Blockchain gaming firm Sky Mavis has unveiled a significant reduction in the incentives for liquidity providers on its Katana decentralized exchange. The phased pullback will see a 50% cut from March 1, followed by another halving in the next stage, culminating in a 75% decrease from current levels.
Strategic Cuts to Balance Rewards
Sky Mavis, the developer behind the Ronin blockchain, initiated these cuts after observing a substantial rise in the average annual yield of its liquidity pools, which soared from 20% to 70% without a commensurate rise in token staking. Despite the Ronin token’s 59% price surge since the year’s start, the team believes that the increased reward value has failed to deliver significant improvements in DEX liquidity provisioning.
The reduction in rewards is projected to save around $5.72 million in Ronin token expenses for the first quarter of next year. The Ronin team has highlighted the importance of this decision, pointing to the fixed cap of 1 billion tokens and emphasizing that decreased emissions will result in lower inflation of the circulating supply.
Implications for the Ronin Ecosystem
Currently, the Katana DEX accounts for over 99% of Ronin’s $200 million total value locked. Despite the RON token reclaiming its high valuation from the previous year, the total value locked has not yet returned to the pre-cyberattack $1 billion mark. However, the ecosystem has shown signs of recovery following the recent Binance listing.
The strategy of reducing token rewards has historically been associated with a positive impact on token prices, as seen in other blockchain ecosystems. This move by Sky Mavis may well lead to a similar uptrend in the value of its native token.