PSP 2.0
Rewards users with a portion of protocol fees in ETH
What is PSP 2.0?
PSP 2.0 is a major update to improve the tokenomics of $PSP.
PSP 2.0 aims to create a more inclusive and rewarding experience for users and establish a sustainable distribution strategy.
The update focuses on enhancing staking efficiency, liquidity, and token emissions.
The new Social Escrow staking system for PSP (sePSP) is designed to incentivize PSP stakers for contributing to the protocol and DAO's growth.
The introduction of PSP 2.0 rewards users with a portion of protocol fees.
There are two forms of staking:
sePSP1 - PSP Staking
Single-sided staking of PSP: the most basic form of staking for those who do not want to risk impermanent loss from asset pooling. Each PSP staked in se PSP will count as 1 voting power.
sePSP2 - Liquidity Pool Staking
Liquidity pair of 80/20 PSP-ETH: to incentivize sePSP2 staking, a 2.5x boost on PSP staking is applied. This results in a 2x valuation increase of the value compared to sePSP1.
How can users benefit from PSP 2.0?
Protocol fee incentives
80% of protocol fees generated on all chains where ParaSwap is deployed go to stakers + 20% of fees contribute to the DAO treasury.
Fees are distributed each epoch in ETH to stakers where PSP staking is available.
Fees will become claimable by users after a grace period of 1 week and will have to be claimed within the following three epochs.
One epoch lasts 28 days and the first epoch started on Jan.26th, 2023.
Both stakers and the DAO treasury benefit from ParaSwap's success.
With PSP 2.0, PSP staker rewards increase in proportion to the trading volume on ParaSwap, regardless of the specific trading pair involved.
The fees distributed as rewards come in the form of gas tokens like ETH, providing a genuine yield opportunity rather than a worthless token that would constantly lose value.
ParaBoost mechanism
To optimize rewards, users should actively consider leveraging the ParaBoost mechanism. This mechanism helps PSP stakers to boost their stake and rewards, by performing beneficial actions for the protocol such as trading and pooling.
The value-adding actions identified for sePSP include:
Trading
Users who trade more volume through ParaSwap will receive a larger boost, as trading volume indicates protocol health and brings positive externalities.
Making
Makers, including limit order participants and RFQ (PMMs), will receive stake boosts based on filled order volume. This applies to both token and ERC20 and NFT trades.
Pooling
Users who provide liquidity to ParaSwap will receive boosted voting power and contribute to a stable liquidity provision system. Long-term locking of assets is not required, providing flexibility for users and the DAO.
Referrals
Referral programs are implemented to reward community members and support other ParaSwappers directly. Referrers receive a 20% boost, while referees receive a 10% boost.
The final ParaBoost score will be calculated as the following formula:
Where:
sePSP1: Amount of PSP staked in sePSP1
sePSP2: Value staked in PSP on the Balancer Pool
Note, ParaBoost is reset to the initial value (PSP Staked) every epoch.
How is PSP 2.0 going?
Currently, there is a total of $1.9 million worth PSP and $4.7 million worth PSP-ETH pair staked in ParaSwap during epoch7 for sePSP1 and sePSP2 respectively.
A total of 890 users have claimed over 347 ETH as rewards for PSP 2.0 staking.
The average reward per user is 0.39 ETH, with a median reward of 0.02 ETH.
PSP 2.0 is an opportunity that has been overlooked by many.
The top-ranked user has staked 1 million worth of PSP-ETH liquidity and claimed 137.39 ETH in 5 epochs, resulting in a reward worth 260k and a APR of 62%.
For more details please check our dashboard:
https://dune.com/sixdegree/paraswap-paraboost-tracking
Thoughts
PSP 2.0 enables users to benefit from the entire volume on ParaSwap instead of being limited to a single pair.
Rewards in PSP 2.0 are paid in ETH, which is generally more value-preserved compared to other forms of rewards.
Users need to focus on two main aspects: (1) How to promote more volume on ParaSwap? (2) How to increase their ParaBoost to receive a larger share of rewards?
A potential consequence of PSP 2.0 is a "PSP war" where retailers may struggle to meet the demand for higher ParaBoost score. They can counter this by staking with whales or market makers to boost their rewards and share revenue.