How to put your iExec RLC tokens to work? – iExec
Disclaimer: The following article should not be considered financial or investment advice nor as endorsement or encouragement to use any the services mentioned in it. Instead, its sole purpose is to offer a clear picture of existing options available to RLC token owners that they may not have been aware of before. We actively update this list as new options become available. If you have any additional siuggetions, feel free to reach out to us at firstname.lastname@example.org
The iExec platform is powered by the RLC token and as the platform’s protocol was designed from the ground up to enable the exchange of computing resources, the primary role of the RLC token is to serve as a medium of exchange. All payments are necessarily settled in RLC tokens. So you can spend your RLC tokens in exchange for renting someone else’s computing resources. That includes CPU, GPU, applications or datasets.
You can also choose to not spend your RLC tokens, and instead just hold on them. This could be because you plan to spend them on the platform at a later date, or just because your interested in how the token’s value may appreciate over time.
One interesting property of utility tokens is how their use varies greatly depending on the design of the protocol it is used in. The iExec token is one such case, not being limited to serving solely as a payment token. Indeed, in order to encourage the platform actors to keep in mind both their own interest and the platform’s interest, the RLC token has to be staked by the iExec’s workers. This ‘stake’ acts as a security deposit while you execute computation tasks. It is a mechanism of ‘PoCo’, the iExec consensus protocol. The higher the computation reward, the higher must be the worker’s stake in order to have a chance to work on that computation and claim the reward. In case the workers behave maliciously, their stake of RLC tokens will be lost.
That is to say, if you own RLC tokens and have some idle computing resources, you can stake your RLC, follow the instructions here: on how to launch an iExec worker, and start making use of your inventory of RLC tokens to earn more of them.
Before, the act of maintaining liquidity on exchanges where a token is traded was monopolized by designated “market makers”. Being incentivized by exchanges and token issuers, at any given time, they place a bid order and an ask order, with the aim of ensuring sellers and buyers are able to immediately execute their orders. They usually operate using proprietary market making software, and some inventory split in both assets composing the trading pair (ex: RLC and ETH).
What if there was an open and transparent platform for market makers, where anyone could just download open-source software, and start leveraging their own crypto inventory to act as a market maker in exchange for a share of the rewards provided by exchanges and token issuers?
Well that’s precisely the mission the Hummingbot project decided to take up! As explained in the article below, they built tools allowing anyone to become a market maker for their favorite crypto, while being sure to be fairly rewarded for their contribution. The share of the total reward will depend on three criteria: Equal distribution over time, tight spreads and order size.
The good news is iExec partnering with Hummingbot to launch the first series of liquidity mining bounties of $9k, having started in March, running for over a 3 months period. If that sounds interesting to you, head over here and register to become one of the first RLC liquidity miners!
Uniswap is a crypto exchange platform falling into the category of “decentralized exchanges”, meaning it allows any owner of ETH or ERC20 token (like $RLC) to swap it against another asset in one atomic operation, and without ever losing control on the assets ( we all know the old “not your keys, not your crypto” line!).
For each trading pair (ex: RLC/ETH, DAI/ETH…), there is one Uniswap smart contract deployed on the Ethereum Blockchain that acts as an exchange contract. Each of these Uniswap exchange needs three kinds of agents to create a healthy exchange: Liquidity providers, traders and arbitrageurs. To easily understand how each role interact with the Uniswap exchange, let’s consider the RLC/ETH smart contract, that was deployed at this address on January 7th, 2019. At the time of writing, there are about 326 ETH and 135k RLC on it:
These amounts were deposited on the Uniswap exchange by liquidity providers. To become a liquidity provider, one needs to make two deposits of the same value in ETH and in RLC tokens. By doing so, liquidity providers deepen the liquidity and participate to reduce slippage, which is good. To incentivize liquidity providers to deposit, they are given a share of the 0.3% trading fees collected by the smart contract each time a trader buys or sells RLC tokens on Uniswap.
As a trader who wants to buy RLC using ETH, here is what the operation looks like:
- The trader sends 1 ETH to the exchange contract. That will increase the total amount of ETH stored on that smart contract,
- The RLC/ETH Uniswap exchange contract collects a 0.3% fees on the trade (= 0.003 ETH) used as a reward spread among the liquidity providers,
- The RLC/ETH Uniswap exchange contract sends 0.997ETH worth of RLC tokens back to the trader. That will deplete the total amount of RLC tokens detained by the smart contract.
As you can see, trading with the Uniswap exchange contract affects both balances: one balance increases while the other decreases. As the Uniswap price is governed purely by a formula, based on the ratio between the two balances, it’s natural that every trade will move the Uniswap price away from the global market price. That creates an arbitrage opportunity, and if the price difference between the Uniswap RLC/ETH pair and the Binance RLC/ETH pair is big enough, there is most probably an arbitrageur that will enter the game and make a trade in the opposite direction to re-balance the ratio between ETH and RLC inventories. Hence the liquidity providers will collect yet another fee of 0.3%.
Taking on the arbitrageur role isn’t so trivial as it requires custom software and infrastructure. On the other hand, becoming a liquidity provider for the RLC/ETH Uniswap exchange is as simple as making a deposit using an Ethereum wallet on this page: https://uniswap.exchange/add-liquidity. At the time of writing, the RLC/ETH Uniswap exchange is ranked 25th by liquidity (see uniswap.info). And looking at this page -after your select RLC in the dropdown box- the whole RLC/ETH liquidity is mainly contributed by 2 wallets only:
There is room for more liquidity providers, especially when considering the positive effects of increasing the number of participants: First it will immediately deepen the liquidity, and secondly, it will make the pool more resilient in case some of the liquidity providers decided to withdraw their inventory.
But what does it mean to become a liquidity provider on Uniswap?
Although contributing liquidity to a Uniswap exchange ensures you will get a share of the 0.3% trading fees collected on each trade, this does not mean it is risk-free. As the saying goes, there ain’t no such thing as a free lunch! And as always, before taking on a risk, one should weigh up the level of risks and decide if it meets the risk/reward ratio he is comfortable with.
In this article, smart contract insurance company Nexus Mutual discussed the risks associated with providing liquidity on Uniswap. In summary, 2 out of the 3 kinds of risk are rated as not applicable, which is good. The 3rd one is called “technical risk” and measures the chances of bug occurrences in the smart contract that could lead to a hack. As the likelihood of a smart contract bug being detected is very low, but the consequences of such risk are severe (the worst would be the theft of the deposits), the overall technical risk is rated as “medium”. One could argue that medium is a quite conservative rating given the smart contracts have been audited, and stress-tested for over a year without a single exploit, despite incentives for potential hackers being high, with over 23M$ deposited over all the Uniswap exchanges.
Another risk to consider, which is quite different from the aforementioned “technical risk” is the economic risk inherent to the normal operation of a Uniswap exchange. Because the exchange rate between RLC and ETH is continually fluctuating over time, a liquidity provider will most probably withdraw a different quantity of ETH and RLC than he initially deposited. Compared to the scene where they would just hold on the initial ETH and RLC balances, the operation of providing liquidity to Uniswap may have resulted in a loss or a profit. This actually depends on how many trading fees are being collected at the time, as well as how much the prices have fluctuated. Feel free to read the articles N°1 and N°2 , discussing in-depth the mechanisms at play, and that served as a base to develop a tool tracking the past returns of Uniswap liquidity pools. Here is the one for the RLC tokens:
The chart shows the fees accumulated over time (in red) and the all-time return of a liquidity provider (in yellow), had they joined the pool on the exchange’s creation date (currently ~7.65% return over just holding the same assets).
Over the course of the year 2019, more than $2.3 billion of crypto assets have been traded on decentralized exchanges. Uniswap launched end of 2018 and since then, its market share has been steadily growing as you can see on this chart:
Thanks to how the Uniswap exchange operates, any owner of iExec RLC tokens (and ETH) can start collecting Uniswap’s trading fees by joining the RLC liquidity pool. If you want to give it a try, head over https://uniswap.exchange/add-liquidity. A deep pool of liquidity will minimize the slippage for the ETH/RLC pair, and low slippage will attract more traders in return, which will eventually result in more trading fees being collected for the liquidity providers…this is a virtuous circle, benefiting the whole iExec ecosystem.
Many attribute the huge success of the Uniswap exchange to the decision of its founder: to rely on a liquidity pool instead of an order book. Bancor DEX has also integrated such a design in their latest upgrade. So having read the previous section, you can guess that on Bancor, liquidity providers also receive a percentage of the fee collected for each trade (in the 0.1–0.3% range). There are currently two RLC pairs on Bancor: RLC/BNT and RLC/USDB. You can easily join a Bancor’s liquidity pool by using the Paraswap frontend. In case you’d like to check the current state of the RLC pool, head over this tool and select the RLC in the dropdown menu.
In the future, we hope to see an ever-growing number of use cases for the RLC token, in parallel to powering the payments and staking on the iExec cloud computing platform. With the rise of DeFi applications, we could easily envision the RLC token being used as collateral in MakerDAO vaults, or made available on Compound or Aave for lending. Raising awareness about these options amongst the iExec community brings us one step closer to unlocking additional use cases for the RLC token, particularly in the vibrant and innovative DeFi space. Please let us know your thoughts in the comments, or by email at: email@example.com!
Note 1: If you are not familiar with the iExec RLC token, we warmly encourage you to read about its utility value in this article:
Note 2: If you are looking for available options to purchase iExec RLC tokens, we encourage you to read the following step-by-step guide: