The Token Economics of Leverage

9 min readOct 27, 2020

This article was written in an effort to give a brief rundown to the newcomers of our project, who wish to know more about the Leverage token and its use cases in the Leverage ecosystem. In it, the team will explain the economics of the token, including topics of inflation, deflation, and detail exactly why the Leverage token is needed.

As the native currency of the Leverage ecosystem, the $LEV token will serve as the foundation of the decentralized exchange, offer liquidity for the margin trading platform, governance, and it will be necessary for the creation of synthetic assets for trading. The team at Leverage has created the platforms with efforts to maximize utility and functionality of the token. However, before we get too ahead of ourselves, we would like to introduce a new concept that we feel enhances importance of holding the token.

The team at Leverage is proud to announce that we will add an additional requirement to be whitelisted for the products in the Leverage ecosystem, mandating that users who wish to utilize it for its unique features must be holding at least 10 Leverage tokens to have access when it is released.

In the upcoming weeks, after conducting the public sale, users holding the minimum amount of $LEV will have the ability to trade with up to 100x leverage on Bitcoin or Ethereum. Initial liquidity will be allocated by the team to the leverage liquidity pool for the purpose of preventing slippage on the trades of users.

A short time after the platform features are released and available to the general public, users who wish to experiment with the protocol more and maximize earnings in the process will have the option to provide liquidity to the leverage liquidity pool.

It is under our assumptions that the leverage liquidity pool will have the highest payouts when compared to farming or staking $LEV, because the liquidity pool obtains all liquidations suffered by traders within our protocol and collect funds from the weekly Leverage token sale.

What does this mean?

A total of 40 $LEV tokens will be minted weekly for the purposes of funding the leverage liquidity pool. Anyone who wishes to purchase the Leverage token will have the option to do so through a smart contract with ETH or DAI, pulling tokens from the treasury. All tokens that go unsold through the contract will automatically be burned, with the funds obtained being sent to users providing liquidity in the leverage liquidity pool. This is to ensure the growth of the Leverage liquidity pool, along with safeguarding the returns of users providing in it.

Now that we have this new concept covered, let’s go over the fundamentals of the Leverage token and its purpose in the ecosystem.

The Basics

In the beginning, if all tokens placed for sale in the public sale are sold, there will be a total of 91,875 circulating Leverage tokens. Afterwards, an additional 100 $LEV will be minted every week following the launch of the token, being distributed to those inside the protocol. The recipients of the newly minted Leverage tokens will vary from top traders inside of the protocol, to stakers/farmers, or liquidity providers with a majority being sent to the treasury for funds inside of the leverage liquidity pool.

Here is a breakdown of how this works, after the new tokens are minted every week:

20 $LEV distributed to top traders in volume within the protocol (to support active trading in the ecosystem)
10 $LEV distributed to farmers in the ecosystem (for rewarding users who provide value to the project)
20 $LEV distributed to stakers in the ecosystem (higher than the payouts to farmers because the act of staking will lock tokens for a default period of 30 days)
10 $LEV distributed to members of the team (to further development of the project)
40 $LEV distributed to the leverage treasury, which hosts a sale weekly (to raise funds for the leverage liquidity pool)

The max supply of $LEV is 10,000,000, which will take approximately 2,000 years to reach, when not accounting for the implied burns of the token within the ecosystem.

Overview

Described below, is the economics of the token assuming all tokens in the public sale are sold.

Max Supply: 10,000,000 $LEV
Initial Circulating Supply: 91,875 $LEV
Public Sale: 72,500 $LEV
Team Tokens: 5,000 $LEV (75% vested for one year, then released monthly for a period of 12 months)
Marketing: 5,000 $LEV
Liquidity Allocation: 12,500 $LEV + 568.18 ETH (listing on Uniswap at 22 $LEV per ETH)

One of the key principles instantiated throughout the drafting of the token economics of $LEV was keeping scarcity of the token. Newly minted tokens will serve as rewards for users who participate in the protocol by providing some sense of value, with the concepts being carefully crafted to not dilute the tokens already in existence.

Staking

Through the act of locking tokens in a smart contract for a default period of thirty days, users can be rewarded with payouts in proportion to their percentage of holdings located within the staking pool.

20 $LEV distributed to stakers weekly

Payouts will occur instantaneously when new tokens are minted, and they will vary on the abundance of users who are already staking their tokens in the smart contract.

Farming

Leverage can be farmed with a variety of tokens including LINK, ETH, UNI, WBTC, or LEV-WETH UNISWAP LP tokens. Payouts will be dependent on how many tokens there are locked in, as well as the amounts you are farming with.

10 $LEV distributed weekly to farmers weekly

There is no lock-up period designated for users who are farming their tokens.

Leverage Liquidity Pool

Liquidity providers in the leverage liquidity pool will incur the highest rewards in the protocol. As a liquidity provider, you are entitled to the funds obtained by liquidations of traders within the ecosystem. Additionally, liquidity providers will receive a portion of funds from the weekly sale, where the newly minted $LEV are sold.

Funds obtained by the weekly sale of 40 $LEV will be distributed to liquidity providers

Burns

Several mechanisms were implemented to create a controlled system of burning existing tokens within the protocol, to help offset unnecessary inflation of the token while rewarding valuable holders of the token (stakers, farmers, and liquidity providers). This includes fees obtained by trades inside of the decentralized exchange, which will automatically be used to buy back $LEV and burn it from the market. Furthermore, any excess funds within the leverage liquidity pool will be used in the same way, to buy back $LEV and burn it from the market forever.

0.01% of all trades on the decentralized exchange will be used to buy back and burn $LEV tokens
Excess funds obtained by the leverage liquidity pool will automatically be used to buy back and burn $LEV tokens

The Leverage Token In the Decentralized Exchange

On the decentralized exchange offered by Leverage, the $LEV token will be essential for use. Based on an automated market maker, a user will first be required to provide a proportional amount of $LEV to any token they wish to add liquidity to. This process will be similar to how Ethereum is used for Uniswap.

The user interface will be reminiscent of Uniswap’s decentralized exchange, with ease of trading for anyone who wishes to use it in mind.

A fee of 0.01% will be taken on trades, used to buy back and burn $LEV from the market

Initially, a portion of funds inside the leverage liquidity pool will be provided for liquidity on the dex, after which anyone who wishes to provide liquidity of an asset will have the opportunity to do so.

Rather than requiring market makers, a liquidity pool will be introduced with a given asset at a price initially determined by the user. One must first provide liquidity of the asset with a proportional amount of $LEV, and the price of the token/synth in question will then be determined by traders themselves, free to trade and place a “bid” at any moment in time.

The commonly seen order book model is inconvenient and requires users to constantly “make the market”. We find this approach unnecessary, lacking the simplicity and ease of use for traders, therefore the exchange is based on a liquidity pool in which the market is automatically “made”.

The Leverage Token for Margin Trading

For the margin trading platform, the Leverage token will serve as the backbone for liquidity of all open positions in the protocol. All trades on the platform will utilize the leverage liquidity pool.

The hot pool of the leverage liquidity pool will be used for withdraws of users and payouts to liquidity providers.

The cold pool of the leverage liquidity pool, which is maintained by a multi-signature contract, will hold excess funds obtained by the margin trading protocol.

Positions are synthetic in the sense that they are not taken until the specific trade is closed and/or your position is liquidated.

NOTE: it is important to remember that a total of 10 $LEV tokens will be required to be whitelisted for using the platform

The Leverage Token for Synthetics

Leverage will expand its ecosystem to support the trading and creation of various synthetic assets, where users can trade cryptocurrency against markets of commodities and stocks on the stock market (without margin). The synthetic markets will exist as their own ERC20, redeemable for the proportional amount of $LEV at any time. Synthetics may range from precious metals, to foreign exchange markets, or stocks.

Initially, a portion of the funds from the leverage liquidity pool will be provided for liquidity at a price determined by the on-chain oracles tracking the price feeds of the given asset, afterwards users who wish to provide liquidity to the market at the current market rate may do so.

NOTE: it is important to remember that a total of 10 $LEV tokens will be required to be whitelisted for using the platform

Governance

For votes in the Leverage ecosystem, one must first be holding a $LEV token, which can then the used to vote on proposals from the community. Ideally, users will vote on how funds from the leverage liquidity pools are used and/or distributed, other parameters for the ecosystem, and the addition of assets available for trade in the protocol.

$LEV is voting power within the DAO
A fee in $LEV (TBD) will be required to make a proposal
1 $LEV = 1 VOTE

To incentivize participation and contribution within the DAO, a trust score managed by a smart contract will keep the reputation of users involved, attached to the Ethereum address of all users holding the leverage token. To have your vote counted on a proposal from the community, an individual must have a trust score greater than zero. This trust score will expire every ten days, requiring those who wish to have their vote counted to participate in the governance protocol once again. The expiry period helps to prevent inactive users from voting on the direction of the ecosystem.

Conclusion

Leverage hopes to provide an all-in-one trading platform for anyone to utilize to their advantage, with the Leverage token being essential to all products discussed. We believe anyone should have the tools necessary to transact or trade currency anonymously in all markets, and we feel that the products of Leverage will change the way cryptocurrency is traded forever.

In the future we will explore other use cases such as prediction markets, and a lending/borrowing platform for decentralized finance.

We hope this article provides some insights for the use of the Leverage token in regards to our products to come, and we are excited to announce the upcoming public sale!