In this article we analyze the token economy for Handle.Fi, a protocol we have been following/investing in since last February. Handle.Fi is a platform for trading Forex and a few digital assets on Arbitrum and in a completely decentralized manner.
Handle.Fi (Forex) Key Features
In 2021, the Forex trading volume averaged almost 1 trillion dollars daily. Forex trading involves exchanging foreign currencies against one another. Since the trading volume is so massive, it is far more challenging to manipulate these markets, and they tend to be less volatile than most asset classes [1]. For an article on Handle.Fi check out MoC’s article [here]. Handle.Fi allows trading of forex pegged assets as Fx tokens. Each Fx token is soft pegged to a real world foreign currency.
Users can borrow in their local currencies or digital assets. Handle.Fi allows users to swap, settle trades, borrow on margin, add leverage, earn rewards, hedge, and speculate. The Handle.Fi token is known as FOREX. Users can purchase Forex through swaps directly on the platform, Uniswap and Balancer. Forex is on both Ethereum and Arbitrum which is a very popular Ethereum Layer-2 network with cheaper fees and faster transactions [2].
Currently, users can provide Liquidity on Balancer to receive veForex. The LP pool is 80/20 Forex to fxUSD (US dollar pegged stablecoin). Once the liquidity provider locks their tokens, they receive the veForex or governance tokens to then lock into the Handle.Fi platform. The max lock receives a full 1:1 ratio of the governance tokens, this lock is for a full year.
Forex Token Economy
A max lock of the Forex LP on Balancer allows users to lock the veForex on the earn section of the Handle.Fi platform. This enables access to protocol governance, a portion of network fees, and boosted yields across a variety of application processes seen in the graphic above. The graphic below shows the initial token allocation as a percentage of total supply. About half of the tokens are reserved for community and protocol rewards.
The release for the team and strategic/seed rounds are vesting over 18 months and 12 months respectively. Users can earn rewards for referrals similar to centralized exchange programs. The network explores Protocol Incentive Experiments (Pies) by rewarding supporters who tweet on Forex content, create memes, create content and engage in community content.
Currently about half of the maximum supply of Forex has been released. The market cap sits at 6.5 million dollars and the token is currently 0.03$ with an all-time-high near launch of 0.98$. Similar to GMX users can deposit any approved asset into the pool and receive a portion of the trading fees from the overall protocol. These rewards can also be boosted by the veForex concept mentioned above. The pool composition was created to protect liquidity providers from exposure to upside/downside USD price action. By owning a basket of foreign currencies, the pool is diversified and not extremely volatile on a day to day basis.
Protocol users can also utilize fxKeeper pools. These pools are designed to collect liquidations associated with the given liquidity pair provided. These vaults provide real yield in the form of Eth and Wrapped Ethereum. For every trade there is a counter trade, and those who add leverage offer an opportunity for fxKeepers to benefit from their trading losses [3].
Those who utilize fx tokens will experience a zero-slippage environment, only paying the given network fees associated with the smart contracts utilized. All fx tokens are backed by user deposits. Users must lock assets when minting fx tokens, this provides inherent protocol security. Minting depositors using collateral have a few metrics to consider including an interest rate, liquidating fee, and min collateralization ratio.
According to the docs “the combined collateral in an fxToken’s vault determines the maximum amount of fxTokens that can be minted, its combined interest rate, and the minimum c-Ratio”. This is similar to what a derivatives trader must consider when opening a trade using margin(debt). More volatile collateral presents a riskier form of collateral as its value can ebb and flow. As for the analysis of the token economy, the conclusion is rather complicated because there are so many moving parts.
Users are incentivized greatly to provide liquidity to gain access to the best yields, and governance which secures the future of the protocol and its long-term direction. Users can also choose a means to receive yield that they are comfortable with. Since there are almost no true forex trading setups in the crypto market Handle.Fi is truly unique.
A lot needs to happen for the protocol to break the 100 million dollar market cap threshold but we believe they have created the tools needed to succeed. We give the forex economy an 8/10, losing points for inflation and circulating vs max supply. We cannot be too hard on a newer protocol trying to provide aggressive incentives for users since the incentives create a mutually beneficial relationship. For transparencies sake we have held Forex exposure for over a year before most of these products were live.
As always stay safe out there, do your own research, and this is not financial advice.
