At the heart of Ethfinex lies the Nectar token (NEC).
The Nectar token is not intended to raise funds for Ethfinex and will not be sold directly. Instead, the token is designed to maintain liquidity and market efficiency through the incentivisation of platform loyalty. Users who choose to register for the Ethfinex Market Maker scheme, taking on the role of market maker on the Ethfinex platform, will automatically generate NEC’s and earn a stake in the future development, governance and success of the platform.
As more tokens are earned, the ownership structure of Ethfinex will unconditionally become more decentralised, contributing to the vision of a truly community-owned exchange. Having a network of users that own the exchange will incentivise its owners to remain loyal users, benefiting all users through fostering liquidity and maintaining market efficiency.
NEC will adhere to the ERC20 Token Standard to ensure cross-compatibility with alternate exchange protocols interfacing with Ethfinex. This allows other protocols and exchanges to reward users for the liquidity they contribute.
Token Functionality & Governance
The fundamental purpose of the Nectar token is to reward market makers for the value they create, in turn encouraging them to maintain market thickness and minimised spreads on the platform trading pairs.
The Nectar token combines 3 fundamental functionalities:
- Loyalty points entitle holders to loyalty rewards held in the Liquidity Token Smart Contract, which can be redeemed (in part or in whole) through the Redeem Mechanism upon request.
- Loyalty points enable holders to exercise influence over the future governance of the Ethfinex platform. In addition to feedback and criticism, larger token holders (or coalitions of token holders) owning 5% or more of NEC’s will be entitled to elect a representative in the Ethfinex board.
- Loyalty points can be traded on a secondary market amongst whitelistedEthfinex users.
As market makers and takers trade on the Ethfinex platform, they incur standard trading fees. Of these trading fees, a proportion are collected and directed into a smart contract. At the end of every 30 day cycle, NEC’s will be distributed to market makers in proportion to the total trading volume conducted by the market maker that month.
For example, a market maker who holds 5% of the tokens issued in a certain period would be entitled to 5% of the rewards collected by the smart contract. Alternatively, rather than claiming the collected rewards, a market maker can choose to hold their tokens, or sell them on to another whitelisted market maker.
If no tokens are redeemed at the end of a 30 day cycle, the total supply of NEC will grow.
The token will include on-chain restrictions for transfer and ownership, via an Ethereum address whitelisting solution. Trading these tokens on Ethfinex will also be restricted to registered members of the market maker loyalty scheme.