This article first appeared on our Substack
Update: 👋 Dear Swingby community, we’ve heard your discussions and concerns, hence we are updating the timeline for Metanode rewards reduction Metanode staking rewards will only be reduced when the SkyPools Testnet is launched.
Hi Swingby community,
November has been a pretty busy month for the entire Swingby team as we continue to prepare for the testnet launch of SkyPools. We have been focusing on the tech & product over the last few articles, so today we will be switching gears onto something else.
We will be talking about another pillar that is crucial for Skybridge’s success today, as well as SkyPools’ success tomorrow — network & liquidity incentives
A primer on Network Incentives
In Web3 and decentralised projects, a project’s success is normally more than just building a great technical infrastructure and product. To achieve decentralisation, Web3 projects typically have many stakeholders, users and network participants working together to achieve its vision.
To ensure that the network and product serves its purpose, all stakeholders in the network need to act in an incentive-aligned manner. This makes designing and aligning network incentives really crucial for a project’s success.
When done correctly, the network serves its purpose and provides value to the investors, validators, users and other participants. When done wrongly, all sorts of things can go wrong — bad actors can steal funds, do double-spends and more.
As networks bootstrap, grow and mature, the priorities, constraints and stakes for securing the network can change rapidly. Hence, it is essential for teams to have a pulse on network incentives and adapt as the network matures.
Our Network Incentives Today
Today, there are 3 network participants that contribute to the success of the Swingby Network and the Skybridge product.
- Metanodes ⛏
- SkyBridge liquidity providers 💰
- Users 🧑🌾
Metanode Rewards ⛏
Metanode operators run nodes and bond $SWINGBY tokens to ensure the security and consensus on the network. Whenever a swap happens on Skybridge, Metanode operators receive 2/3 of all swap fee revenues.
Initially when swap volumes and revenue were low, we allocated 52% APR staking rewards to incentivise Metanodes to secure the network.
This has helped us bootstrap and grow Skybridge to over 1,900 BTCs in swap volume this year, bringing in sizeable revenue for Metanodes and security for the network.
Skybridge Liquidity Providers 💰
Next, Skybridge liquidity providers provide BTC and its variants on each bridge, such as WBTC/BTC for the ERC-20 bridge and BTCB/BTC for the BEP-20 bridge. By providing liquidity, users like yourself are able to swap your BTCs trustlessly across chains.
To incentivise liquidity provision, these liquidity providers earn around 9% APR in sbBTC without any risk of impermanent loss or asset risks. You can farm your Liquidity Provider positions and earn an additional 24% APR in Swingby tokens, bringing your total yield on BTCs to around 33% APR.
Skybridge Users 🧑🌾
Lastly, we have the users who do swaps across BTC chains and providing 0.20% swap fees to the Metanode operators and Swingby as a protocol. The continued usage of Skybridge helps provide revenue & incentives for Metanode operators to continue securing the Network
So far, the incentives for the Metanodes and liquidity providers have served us well in providing over 1,900 Bitcoin swap volumes without any bad actors or attacks.
Looking to the future
Over the past 1 year, we have moved from milestone to milestone — from our initial bootstrapping phase, to growing Skybridge liquidity and now preparing to launch SkyPools.
Looking towards the future, we envision SkyPools becoming a core tool for DeFi users to move between Bitcoin and assets on other chains. A risk-on user will use SkyPools as a first-mile swap to invest in a ERC-20 asset. A risk-off user will use SkyPools as a a last-mile swap to take profits into BTC.
The question we asked ourselves was — are our network incentives well-prepared in helping us achieve our vision?
SkyPools, as a product, depends on Skybridge liquidity to facilitate the cross-chain swap between Bitcoin and other chains. With current liquidity averaging at around 13 BTCs (USD750,000 at current prices) on the ERC-20 bridge, this is insufficient and will become a bottleneck in enabling SkyPools to achieve its full potential.
Hence, while we prepare for the eventual launch of SkyPools, it is crucial that we place our focus on increasing Skybridge liquidity.
Updates to Network Incentives
As we move beyond the network bootstrapping phase towards launching Skypools , we are announcing 2 changes to our Network Incentives
1. Increase in Skybridge Liquidity
As mentioned above, current Skybridge BTC Liquidity is a bottleneck to an optimal SkyPools experience. To incentivise greater provision of liquidity on Skybridge, we plan to increase the liquidity rewards from the current 33% APR today. This will enable greater throughput for users to swap between Bitcoin and Bitcoin variants for SkyPools.
We are finalising these plans to increase rewards for liquidity providers and will be announcing the increase and timelines soon.
2. Reduction in Metanode Rewards
To make this increase in liquidity sustainable, we will be reducing the Metanode Rewards from 54% APR to 30% APR.
The 54% APR Metanode Rewards has served us well in kickstarting and providing incentives provide incentives for Metanodes when the swap volumes were low. A year and 1,900 BTC in swap volumes later, earning the 2/3 share of Skybridge swap fees is gradually becoming a sustainable revenue source and incentive mechanism for Metanodes.
As a network, we are really appreciative towards the Metanodes’ role in securing the Swingby network and building the foundations we have today. Today, we have a very healthy Bond to Liquidity ratio, suggesting that we have enough security & bonding to graduate beyond the network bootstrapping phase.
As we prepare for Swingby’s sustainability as a network, lowering Metanode rewards becomes an inevitable choice. Furthermore, as we launch SkyPools, we are excited for how much more we can accomplish together in terms of swap volumes, BTC liquidity and Metanode revenues.
Updated: This change will come into effect when testnet is launched.
To summarise the changes, please refer to the diagram below
So what happens now?
- If you’d like to start earning 33% APR on your Bitcoin & help provide liquidity on Skybridge, we invite you to start providing Bitcoin liquidity on skybridge.info today.
- If you are a Metanode operator, no further action is required from you