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Economics Of Trader Joe – DEX On Avalanche

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TLDR below. This is not financial advice.

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Introduction

Trader Joe is a spot DEX at its core. It is an AMM decentralised exchange platform on the Avalanche blockchain. Other than the DEX it has some other financial products like Farming, Staking, and Lending. It is very easy to use and you do not need to be crypto native in order to use it like, for example, the ZAP feature where you can put in a single token and take out your LP tokens instead of having to put in two tokens to do the same.

What is Crypto Trader Joe?

At its core, it is a spot DEX which means that you trade at a spot rate. A DEX is a decentralized exchange where you get to exchange one sort of tokens for another. Here it is very simple and very basic — you exchange token A for token B. They also have other services like pool, farm, and lend.

Market Design

Ease of Use

One of the things in market design is the ease of use and we see that in Trader Joe’s ecosystem you can exchange an A token for an LP token with one click.

LP Token

Previously you had to provide two tokens, token A and token B and then you would get your LP token that represents your holdings of both the tokens. Today it is slightly different. You can just give a token A and get an LP token because they will sell half of it for token B and then you have the correct proportion of token A and B and you get an exchange token. This is a lot easier because a lot of people might not understand how to be a liquidity provider but they do have token A and now all they have to do is send it to this zapper and get the LP token out so it is very easy to use.

Aggregation for other services

At its core, it is a DEX but there are a lot of other services that are built upon it which makes it a lot easier for new users to come in and have a one-stop-shop for all the services that they need in DeFi.

Mechanism Design

In mechanism design we talk about a few things and the two things I want to highlight are governance and market structure.

Governance

The whole point of a decentralised system is that you decentralise the power and power means governance of the system. The Trader Joe token is the governance token to govern the entire ecosystem.

Market Structure

The DEX has a similar mechanism to Sushi. Firstly the DEX is a fork of Uniswap so its core logic is similar to version 2. It has all the other added features which makes it a little bit more similar to Sushi. If you understand the UNI system or if you understand the Ethereum ecosystem then it gives you some context of how Trader Joe is in the avalanche system.

Products

  • DEX: This is the core product where you can trade token A for token B.

  • Liquidity Pools: Here you get to earn fees by being a liquidity provider. You are earning foreign fees so if you have token A and token B of which let us say one is $JOE and one is $AVAX, and you put them together as a liquidity provider, then you get to earn fees when people trade.

  • Farm: The farm is where you get to earn new native $JOE tokens. You take your LP tokens and then you can deposit them in a farm so not only are you earning from fees but you are also earning new trader $JOE tokens.

  • Lending and Borrowing: You can lend and borrow assets.

  • Stake: Staking is where you get to earn $JOE in fees which is different from farm because farm is where you earn new $JOE tokens and stake is where you earn additional $JOE tokens that circulate. When you are trading you have to pay transaction fees which is 0.3% and of this 0.25% goes to your LP which is where you earn the fees in foreign tokens and 0.05% goes to people who just stake $JOE.

  • ZAP: ZAP is where you get to swap tokens for the LP tokens very easily.

These are the six different products that form the market. Each of them is structured differently and so they have very different market structures. In a token ecosystem, you do not need just one market structure, you have one market structure per market that you are creating. The market is where people come together to trade and the reason for them to trade could be very different in different kinds of markets that you create.

Token Design

Who are these token holders?

They are the $JOE token holders themselves or the liquidity providers. The interesting thing about Trader Joe is that they did not get any investment or investors on board. The only way to get the tokens is for you to be providing liquidity or staking. You can think of it as a proof of work where you have to prove that you are working for the protocol that is to provide liquidity, then you get to have additional tokens.

Where is it found?

It is found in the Avalanche ecosystem which is the blockchain or the underlying infrastructure. Avalanche is an up-and-coming protocol which is pulling in a lot of liquidity and a lot of value is being locked in. It is growing rapidly and Trader Joe is helping to stimulate growth in the Avalanche ecosystem.

How can we get tokens?

You can get tokens only by staking or farming.

How many tokens are there?

There are a total of 500 million $JOE tokens

Token Distribution

  • Liquidity Providers: 50%

  • Treasury: 20%

  • Dev team: 20%

  • Future Investors: 10%

Token function

There are two functions, one is a utility function and the other is a governance function. Currently, the core is the governance function and with utility, you get to earn some $JOE tokens as rewards in this system.

Usage

You get to vote, earn revenue and earn some rewards. Revenue is existing circulating $JOE. Rewards are the new $JOE that will be minted which is what we see in the farming mechanism.

Governance

The votes have different kinds of points. They call it JOEVOTE which means how many points is your JOE token worth and there are three categories to that:

JOE-AVAX Pool = 2 points

The first category is if you are a liquidity provider to the $JOE and $AVAX pool. This LP token makes your vote worth two points.

JOE in xJOE = 1 point

The other option is where you are staking $JOE. If you stake $JOE you get the xJOE which is worth one point.

JOE = 1 point

If you have a $JOE token and you do not want to stake or provide liquidity or do any farming and just want to hold the token then that is also fine and gives you one point.

Opinions

Trader Joe is extremely popular on the Avalanche network because the more Avalanche grows the more other protocols are also growing on it because there is much more trading happening and more people wanting to access the new tokens. This is the benefit of a decentralised exchange.

Why DEX?

DEX is the easiest way or tool to enter the ecosystem. Think of the ecosystem as Disneyland and you need to exchange your USD or any currency that you have into Disneyland tickets to go and play the games. The DEX is kind of like the cashier that takes your currency and exchanges it for a Disneyland ticket. This Disneyland ticket can be thought of as the ticket to enter the Avalanche ecosystem. DEXs are very important for new growing ecosystems. This is why the first thing that a lot of new blockchain protocols do is to create an exchange because it is the easiest way for people to come into the ecosystem.

Growth

The total value locked and the trading volume is increasing in Trader Joe protocol. It is also so popular because it is very easy for people to use as you do not have to be crypto native and do not have to understand too much information in order to use it.

Liquidity is king

The second thing is that liquidity is the king in a DEX. If you do not have liquidity then you are not going to survive because nobody is going to trade with you and you are going to have very high price volatility and high price slippage. Liquidity is the most important thing when it comes to a DEX. We can see that very obviously in the kind of economic policies or the incentive mechanisms that they have. They are using $JOE to attract a lot of liquidity. There are a lot of tokens that can be earned. You can earn the LP fees and then you can stake your LP tokens and earn more $JOE as well. All these different rewards and incentives are trying to bootstrap the system and increase liquidity. At the end of the day, the DEX with the highest liquidity wins.

Voting Mechanism

Trader Joe is giving explicit preference or power to LP providers. People who are just holding $JOE are not taking any risks or doing anything really beneficial for the core product of this ecosystem as they are just holding or staking it and hoping that the prices go up and so they get one voting point. On the other hand, LP token holders are doing something valuable by providing liquidity which is key to the survival of the DEX and so they increased their voting power to two points.

Token Distribution

There is no token sale and 50% of all the 500 million tokens are for liquidity providers. This is the best way of decentralisation because you are rewarding people who are part of the ecosystem and helping you to grow the ecosystem. They do not have any investors but do have a 10% allocation for any potential investors in the near future and for the treasury. For the team, there is a three-month lock-up period and then it will be released periodically. If you think about it, you have three months where there are no new additional tokens being released other than the LP tokens, so it becomes very attractive for people to come in and get the $JOE tokens. All these different incentives and mechanisms come together to increase the liquidity and total value locked which has resulted in huge growth for the Trader Joe protocol.

Conclusion

Trader Joe is an AMM decentralised exchange platform on the Avalanche blockchain. Trader Joe is a fork of Uniswap. It is a DEX at its core but also offers a range of products like Zap, Farming, Lending, and Staking.

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TLDR:

Trader Joe is a spot DEX at its core. It is an AMM decentralised exchange platform on the Avalanche blockchain. Trader Joe is a fork of Uniswap. Other than the DEX it has some other financial products like Farming, Staking, and Lending. It is very easy to use and you do not have to be a crypto native in order to use it. They did not have a token sale and the only way to get tokens is by staking or farming.