KyberSwap Launches FairFlow to Redirect 70% MEV Profits to LPs

KyberSwap has announced the launch of a new liquidity provider (LP) reward mechanism called FairFlow, set to debut on August 6. Designed as a Swap Hook built on Uniswap V4, FairFlow aims to redistribute a portion of the profits typically captured by external MEV arbitrageurs back to LPs. This innovation allows LPs to receive rewards without the need to stake their LP tokens, offering a more flexible and yield-optimized approach to liquidity provision [1].

At the heart of FairFlow is the Equilibrium Gain (EG) sharing plan. KyberSwap’s aggregator integrates directly with the FairFlow pool, enabling it to detect arbitrage opportunities during trades. When such opportunities arise, the FairFlow Hook captures a portion of the arbitrage profit. Of this captured profit, 70% is distributed to LPs proportionally, while 30% is allocated to the platform’s ecosystem for future development and incentives. These rewards are distributed weekly in a dual token format, allowing LPs to continue using their tokens in other DeFi protocols to generate additional yield [1].

Early performance data from KyberSwap indicates that the FairFlow pools deliver superior returns compared to traditional liquidity pools. For example, on the Base network, the ETH-cbBTC pair saw a 21% annualized return rate in 189 hours within a FairFlow pool, compared to 16% in a standard pool. This enhanced performance is attributed to the mechanism of capturing and redistributing MEV-generated profits, which were previously lost to external arbitrageurs [1].

The FairFlow smart contract has already undergone an audit by Omniscia, a reputable security firm in the DeFi space, adding a layer of trust and transparency for participants. KyberSwap also plans to expand the feature to support more similar protocols in the future, potentially broadening the impact of its MEV redistribution model [1].

This initiative marks a significant step forward in addressing the inefficiencies and fairness issues associated with MEV in decentralized exchanges. By redirecting a portion of arbitrage profits back to liquidity providers, KyberSwap is not only enhancing the value proposition for LPs but also fostering a more equitable and sustainable DeFi ecosystem.

Source: [1] KyberSwap Introduces FairFlow, MEV Revenue Selectively Returned to LP (https://www.theblockbeats.info/en/flash/305982)