Linkswap is YF Link’s community-governed automated market maker (AMM). What makes Linkswap particularly interesting is that it was built with the $LINK community in mind, with a special focus on $LINK trading pairs. AMMs are specialized types of decentralized exchanges (DEXs) that use mathematical models for pricing assets and administering trades. Linkswap allows users to trade between tokens directly from their wallets (unlike in centralized exchanges, where the platform holds a wallet for you) while providing reward mechanisms such as liquidity mining programs.
The Linkswap platform benefits three types of individuals in different ways:
Traders, who pay a 0.25% trading fee to trade ERC20 tokens from / to $LINK and a 0.30% trading fee to trade ERC20 tokens from / to $ETH. Discounted 0.25% $LINK-based trades are one of LINKSWAP's most enticing features.
Liquidity providers (LPs), who deposit liquidity to earn LP fees (~83% of the trading fee) and LP rewards.
YF Link governance vault stakers, who earn a portion of protocol and listing fee splits (~17% of the trading fee, or 0.05% of the total trade cost).
The mathematically automated nature of an AMM means that trades can be made without any actual trader on the other side of a trade. This essentially involves two entities: liquidity providers (LPs) who deposit liquidity into liquidity pools (piles of tokens, usually in pairs, sitting in a smart contract), and traders whose trades are priced in accordance to a mathematical formula revolving around the relevant token pools of liquidity. To incentivize LPs to deposit liquidity in the first place, a small fee is applied on every trade to be distributed to all LPs (note that they can withdraw their liquidity at any time).
In addition to the core functionality provided by all AMMs as explained above, which provides convenience, efficiency, and trustlessness, Linkswap offers a unique $LINK-centric infrastructure, as well as additional reward mechanisms.
In traditional AMMs, a liquidity pool is usually a pairing between $ETH and an ERC20 token. Swapping between liquidity pools then works seamlessly since each liquidity pool swap can operate under a common denomination of $ETH. For example, if a user wanted to trade $LINK for $YFL, two pools, a $LINK-$ETH pool and a $YFL-$ETH pool, would allow this to work with minimal friction by just processing swaps through $ETH. The reason $ETH is so commonly used as a pool denominator is that it is the most liquid Ethereum-based token.
LPs will be rewarded 0.25% of a trade's cost (~83% of the 0.3% trading fee). This is known as the LP fee.
In addition, select LP pairs will be rewarded additional rewards as a means of incentivizing their staking in liquidity pools. See the Staking Pools section for a full list of currently active staking pools.
Besides allowing community members to vote and propose new ideas for the YF Link ecosystem, staking in the YFL governance vault will also earn stakers income from Linkswap protocol fees. In addition to generating revenue for $YFL holders, portions of the Linkswap protocol and listing fees will be directed to the YF LINK treasury. Linkswap is thus a revenue-generator for holders of its native token.
The way Linkswap’s governance vault reward system works, is that a fee is charged when new liquidity is added, and these LSLP’s are sent to the governance vault address. This gives the governance vault exposure to Linkswap volume. During rewards distribution, these LSLP’s are converted to YFL by using the YFL autopurchaser contract, as well as (temporary) manual LSLP conversions by the core team. The YFL is then sent to the governance vault. This increases the amount of YFL in the governance vault, increasing yYFL price in terms of YFL.
What this means for you is that if you are staked in the governance vault during rewards distributions, the value of your yYFL increases. When unstaking, you will receive more YFL for your yYFL staking share.
Rewards distributions will occur periodically and unannounced.