Sky Mavis, the developer behind the blockchain GameFi project, has announced a significant reduction in liquidity provider (LP) rewards for its Katana decentralized exchange (DEX) on the Ronin blockchain. The rewards will be cut by 50% in phase 1, starting on March 1st, and then reduced by an additional 50% in phase 2, resulting in a total reduction of 75% from the current emission levels.
The decision to reduce rewards was justified by Ronin, stating that the average annual percentage rate (APR) in Katana liquidity pools had increased from around 20% to 70% in recent months. However, the aggregate number of tokens pooled in Ronin liquidity pools did not increase proportionally to the price of Ronin (RON), which has seen a 59% increase in value since the beginning of the year. Ronin staff concluded that the increase in reward value did not lead to significant outcomes in DEX liquidity provision and may have exceeded the optimal level of incentives.
By implementing these LP cuts, Ronin expects to save 2 million RON ($5.72 million) in expenses in the first quarter of 2024 alone. They also emphasized that fewer emissions would result in lower inflation in the circulating supply, noting that the supply of fixed tokens is set at 1 billion.
Currently, the Katana DEX represents more than 99% of the $200 million total value locked (TVL) on Ronin. Although the RON token has recovered its 2022 highs, the TVL has yet to reach the $1 billion levels seen before a devastating hack by North Korea two years ago. However, the ecosystem has since bounced back with the highly anticipated listing on Binance earlier this month.
In related news, Binance has offered a $5 million bounty for information following the listing of the RON token, which sparked a heated debate in the crypto community.