, contingent on whatever the largest whale is (ie., Koge teams can own the greater of 10% or whatever the biggest whale owns).
• While a DEX aggregator like Arken or Dodo may be a great partner to kickstart semi-automated use of liquidity, a natural evolution for a DEX could be aggregation, and it would help at least to route transactions nonlinearly in a multi-threaded fashion internally to minimize price impact and internal bot arbitrage. Perhaps this function can be “partnered out” to one of these aggregators and replace the traditional UI.
• Another opportunity that may help is the use of stablecoin pools using Dodo’s bonding curve method. Since stablecoin values cross so many times, it may make sense to offer extended prices on poorly performing stablecoins in good faith they will once again equalize in value. This creates massive pool turnover in short periods of volatility, generating much larger trading fees (and thus, rewards) than normal.
• If at some point, the Koge DAO wanted to enable zappers on the vaults, it would bring in semi-automated traded volume.
• In the event of an arbitrage opportunity, it may be beneficial to flex the supply of KogeCoin and KogeX in the pools, bringing them into a reserve fund when an oracle says their paired asset has dropped 0.3% or more, then pulling them back out and into liquidity when the value of a paired asset spikes 0.3% or more. Doing this removes arbitrage opportunity and thus ability for arbitrage bots to take value, leaving more on the exchange in the long run. This would have to be a DAO decision, since it removes the natural hedge liquidity provides on the downside in favor of removing impermanent loss on the upside (within a range of effectiveness).
• Mitigations for a scenario where KogeX liquidity never reaches the value of KogeCoin liquidity for long enough to gain sizable protocol owned liquidity may be in order. I recommend the additive factor in the bond rate for KogeXUSDLiquidity/KogeCoinUSDLiquidity be at a minimum of 2 for at least 24 hours from bond market launch.
• Saving a significant portion of the marketing budget for the event where the bond market plateaus is a very smart idea to give the coin and thus liquidity generation a timely pump.
• A way for people to get out early should be available so investors can feel the assurance of partially liquid capital. I see two ways of doing this without hurting the protocol. First, offer 45% money back guarantee, paid out in the non-KogeX side of the pair, no matter the lockup time. This will actually encourage longer lockups, plus the protocol gets free KogeX and a little coin to do whatever (maybe buyback KogeX). Second, locking liquidity in an NFT contract that is the thing that is actually staked will spontaneously provide a secondary marketplace for locked liquidity in any NFT marketplace supporting it (even Opensea). I recommend using Charged Particle’s contracts to do this. Furthermore, a high commission (10% or more) on these NFT sales can be used to buyback KogeX. The 45% money back guarantee will provide a sort of soft price floor for the NFT’s.

How to Vote

1. Vote for Option #1, “Yes, let’s do voting pools.” if you believe this concept of voting pools provides enough utility to back KogeX without rebasing.
2. Vote for Option #2, “No, I have a better idea.” if you have a better idea — comment below your better idea or reply “This.” to your favorite comment that embodies your thoughts on the matter.