Price Floor Increased by the Uniswap UniV2 0.3% DXN Fee
Last updated
Last updated
Each Swap Perpetually Increasing the Floor Price of NXD in DXN
Uniswap applies a 0.30% fee to trades, which is added to reserves. As a result, each trade actually increases “k” as outlined in an earlier article. Traditionally this functions as a payout to LPs, which is realized when they burn their pool tokens to withdraw their portion of total reserves.
However, once the LP is locked, these fees will be, instead of being redeemed by LP providers, reintegrated into the liquidity pool, effectively increasing the amount of DXN within the pool. Incorporating transaction fees into the analysis of the NXD token’s Floor Price on UniswapV2 reveals a nuanced adjustment to the previously outlined model. This increment in DXN serves to slightly elevate the floor price of NXD over time with each trade.
Trading within the NXD/DXN UniV2 LP incurs a 0.3% fee, which is reinvested into the pool. This design choice amplifies NXD’s financial architecture by:
Strengthening the Price Floor: The reinvestment of trading fees increases the DXN reserve in the LP, elevating the NXD price floor over time.
Liquidity and Stability: Ensures growth in liquidity, enhancing the market’s stability and making NXD a more secure investment.
Self-Sustaining Growth: Creates a cycle where increased liquidity and a higher price floor feed into each other, bolstering the ecosystem’s overall health.
