With the release of Katana Dex, Axie Infinity’s decentralized exchange, also comes the announcement and release of Ron Token, the ecosystem token of Ronin, Axie Infinity’s sidechain.
As Axie Infinity said in a statement, it launched RON at the same time as Katana so that the token can be distributed to the community members who will add liquidity to Katana. You have the opportunity to earn RON whenever you provide liquidity to ensure Katana Dex continues to operate.
The RON Token #
The Ronin Chain’s ecosystem token is RON. The RONIN sidechain will be used to facilitate all transactions in Axie Infinity as well as in all the other games. For this reason, RON is required to guarantee the Ronin blockchain remains community-owned.
As of now, users who provide liquidity to Katana are rewarded with RON tokens. The following article will explain that in detail, but before that, let’s define what Liquidity Pools are.
Liquidity pools: what are they? #
The term “liquid” refers to the ease with which users can exchange one token for another. If the current ETH price is $4,500, and I want to sell my 1 ETH at $4,502, a liquid exchange ensures that someone will always be willing to match my price. Market makers, who are usually professional traders or entities, facilitate this process most of the time.
It is the community’s responsibility to make sure trades are matched in a decentralized exchange. A community will “add liquidity” to a pool to ensure everyone gets better prices when swapping. They are compensated with fees and rewards in return.
Currently, you get fees and RON as rewards for providing liquidity in Katana.
Liquidity #
Each asset in a liquidity pool must be equal in value. If 1 ETH is $4,000 and 1 AXS is $100, you will also need to provide 40 AXS if you provide 1 ETH to the pool. As of writing, the following liquidity pools are present on the Katana DEX that yield RON:
- AXS/ETH
- SLP/ETH
- ETH/USDC
- RON/ETH (soon)
What is Impermanent Loss? #
As soon as the value of the tokens against each other changes, you’ll suffer an “impermanent loss” because you added 1 ETH and 40 AXS earlier for $4,000 of equal value.
For simplicity’s sake, let’s assume that 1 ETH is equivalent to 100 USDC. Therefore, you have provided $200 into the liquidity pool (1 ETH is $100 and 100 USDC is $100).
In the event that ETH’s value increases to $150, what would happen? As a liquidity provider, if you decide to withdraw your funds from the pool, you will receive .5 ETH and 150 USDC totaling $200.
What happens if you decide not to add funds to the liquidity pool? What if you simply HODL’D? You would have
1 ETH = worth $150 and 100 USDC still worth $100, so you have $250.
Therefore, if you simply hodl, you’ll have more money. Why then provide liquidity?
How does adding liquidity benefit the company? #
In contrast to centralized exchanges, you earn trading fees as a liquidity provider. Liquidity providers will also receive RON tokens as a reward for participating in Katana Dex.
The RON token has no value at the time of writing this article. We will know more once RON is actually released, but there have been some estimates floating around on Twitter.
Add Liquidity in Katana #
1) To start, go to https://katana.roninchain.com/#/pool. You will arrive at this page:
2) Click “Add Liquidity.”
3) You will be asked to provide tokens of equal value on the next page.
Katana will automatically fill in the value for the second token once you fill in the value for the first token.
4) Click Supply. You will see the amount of LP tokens you will receive on the following page.
5) Click “Confirm Supply” then “Confirm” on the pop-up that will appear.
You have now added funds to the Katana Liquidity Pool!
How to check the trading fees earned? #
1) Go to Analytics at https://katana-analytics.roninchain.com/home.
2) Click Accounts. You will arrive at this page:
3) Input your Ronin address in this page. You will see the following:
Staking LP tokens to Earn RON #
The LP tokens you receive from Katana when you provide liquidity must be staked in order to earn Ron tokens.
1) Go to Katana Farm Page here: https://katana.roninchain.com/#/farm. You will arrive at this page:
2) Click the down arrow. If you already have LP tokens, there’s a button to “approve.”
3) Click “stake” after you approve.
4) A confirmation step will appear.
Upon stake completion, you will begin earning RON tokens for free!
You will be able to convert it to RON at some point in the future if you use the “claimable rewards” section above. To stop farming RON, go to the Katana Farm page and click unstake, as displayed in the picture above.
Awesome! You now know how to farm RON tokens via the Katana DEX!
