One of the new utilities for the SWTH token will be the ability to contribute to liquidity pools on Switcheo TradeHub to facilitate automated token swaps. Switcheo TradeHub will be an open-source, delegated Proof of Stake (dPoS) order matching engine, powering both the Switcheo Exchange and Demex. An incentive model is planned for users who contribute tokens to these pools.
In a similar mechanism to the Maker protocol’s dollar-pegged DAI asset, which is secured by a value of Ethereum locked in a smart contract, SWTH holders will be able to lock their SWTH tokens and mint USD-pegged tokens to participate in Switcheo’s native liquidity pools.
More information on the collateralized debt position (CDP) mechanism is planned prior to the feature’s launch.
The SWTH token is also planned to have a role in the insurance fund system of Demex. It sometimes happens on cryptocurrency derivative exchanges that rapid movements in an underlying asset can leave highly leveraged traders with losses that exceed their deposits, so an “insurance fund” is typically set up to cover such events.
Switcheo’s insurance will be largely funded by forced liquidations of losing positions that occur above their bankruptcy price, and will pay premiums to fund underwriters and token stakers when it grows larger than needed to insure the exchange. SWTH holders will have the opportunity to directly underwrite the insurance fund, and in return, they will be first in line to benefit from any future payouts of insurance fund profits.
Finally, the Switcheo Foundation has announced its intent to transition into a Decentralized Autonomous Organization (DAO) structure. The DAO structure would mean that responsibility for project governance would shift to token holders, who would review and vote on TradeHub Improvement Proposals for Switcheo’s decentralized marketplaces. Under this system, the SWTH token will also serve as the native currency for future listing fees, which will be distributed to token stakers in a similar fashion to other fees collected by the exchange.
Part Two of Switcheo’s three-part series can be viewed in full at the following link:https://blog.switcheo.network/a-brave-new-chapter/