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ITSA DeFi Insight — Avalanche and TraderJoe

JOE, the third largest DeFi protocol by total value locked on Avalanche, is a decentralized exchange (DEX) and a fork of the Uniswap protocol. TraderJoe wants to become a hub for DeFi innovation and a driver for NFT and metaverse adoption on the Avalanche blockchain. TraderJoe was deployed on the Ethereum Virtual Machine (EVM) compatible Avalanche Contract Chain (C-Chain), which is currently home to all Avalanche dApps.

Authors: Christian Viehof, Valentin Kalinov

 

 

What is the Avalanche Chain?

Launched in September 2020, Avalanche has risen to one of the leading DeFi blockchains offering a diverse range of dApps ranging from decentralized exchanges like TraderJoe to play-to-earn titles like Cradaba. Avalanche has been proclaimed as a viable alternative to Ethereum due to its low transaction fees and support for the Ethereum virtual machine (EVM). In fact, Avalanche offers high transaction throughput while being relatively decentralized. Utilizing Proof-of-Stake and being EVM-compatible, users can deploy their own subnet on Avalanche, which is essentially another blockchain with its own consensus mechanism, permission rules, etc. In such a way Avalanche lets users deploy their own customizable network on top of it while utilizing its network security and decentralization.

The Avalanche main net units all these aspects with three separate blockchains:

  • The X-Chain is designed to exchange digital assets on the Avalanche blockchain. Moreover, one can specify rules for those assets (e.g., can be only traded within the EU)
  • The C-Chain allows users to deploy and use their smart contracts. Its EVM-compatibility allows for the deployment of Ethereum based smart contracts on the Avalanche network and vice versa
  • The P-Chain is designed to manage the deployed subnets. It also coordinates validators which secure the network
Figure 1: Avalanche platform overview (source: https://docs.avax.network/learn/platform-overview/)

DEX overview and JOE tokenomics

JOE is the largest DEX by total value locked (TVL) on the Avalanche Blockchain with more than 1 billion dollars locked at the time of writing. JOE attracted this amount of capital by having the first mover advantage and being the first DEX on Avalanche. For now, they have maintained their incumbent position by offering attractive rewards for providing liquidity. These rewards are paid out in TraderJoe’s native token JOE.

DEXs like SushiSwap, TraderJoe and many others often see themselves confronted with the erosion of their token’s value due to farming/staking rewards that add to the circulating supply. Unless there is an incentive for liquidity providers to stack the token, DeFi users are likely to sell their earned tokens for a stablecoin or the intrinsic token of the network, in this case AVAX. This puts downward pressure on the price of the governance token which means that the farming/staking rewards have to increase to maintain the projected APR.

DEXs like JOE offered holders to stake their tokens in order to participate in a revenue share model where collected fees are allocated to stakers. This reduces the supply of JOE tokens and therefore also the sell pressure as well as the overall liquidity of the token. TraderJoe allows people to stake JOE for xJOE for an APR of roughly 30% at time of publishing.

Figure 2: Staking of JOE for xJOE (source: traderjoexyz.com)

JOE tokenomics revamp

JOE has now recently shifted towards a more modular staking mechanism that allows for various options, namely:

rJOE is an integral part of the Rocket JOE launchpad. JOE holders can stake their tokens to earn rJOE over time. rJOE can be then burned in order to participate in new token launches which can be seen as a form of seed funding. A general term for this concept is initial DEX offering, or short IDO. There is no cap on the amount of rJOE that can be accrued and rJOE is non-transferable.

sJOE entitles its holder in the participation of a revenue share generated through occured trading fees. Unlike xJOE, sJOE rewards are paid out in stablecoins.

Finally, JOE can be staked to earn veJOE which voting power can boost the farming yields of selected farms on the TraderJoe platform. This boost can be up to 2.5x of the original return. veJOE is non-transferable and accrues over time by keeping JOE staked. In case you unstake your JOE tokens, all veJOE you have accrued will be lost and as consequence also your voting power regarding the boosts.

All in all, TraderJoe keeps innovating their JOE tokenomics in order to serve different staking appetites. At the same time, the core developers of JOE try to lower the circulating supply of JOE in order to increase its value. It’s fair to assume that the additional utility of JOE should increase its attractiveness to DeFi users, however, rJOE IDOs are highly speculative and veJOE’s voting power is likely to diminish with decreasing farming rewards. But for now, TraderJoe seems to be on track to maintain its position as leading DEX on the Avalanche network.

The classification of JOE according to the ITC

JOE is the primary token of TraderJoe’s decentralized exchange providing an on-chain governance functionality to its holders so that they can participate in the decision-making process on how the platform is managed.

Figure 3: The JOE Tokenbase entry (Source: https://itin.itsa.global/CB9Q8QVY1)

Economic Purpose (EEP): JOE is listed as a Settlement and Governance Token (EEP22TU03) due to its design as a means of collateral combined with governance functionality.

Industry Type (EIN): The issuer of JOE is active in the field of Decentralized Exchanges, Markets and Market Making (EIN06DF01).

Technological Setup (TTS): JOE is an Other Application Layer Token (TTS42ZZ). The Class “Avalanche ERC-20 Standard Token” captures every Token that is implemented by means of the ERC-20 Standard on top of the Avalanche blockchain.

Legal Clam (LLC): JOE does not entitle its holder to any legal claim or rights against the issuing organization, therefore it is listed as a No-Claim Token (LLC31).

Issuer Type (LIT): The dimension “Issuer Type” provides information on the nature of the issuer of the token. JOE’s platform is built by a team of programmers and engineers that make up the core contributor community. Its Issuer Type is an Application Layer Protocol (LIT62AL).

Regulatory Framework (EU) (REU): The dimension “Regulatory Status EU” provides information of the potential classification of a token according to the European Commission’s proposal for a Regulation on Markets in Crypto Assets (MiCA, Regulation Proposal COM/2020/593 final). JOE qualifies as an Utility Token (REU52) according to the definition provided in Article 3 (5) of Regulation Proposal COM/2020/593 final.

Figure 4: List of TraderJoe tokens (source: https://api.itsa.global/view-list?list_id=23)

The International Token Standardization Association (ITSA) e.V.

The International Token Standardization Association (ITSA) e.V. is a not-for-profit association of German law that aims at promoting the development and implementation of comprehensive market standards for the identification, classification, and analysis of DLT- and blockchain-based cryptographic tokens. As an independent industry membership body, ITSA unites over 100 international associated founding members from various interest groups. In order to increase transparency and safety on global token markets, ITSA currently develops and implements the International Token Identification Number (ITIN) as a market standard for the identification of cryptographic tokens, the International Token Classification (ITC) as a standard framework for the classification of cryptographic tokens according to their inherent characteristics. ITSA then adds the identified and classified token to the world’s largest register for tokens in our Tokenbase.

  • The International Token Identification Number (ITIN) is a 9-digit alphanumeric technical identifier for both fungible and non-fungible DLT-based tokens. Thanks to its underlying Uniform Token Locator (UTL), ITIN presents a unique and fork-resilient identification of tokens. The ITIN also allows for the connecting and matching of other media and data to the token, such as legal contracts or price data, and increases safety and operational transparency when handling these tokens.
  • The International Token Classification (ITC) is a multi-dimensional, expandable framework for the classification of tokens. Current dimensions include technological, economic, legal, and regulatory dimensions with multiple sub-dimensions. By mid-2021, there will be at least two new dimensions added, including a tax dimension. So far, our classification framework has been applied to 99% of the token market according to market capitalization of classified tokens.
  • ITSA’s Tokenbase currently holds data on over 4000 tokens. Tokenbase is a holistic database for the analysis of tokens and combines our identification and classification data with market and blockchain data from external providers. Third-party data of several partners is already integrated, and API access is also in development.

Remarks

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Christian Viehof is an Executive Director at the International Token Standardization Association (ITSA) e.V., working to create the world’s largest token database including a classification framework and unique token identifiers and locators. He completed his Bachelor in Economics at the University of Bonn, the Hong Kong University and the London School of Economics and Political Science with a focus on Behavioral Economics and Finance. Currently pursuing his Master of Finance at the Frankfurt School of Finance and Management, you can contact him via christian.viehof@itsa.global and connect with him on Linkedin, if you would like to further discuss ITSA e.V. or have any open questions.

Valentin Kalinov is an Executive Director at International Token Standardization Association (ITSA) e.V., working to create the world’s largest token database, including a classification framework and unique token identifiers and locators. He has over five years of experience working at BlockchainHub Berlin in content creation and token analysis, as a project manager at the Research Institute for Cryptoeconomics at the Vienna University of Economics and token analyst at Token Kitchen. You can contact Valentin via valentin.kalinov@itsa.global and connect on Linkedin if you would like to further discuss ITSA e.V. or have any other open questions.