☸️How Does Flywheel Work?

A continuously self-reinforcing healthy positive cycle

Imagine a wheel that keeps spinning faster and faster – that’s exactly what DracoDex aims to achieve with its token economy through the flywheel effect. Let's break it down step by step to understand how DracoDex's flywheel operates and what it means for you.

Step 1: Encouraging Long-Term Staking

First, DracoDex encourages users to stake their tokens for the long term. When you stake your tokens, you are rewarded with a share of a 1.5% tax collected from all buy and sell transactions, as well as a 1% tax from unstaking. So, what happens here? People are incentivized to stake their tokens, which reduces the number of tokens in circulation. Fewer tokens available mean that the value of each token can go up.

Step 2: Burning Tokens to Reduce Circulation

But wait, there's more! DracoDex also applies a 2.5% burn tax on each transaction. This means that a small portion of the tokens involved in each transaction is permanently removed (“burned”) from circulation. Just like in step 1, this further reduces the number of tokens out there, giving a boost to the value of the remaining tokens.

Step 3: Attracting Makers & Traders with Rising Token Value

Now that the token value is going up, more people will want to get in on the action. DracoDex uses tokens to reward those who provide liquidity on its order book. As the token price increases, this reward becomes even more appealing. More people will start providing liquidity on the order book.

Step 4: Drawing In More Traders with Decentralization and Ample Liquidity

Having ample liquidity combined with the benefits of decentralization makes DracoDex an attractive platform for traders. More people will be inclined to perform their trades on DracoDex. This increased trading activity generates more fees for the protocol.

Step 5: Reinforcing the Token Value with Fee Revenues and Encouraging Invitations

The fees collected from trades are used to boost the DRACO/ETH Liquidity Book Pair. Together with the burning mechanism from earlier, this solidifies and continually increases the real fundamental value (RFV) of the DRACO token. As the token’s value rises, we circle back to step 3 where more people are incentivized to provide liquidity.

Additionally, the increased fees also serve to reward those who invite others. This means that when individuals invite others to migrate from centralized exchanges (CEX) to trade on DracoDex, they get rewarded. This further incentivizes more people to participate in the invitation program, bringing more users and trades into DracoDex.

The Flywheel Effect: A Positive Growth Loop

These steps together form DracoDex’s flywheel. It’s a cycle that feeds into itself: encouraging staking reduces circulation, which increases token value, attracting liquidity providers, bringing in traders, generating fees, and further boosting the token value through fee revenues and invitation incentives. This creates a positive, self-reinforcing loop that keeps the DracoDex economy spinning

In summary, DracoDex's flywheel, through a meticulously designed economic model, encourages users to stake, provide liquidity, and participate in the invitation program, thereby creating a robust ecosystem that continuously propels the growth of DRACO token value.