This penalty is in place to encourage long term liquidity providing and deter liquidity manipulation. 1% is small enough to enable flexibility for regular liquidity providers and large enough to defend against repeated deposits and withdrawals, which would have a negative impact on the stability of the liquidity pool.
Any action of depositing liquidity, such as adding more liquidity (consolidation) or staking rewards in the MEX farm (compounding) resets the enter moment to the current epoch. The penalty then extends for the duration of the next 3 epochs.
1 epoch = 24 hours. An epoch starts each day at ~14:30 UTC
Providing liquidity can be profitable, but you’ll need to keep the concept of impermanent loss (IL) in mind. IL describes the temporary loss of funds occasionally experienced by liquidity providers because of volatility in a trading pair.
The bigger the volatility, the more you are exposed to IL as there is an irresistible opportunity for arbitrage, because the price in the LP doesn’t reflect what’s going on. In this case, the loss means less dollar value at the time of withdrawal than at the time of deposit. Impermanent loss is one of the fundamental concepts, it’s something that anyone who wants to provide liquidity to AMMs should understand.
The portion of the trading fee paid by users who use the pool to trade tokens is distributed automatically to all liquidity providers, in proportion to their stake size. There is a 0.3% fee for exchanging tokens. The Maiar DEX business model will be as follows: 0.3% will be the base charge, of which 0.25% goes to the liquidity providers, and for the remaining 0.05%, the contract will buy MEX from the EGLD / MEX pool and will burn it.
This 0.25% commission is distributed among the liquidity providers in proportion to their contribution to the liquidity reserves. This is done through the following algorithm: Every time someone trades on the stock exchange, the trader pays a fee of 0.3% and 0.25% is added to the liquidity pool. Since no new liquidity tokens are issued, this has the effect of distributing the transaction costs proportionately among all existing liquidity providers.
Part of the MEX offer has been reserved for financing periodic and comprehensive security audits, as well as future bonus programs, for all Maiar Exchange components, from smart-contracts to front-end components.
The MEX supply for year 1 after launch will be 8,056,000,000,000 MEX tokens. The MEX token has an issuance mechanism designed to accelerate adoption of Maiar Exchange. It is countered by a MEX burn mechanism: 0.05% of all fees are exchanged for MEX and then burned. This will lead MEX to become deflationary as its adoption broadens.