The ParaSwap decentralized application (dApp) combines multiple decentralized exchanges into a single platform,ParaSwap offers a fast, easy and secure way to exchange Ethereum-native tokens. ParaSwap constantly checks the rates across all supported decentralized exchanges in order to ensure the best possible exchange rate. Therefore, when you check the price on ParaSwap for ETH/ERC20 tokens, ParaSwap scours all the exchanges available to find the best rate for this pair.No account is necessary to get started on ParaSwap, all you need is a MetaMask wallet to get started.
The 20,000 early and loyal users of ParaSwap are rewarded with 150 million PSP tokens through an airdrop. This represents about 7.5% of the PSP’s total supply of 2 billion. Eligible users of the airdrop were determined with the help of blockchain snapshot taken on October 8 2021.
PSP: Utility and governance token
ParaSwap’s PSP token is both a utility token and a governance token. In addition to being used in government voting, the PSP token is used to incentivize market makers, similar to maker rebates on centralized exchanges. Moreover, PSP tokens can be staked in ParaSwap pool to earn rewards.
PSP tokens holders can stake on market makers to add weight to their rewards, pushing the market makers to deliver more competitive rates. At the end of each epoch (14 days) the rewards are spitted between market makers and stakers.medium
Based on their usage of ParaSwap, 2000 users were divided into 3 groups and rewarded with airdropped tokens ranging from 5200 to 10400 PSPs. Here is a chart showing the distribution of eligible users by the number of tokens they were able to claim.
What happened to all airdropped tokens?
Around 100 million tokens are already claimed out of the 150 million tokens airdropped to 20,000 loyal ParaSwap users. The remaining 50 million of tokens have not yet been claimed, but the majority of these will be claimed eventually by eligible users. We could begin by asking what happened to those who already claimed their PSP tokens? Let’s see how it worked out for them. As for most airdropped tokens, the fate of it depends on how committed its community members are. If the community members are loyal and believe in the future of the ecosystem, then either they will hold on to the tokens permanently or they will lock them back to ensure the future security of the ecosystem. If they do not believe in the future of the ParaSwap token then they will get out of the token by simply selling the paraswap tokens for some other token, say ETH, which they believe in.
Let us now use Flipside Crypto’s data warehouse to look into what happened to those claimed tokens. According to the following chart, we can see how many airdropped tokens have been claimed as well as how many tokens have been staked in ParaSwap’s liquidity pools. At the time of writing this article, there are around 100 million PSP tokens that have been claimed by users. A total of around 64% of those PSP tokens, or 63.5 million, are staked in the Paraswaps liquidity pools.
Using the PSP token, holders will be able to stake on market makers to increase the impact of their rewards and push the market to deliver more competitive rates. Upon reaching the end of each epoch (14 days) the rewards are split equally between the market makers and the stakers. As ParaSwap is a utility token, airdrop claimers are incentivized to stake them instead of selling them, as they can generate an income. This chart illustrates that a third of all the claimed tokens were claimed during the first week and then it steadily rose to a sixth of all the claimed tokens during the following week. It is predicted that 96 million of the PSP tokens will be locked in the staking pools of Paraswap if the trend continues.
What could have happened to the remaining 36% of PSP tokens?
There are approximately 35 million tokens in the wild, with 64% of them locked in staking pools. Those tokens are either exchanged for other tokens or moved to other networks. From the PSP token price since its launch to the present, we can glean some clues. PSP tokens were worth 1.44 USD on the day of launch, but have since dropped to around 0.33 USD over time.
This is a result of the airdrop claimants who are dumping their PSP tokens without any regard to slippage. In the chart below, you can see that there was a lot of trading activity on the sell side over the first 10 days. The token price has consistently trended downwards since then due to the pressure created by this.
In addition to being one of the most significant airdrops of this year, ParaSwap’s PSP token airdrop has also been the most controversial. As it has beaten down airdrop hunters to pulp and heavily rewarded its most loyal users, many call it a game changer. However, these most loyal users represent only 2% of the platform’s total user base. Although ParaSwap found it hard to deal with the frustration of 98% of its user base, they provided very transparent information on how they selected the 20000 airdrop eligible users. Their blog posts and tweets provided detailed explanations. They stood their ground and did what was right for the ecosystem.
Thus far, 64% of the tokens have come in the form of PSPs tied to staking pools, earning them trust. The remaining 36% of tokens are creating a selling pressure that is pushing the price down. The ParaSwap team will likely overcome this temporary inconvenience soon.