Source Token - $SRCX
Automated DeFi Participation & Liquidity Acquisition

Summary

$SRCX is Source Protocol’s first automated liquidity acquisition and DeFi market participation utility offering launched on Binance Smart Chain (BSC) in June of 2022. BSC accounts for a range of 90-140 billion USD in 24hr trading volume, according to data from CoinMarketCap.com, as of April 2022. It is the transaction volume, reputation, speed, and affordable network fees that make BSC a great starting point for developing Source One Market and a smart utility token such as $SRCX. This, in conjunction with development of Source's proprietary layer 1 smart chain, Source Chain ($SOURCE), a Cosmos SDK chain with cosmwasm smart contract capabilities, will form the foundation of the Source Protocol ecosystem. The high volume network of BSC combined with the IBC capabilities and interoperability of the Cosmos interchain (a network of blockchains) will provide necessary architecture for the Source ecosystem to build from.

Automated DeFi Participation

$SRCX is a smart contract utility token with a built-in automation fee that is used for passive participation in DeFi within the Source One Market. The automation fee sends a percentage of every single transaction to stablecoin liquidity positions located within the Source One Market where users can supply and borrow against their collateralized crypto assets. This is all done non-custodially and with peer-to-peer initiated smart contracts. The automation fee can be turned on and off during times of a marketing promotion, and notably, will also be reduced algorithmically as transaction volume and adoption increases at certain milestones. The lower automation fees will incentivize greater arbitrage and trading opportunities amongst retail traders, which will lead to increased volume. The automation fee began at 10% at genesis in June 2022, not accounting for slippage, and has since been lowered to 5% based on volume milestones. The fee is broken down into three parts that will be explained in more detail below:
  1. 1.
    1% - Dynamic Liquidity Pool Acquisition
  2. 2.
    3%+ - Loyalty Echo rewarded to all $SRCX holders
  3. 3.
    1% - BNB Liquidity Pool Acquisition

Why Automation is Needed for DeFi

Automation is vitally important for the adoption and growth of cryptocurrencies. It assists in the removal of barriers to entry, and opens the door to mass participation, especially as it pertains to complex DeFi processes. Smart contracts and blockchain tech allows for permission-less and trustless peer to peer automation processes to be initiated and can be integrated together. They are the foundation of what makes DeFi have great potential for high yield returns. Some of these processes include staking, superfluid staking, supplying, borrowing, flash loans, and yield farming. Yield farming, also known as liquidity mining, rewards users for provisioning liquidity or providing other value-adding services to a decentralized application’s ecosystem. Staking is also a mostly automated process and is built into many Proof of Stake blockchains.
In traditional finance, a repurchase agreement, also known as a repo loan, is an instrument for raising short-term funds. With a repurchase agreement, financial institutions essentially sell securities from someone else, usually a government, in an overnight transaction and agree to buy them back at a higher price at a later date. The security acts as collateral for the buyer until the seller can pay the buyer back, and the buyer earns interest in return. With DeFi, a comparable process can occur with various digital assets. DeFi applications run on a peer to peer basis thanks to the capabilities of smart contracts and blockchain technology. This allows investors to earn a return on their collateralized assets that are positioned in a DeFi marketplace. They can then leverage this collateral and borrow against it to trade, increase their staking positions, etc. While this strategy may not be for every DeFi user, it does allow those who are interested to replicate an institutional level procedure from the traditional finance world in a fairly simple way.
That all said, for many investors, they want a simple access point to participate in these DeFi processes automatically. The purpose of $SRCX is to utilize automation of various smart contracts and integrate them into a model that can produce a degree of desirable return. The Source One Market provides an integrated DeFi platform for $SRCX to execute automated DeFi processes within, which is why the Dynamic Compound Liquidity Pool has been developed. For automation of $SRCX to function, automation fees are required and justifiable for passive participation in DeFi.

Automation Fee

The automation fee is used by the $SRCX smart contract to provide an automated DeFi participation service. The service is performed by the smart contract that is integrated with the DeFi capabilities of the Source One Market. The automation fee allows holders of $SRCX to passively participate in DeFi concepts such as collateralized lending, and yield farming, by simply holding $SRCX. Source Protocol Ltd is non-custodial and the participation and yields are all determined by the peer to peer activity (network supply/demand and volume) and the community governance of the Source One Market (interest bearing assets and supply/borrow rates).
As mentioned above, the automation fee at genesis began at 10% of all transactions, and his since been lowered to 5%. It can be broken down into 3 parts within the $SRCX smart contract. 1% Dynamic Liquidity Pool Acquisition, 3% Loyalty Echo rewards to all $SRCX holders, and 1% BNB Liquidity Pool Acquisition. The Automation fee plays a critical role in building solvency for $SRCX. As the network grows and hits various milestones of trading volume that are sustainable, the automation fee will be adjusted downward by a protocol algorithm. This is designed to allow traders and investors to be able to transact and create more opportunity for arbitrage and volatility trading. Also, the network rewards in the form of transaction Echoes are designed to compensate for, and eventually exceed the Automation fee by holding $SRCX.

Network Rewards Part 1 - Loyalty Echoes

Loyalty Echoes are generated with every transaction on the network. 3% of all transactions are awarded to all $SRCX holders, automatically, based on the proportionate wallet weight within the network. A transaction echo occurs whenever a buy, sell, or transfer is initiated on the network. This incentivizes holding $SRCX for earning loyalty echoes as rewards when a user participates in the network. The more volume transacted on the network, the more loyalty echoes are generated for all holders. Loyalty echoes are designed to incentivize holding and also help compensate the holder for the automation fee.

Dynamic Compound Liquidity Pool (DCLP) Acquisition

1% of every $SRCX transaction is sent to the Dynamic Compound Liquidity Pool (DCLP), which is what makes $SRCX truly unique. This feature is made possible due to the value-backing mechanism of the Source One Market and its ability to automate the positioning of the DCLP into preferential APY-generating liquidity pool smart contracts in the Source One Market. A liquidity pool smart contract is generated whenever a user supplies or borrows with their crypto assets. Value backing occurs in the Source One Market when users supply their blue chip crypto assets to earn rewards from borrowers. The cumulative value in the Source One Market is measured as Total Value Locked (TVL).
As the DCLP generates yield from liquidity pools, it buys back $SRCX and Yield Echoes are rewarded as $SRCX to all $SRCX holders. This allows all $SRCX holders to effortlessly participate in DeFi yield farming and liquidity pool positioning by simply owning $SRCX. It also creates solvency and value backing in $SRCX due to the liquidity pool positions being in blue chip stable coins such as $USDC, $USDT, $BUSD, $DAI, $TUSD, and the Source Protocol’s native stable coin $USX.
Should market confidence begin to fail in any of these stable assets, the liquidity can be moved into the trusted assets or a more trusted asset such as $BTC can be added. The DCLP is fueled by the 1% Automation Fee and creates a constant flow of liquidity into the Source One Market where it earns APY from borrowers and liquidity pool (LP) miners. 50% of the APY accrued in the DCLP is compounded back into the DCLP and 50% is used to buy-back $SRCX. This allows $SRCX to build solvency over time, and also reward holders that are not active in the Source One Market. The automation of $SRCX, minting $USX, and the DCLP are all integrated and growth driven from $SRCX transactions as well as marketplace transactions. This automation allows for anyone to easily participate in the complexities of DeFi simply by holding $SRCX.

Network Rewards Part 2 - Yield Echoes

As mentioned above, 1% of the Automation Fee is for Dynamic Liquidity Acquisition that sends $SRCX to the Dynamic Compound Liquidity Pool (DCLP). Yield Echoes are produced by the DCLP as additional reward incentives for $SRCX holders. The performance of the DCLP is contingent on the transactional volume of the Source One Market. Liquidity is being provided as a service by the DCLP and $SRCX holders are rewarded in return for creating the Automation fees that are responsible for producing rewards. Yield Echoes are not another token, they are simply a mechanism of describing the reward and incentive function that is built into $SRCX.

Automation Fee, $USX Minting, and the DCLP

As the DCLP accumulates $SRCX from automation fees, that same $SRCX is then locked in the Source One Market and $USX can be minted in return. This creates a solvent value backing of $SRCX due to the reserve of $USX that is minted and then paired into various stable coin positions such as $USDC. As more users collateralize and borrow against their $SRCX in the marketplace, more $SRCX will be removed from circulation. Additionally, marketplace users will be able to mint $USX by borrowing against their collateralized blue-chip crypto assets, along with $SRCX.

$SRCX Burn Feature

To compensate for inflationary measures caused by Loyalty Echoes and Yielding Echoes from the DCLP functions, $SRCX contains a large burn wallet that will be deployed at genesis. The burn wallet is a “black hole” wallet address with no private keys and tokens sent to it are gone forever. Since this wallet is the largest holder on the network, it receives the largest portion of Loyalty Echoes and is blacklisted from receiving Yielding Echoes. Incentive programs can be launched where this wallet will occasionally be blacklisted during promotional periods which will increase rewards for all $SRCX holders. Should the network grow to a sustainable level, it is possible that the burn wallet will be blacklisted indefinitely. The increased locked-up quantity of $SRCX in the marketplace will also reduce the need for the burn feature to be active, which is a benefit to all holders.

BNB Liquidity Pool Acquisition

$SRCX is initially paired to $BNB for purchase on the Pancake Swap decentralized exchange. A large liquidity pool of $BNB is essential for the network to be able to handle large volume trades. 1% of every $SRCX transaction is sent to the $SRCX/$BNB liquidity pool to contribute additional liquidity. This 1% is sent to Pancake Swap in equal parts of $SRCX and $BNB, so 0.5% $SRCX is added and 0.5% of $BNB is also added from a swap and liquify function of the $SRCX smart contract. This creates an additional liquidity boost for the token pair. If the liquidity pool ratio of $SRCX to $BNB has less $SRCX and more $BNB, the price will increase. If the liquidity pool ratio moves in the opposite direction, the price will decrease. The automated liquidity acquisition is designed to help grow the liquidity pool size over time. This will have more of an impact on the network in the long run as it grows and becomes more dispersed and decentralized.

$SRCX Tokenomics

$SRCX will be fair-launched off of a decentralized launchpad Decentrx.io and will then launch to the public on Pancake Swap. Decentrx.io was chosen because of its low launch fees, whereas other launchpads can charge upwards of 2% to 4% of token supply, immediately compromising and exposing those projects to a whale position. The fair launch will be whale-capped at 12 $BNB and a minimal pre-sale with a max cap of 240 $BNB will be held. This modest liquidity launch approach will allow for just enough decentralization on the network and less whale accumulation for slower and organic community growth.
40% of $SRCX supply is immediately sent to a burn address at genesis. This address has no private keys and tokens within it are burned forever. This is to create a burning function that has an effective impact on the network at genesis. The burn function enables a semi-automatic deflationary mechanism for making $SRCX more scarce.
  • Max Supply: 500,000,000
  • Burned at Launch: 200,000,000 (creates burn function)
  • Total Supply: 300,000,000

$SRCX in the Source One Market

Shortly after the launch of $SRCX, the Source One Market application will be deployed. The marketplace will allow holders of $SRCX to supply their tokens in order to borrow collateralized loans against their value. The Source One Market runs on smart contracts and is non custodial. It is a peer to peer platform that allows users to supply blue chip crypto assets in exchange for a credit limit that is based on the quantity of collateral supplied. The user can then borrow assets against their collateral without having to sell the asset directly. This allows users to lock up their $SRCX and remove it from circulation. Token lockup is essential for cryptocurrencies to succeed as it removes those tokens from the circulating supply. The marketplace also allows users to mint the Source Protocol’s native stable coin, $USX. This also contributes towards building solvency into $SRCX and the Source Protocol. For more information on the Source One Market, click HERE.
It is important to note that $SRCX supplied to the Source One Market is not eligible for the 3% loyalty echoes. The user may still be eligible to receive other marketplace tokens as a reward for supplying $SRCX, such as Source One $SRC1. The Source One Market also doesn’t receive echoes from the pooled $SRCX that are locked in it’s TVL (Total Value Locked), because of its non custodial nature. Those $SRCX echoes would not be retrievable, and therefore the marketplace contract address will be blacklisted from receiving loyalty echoes. This is designed to keep the utility of the Source One Market streamlined without creating custodial scenarios and complex accounting or security issues.

$SRCX in the Source Protocol Ecosystem

$SRCX is one piece of a much more complex DeFi ecosystem. It has been designed as a stepping stone for simple adoption of DeFi that can be utilized with minimal crypto expertise. All of Source Protocol’s smart contracts will be audited by 3rd parties for security and reliability. As $SRCX gains success, it will open opportunities for beginners to become advanced DeFi experts. This approach provides a doorway for anyone to enter DeFi, and its success will entice users to search and learn about many of the additional incentives, rewards, and opportunities that will be possible for intermediate to advanced users. This will come to fruition as $SRCX holders will be eligible for future airdrops of Source Protocol tokens and exclusive NFT opportunities.
$SRCX is more than just another DeFi token, it is pioneering a new approach toward cryptocurrency adoption and utility. This approach focuses on automation, solvent growth, and integration into a DeFi ecosystem, rather than just a buy and hold speculative model. This allows for continued development to integrate $SRCX into future applications as the crypto space continues to evolve at lightning speed.

Conclusion

We foresee Source Protocol positioning itself within the crypto space as a prominent DeFi ecosystem that captures large volumes of liquidity and provides a daily destination for users to securely interact with state of the art blockchain technologies. The $SRCX token is a catalyst for growth and further development of the protocol as a whole. $SRCX is going to assist in breaking through the barrier of entry for retail users into DeFi and the crypto space, and will open the floodgates for anyone, regardless of technical know-how, to easily participate. $SRCX will be used as a global transaction network as transaction volume increases and automation fees are scaled back. $SRCX is also an excellent alternative to proof of work networks in regards to yielding network rewards for those who cannot afford the necessary hardware and resources required to mine crypto currencies.

References