$FLOW Tokenomics

🔬 Article: $FLOW Tokenomics

The $FLOW tokenomics were discussed during the last Flow office hours. Here is a summary of the discussion.

$FLOW token governance

• Every $FLOW token holder can now participate in governing the Flow Blockchain through FLIPs (FLOW Improvement Process)
• FLIP is a process where all the major changes to the Flow Blockchain can be published, discussed by the community at an application, protocol or governance level change
• Find FLIPS here: https://forum.onflow.org/c/governance/

Reward rates

• Staking rewards are how the Flow network pays trusted node operators for security
• A governance proposal (the first FLIP-GOV) was submitted by the Flow Foundation to keep rewards at 5% as due to the current economy downturn, it is not desirable to reduce the rewards rate

No plans to burn the Flow token ($FLOW)

• The team also stated that there will be sessions to brainstorm ideas for the extra use cases of $FLOW and that there were no plans to burn the token but if the community felt strongly about this, then this is the kind of topic that could go through a governance FLIP

DeFi on Flow

• The team stated that DeFi on Flow will not resemble to what has been done in the past, it will be built to address real needs and good yields will be supported by real demand
• List of DeFi apps on Flow: https://www.flowverse.co/categories/defi

Flow Liquidity Vaults (FLVs)

• When dApps launch a token, they want it to be listed on DEXs e.g. Blocto Swap, IncrementFi
• This requires them to provide:
• Their own token
• A counter asset that is ideally already liquid on the DEX e.g. $FLOW
• However, dApps don’t have large amounts of $FLOW in their wallet and it is not an option for dApps to lend their tokens and borrow $FLOW on IncrementFi because their token isn't trading yet
• Here comes in FLVs, where dApps can bring their own token and lenders can deposit $FLOW in this liquidity vault, which spins up a DEX made up of the dApp’s token e.g. $TKN and $FLOW

• Lender of $FLOW benefits:
• Receive interest (paid in $TKN)
• Gain exposure to any new token launching on Flow passively
• High yield opportunities but comes with risks
• Properties of FLVs
• Limited in time: The longer the borrowing of $FLOW, the higher the APY
• Limited in size: dApps don’t need large amounts of $FLOW to spin up a liquidity pool (usually $0.5-1m worth of $FLOW is enough to have good slippage)
• Lender and dApp share the impermanent loss
• Summary of FLVs
• Cement $FLOW as the defacto counter asset on DEXs, taking the $FLOW token away from the circulating supply as more tokens launch on Flow
• dApps on FLOW can now source $FLOW to spin up liquidity pools in a systematic and transparent way
• $FLOW holders gain exposure to new fungible tokens launched on Flow + become a lender and gain a yield (with risks)
• FLVs are close to testnet and an independent team from Vietnam is building it and the MVP will be shipped in late July

If you’re interested in learning more about these topics that were outlined above, please watch the latest Flow Office Hours.

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