TORCH, xTORCH & You: Understanding Hercules Tokenomics
We could begin this article with a pie chart; we could dive right into it and talk about “cliffs” and “vests.” We’ll get to all of that.
But, we’re going to begin with one word: “Liquidity.”
Liquidity is the heart and soul of Hercules. (Even the fabled Greek hero enjoyed his ambrosia.) Protocols are incentivized to keep their liquidity on Hercules and users are incentivized to keep coming back. In turn, liquidity reinforces Hercules’ tokenomics.
How? Hercules allows carefully-crafted liquidity and rewards strategies to attract protocol-owned liquidity. Protocols can target user profiles and adjust rewards on-demand. Users, meanwhile, are given sophisticated concentrated liquidity tools thanks to partner integrations.
Liquidity initiates the namesake tokenomic fly-wheel. So let’s take a look.
“Tokenomics” Begins With “Genesis”
Genesis pools will be exclusive farms for the first adopters who bootstrap initial liquidity for Hercules, prior to the TORCH token launch. These pools will be open for deposits for a relatively short time and will pay rewards handsomely over four months, much of which will be in the workhorse escrowed xTORCH token.
This win-win rewards early stakers and creates sticky liquidity to bootstrap Hercules and bolster the entire Metis ecosystem.
“Tokenomics” Begins With “Token”
TORCH serves as the native token for Hercules. Users can acquire it as a yield reward by participating in incentivized staked positions NFTs or simply buy it on the open market. This token is designed to be a typical liquid token. The max supply is 10,000,000 which is reached after three years. TORCH acts as the platform’s symbolic value metric. Simple; let’s move on.
The non-transferable, escrowed version of the TORCH token, “xTORCH,” is the Hercules skeleton key. xTORCH, which cannot be bought or sold, allows the holder to collect protocol dividends, participate in launches, boost yields, and more. xTORCH can be converted back into TORCH over time as described later on.
xTORCH plays a key role in the tokenomics’ sustainability.
Check It Out! xTORCH
The illiquid and non-transferable xTORCH can be freely allocated by users into Hercules modules called Plugins to access different benefits:
- Dividends gives a daily portion of Hercules’ revenue in the forms of USDC and ETH–thus, “Real Yield!”
- Yield Booster gives extra rewards by boosting the user APR on their pool.
- Launchpad gives the opportunity to participate in new project launches.
- Gauges… is coming soon
All plugins charge a 0.5% fee for unstaking xTORCH, thereby acting as one of several deflationary mechanisms and disincentivizing fleeting protocol engagement.
What’s the catch?
TORCH and xTORCH are mutually convertible into each other, but the process is different depending on the direction.
TORCH → xTORCH: TORCH can be freely converted into xTORCH at any time. The process is instant, and the ratio is 1:1.
xTORCH → TORCH: When converting xTORCH to TORCH there is a variable period of vesting, the duration of which is selected by the user. The conversion ratio increases proportionally with the vesting duration, as follows:
- The minimum vesting duration of 15 days will provide a 1 : 0.5 ratio; i.e., 1 xTORCH vested over 15 days will yield 0.5 TORCH.
- The maximum vesting duration of 6 months will provide a 1:1 ratio; i.e., 1 xTORCH vested over 6 months will yield 1 TORCH.
Importantly, if the selected vesting duration is lower than the maximum (ratio < 1:1), the unclaimed excess TORCH is burned. This is another deflationary mechanism.
Getting Back to Liquidity…
Hercules will release 22.5% of liquidity mining incentives emissions in TORCH and 80% in xTORCH. The ratio earned will differ by pool and the exact emissions rate will respond to demand but target the rate in the release schedule graph. Both native and riskier pools will generally earn a higher percentage of TORCH vs xTORCH.
Our TORCH+xTORCH emissions schedule will look rather different than a typical DEX’s.
Hercules will tailor yields dynamically and start slowly, bootstrapping liquidity with protocol-owned liquidity in its Genesis Pools. APRs will still be quite attractive and the result will be a sustainable protocol.
De-flationary Mechanisms
As mentioned above and summarized here, Hercules applies several deflationary mechanisms to reduce the TORCH circulating supply and increase xTORCH utility:
- xTORCH → TORCH conversion: When the vesting duration is below the maximum limit of 6 months, the xTORCH:TORCH ratio is reduced, reaching a minimum of 1 : 0.5. Any extra xTORCH tokens will undergo automatic burning, which also implicitly burns TORCH.
- xTORCH Plug-in Deallocation: When deallocating xTORCH from a Plugin, a deallocation tax is applied. It can vary between contracts, but will usually be ~1%. This action correspondingly burns TORCH.
- Buy Back & Burn: In order to apply continuous buying pressure on TORCH, a portion of the protocol earnings is used to buy back & burn.
About Hercules
Modeled after the highly successful Camelot DEX project, Hercules is a community-first, capital-efficient and flexible DEX developed with multiple tools to support the next generation of builders who look for sustainable liquidity in the Metis network.
