The development and functioning of Polaris DEX can be divided into two phases.

PHASE 1

This phase involved the Tomb Finance fork on the Aurora blockchain, during which the protocol was named Polaris Finance.

Inspired by the concept of algorithmic tokens, Polaris Finance aimed to create a stable, profitable, and secure platform for the Aurora blockchain, helping it to continue running as a fast, secure, and cost-effective blockchain.

As part of its development, Polaris Finance created multiple algorithmic tokens pegged to other assets such as NEAR, ETH, BTC, USDC, and BNB.

Seigniorage Pools

Users have the ability to create LPs  by pairing their tokens, such as ETHERNAL / ETH, and staking them in “Seigniorage Pools”. Initially, the rewards for these pools were in SPOLAR; however, after the end of its emissions, users can now earn passive income from trading fees and additional rewards in the governance token, xPOLAR.

Sunrise

Sunrise is where users can farm one or more of Polaris DEX's pegged assets using their SPOLAR. Each epoch in Sunrise lasts 6 hours.

When users deposit or withdraw SPOLAR into or from “Sunrise", they will be locked for 3 epochs along with any pegged asset rewards users may have earned.

If users claim pegged asset rewards, their staked SPOLAR tokens will be locked for the next 3 epochs, and they will only be able to claim rewards again 2 epochs later. These are standard rules across all boardrooms in DeFi.

During an epoch expansion, the maximum amount of pegged assets that can be minted is based on the current supply. If there are BOND tokens to be redeemed, 65% of the newly minted pegged assets will go to the treasury until it has enough to meet the redemption demand. If there is no debt, the expansion rate will be capped at the maximum allowed rate.

Algorithm stablecoins / Pegged Assets

POLAR

The POLAR token was the first medium of exchange within the Polaris DEX ecosystem, designed with a built-in stability mechanism that aims to maintain its peg to 1 NEAR in the long run. It's important to note that while POLAR actively pegs via the algorithm, it is not collateralized and it is not, therefore, to be confused with a crypto or fiat-backed stablecoin.

ETHERNAL

The ETHERNAL token was the second algorithmic stablecoin within the Polaris DEX ecosystem, designed with a built-in stability mechanism that aims to maintain its peg to 1 ETH in the long run.

ORBITAL

The ORBITAL token was the third algorithmic stablecoin within the Polaris DEX ecosystem, designed with a built-in stability mechanism that aims to maintain its peg to 1 BTC in the long run.

USP

The USP token was the fourth algorithmic stablecoin within the Polaris DEX ecosystem, designed with a built-in stability mechanism that aims to maintain its peg to 1 USDC in the long run.

BINARIS

The BINARIS token was the fifth algorithmic stablecoin within the Polaris DEX ecosystem, designed with a built-in stability mechanism that aims to maintain its peg to 1 BNB in the long run.

It's important to note that while POLAR, ETHERNAL, ORBITAL, USP and BINARIS actively pegs via the algorithm, they are currently trading below their pegs (as of March 26, 2023).

SPOLAR

The value of the Polaris DEX protocol and shareholder trust in its ability to maintain pegged assets close to peg can be measured by POLAR Shares (SPOLAR). When the protocol undergoes epoch expansions, pegged assets are minted and distributed proportionally to all SPOLAR holders who have staked their SPOLAR in “Sunrise”.

BONDs

The BOND assets serve as unique tokens that can help in stabilizing the price of pegged assets by decreasing the circulating supply of pegged assets if the TWAP (Time-Weighted Average Price) falls below the peg.

PHASE 2

Polaris DEX's Phase 2 involved the development of a one-stop decentralized trading and investment platform on Aurora, powered by Balancer V2. The platform is now known as Polaris DEX, and it was officially launched on December 13, 2022.

Polaris DEX phase 2 is a fork of Balancer v2. Balancer v2 is a DEX, automated portfolio manager, and price sensor that offers empowerd decentralized exchange and automated token portfolio management. Its unique approach flips the traditional index fund model; instead of paying fees to managers to rebalance portfolios, traders pay fees to liquidity providers who rebalance portfolios through arbitrage opportunities.

Balancer is the N-dimensional invariant surface, a generalization of Uniswap's constant product formula. With Balancer v2, new features have been introduced to reduce gas costs, maximize capital efficiency, enable arbitrage with zero-token starting capital, and offer custom AMMs.

Trading

Polaris DEX pools allow traders to swap between assets on the platform, and are defined by smart contracts. What sets Polaris pools apart from other protocols on Aurora, however, is their limitless flexibility, made possible by the Balancer v2 model. Pools with high token counts function much like traditional index funds, providing users with broad exposure to the crypto market. However, Polaris DEX distinguishes itself from traditional index funds by distributing fees to traders who continuously rebalance the pool, rather than charging fees for a broker to do so.

Price Impact & Slippage

Price impact is a measure of how much the price of an asset changes during a swap on Polaris DEX. As prices in Automated Market Makers (AMMs) are directly dependent on token balances, a swap causes a change in the spot price in the pool.

Slippage, on the other hand, refers to the difference in token prices between the time a transaction is created and when it is executed. To ensure that traders get the expected price range, Polaris DEX implements slippage tolerances. Users can adjust the tolerance level in the “slippage settings" according to their preferences.

Liquidity Providers

By depositing assets into the pool, users can earn passive income through Polaris pools. Liquidity providers earn fees whenever swaps are conducted through pools to which they provide liquidity. In addition to trading fees, liquidity providers can earn rewards in the governance token, xPOLAR. To attract further liquidity, Polaris DEX has a flexible Liquidity Mining Program that targets high-priority pools and can respond quickly to changing market conditions.

Fees

Polaris DEX fees serve a specific purpose to ensure a healthy ecosystem. Liquidity providers collect swap fees as users trade with pools for which they provide liquidity. This motivates liquidity providers to continue providing liquidity to facilitate trades.

For each transaction, 50% of the fees charged in the Polaris DEX pools go to liquidity providers, while the remaining 50% is accumulated as fees for the protocol treasury, called protocol fees.

Swap Fees: When users make a swap, a portion of the fees collected are used to compensate liquidity providers, with 50% going directly into their pools. This rewards providers for their role in enabling trades and helps grow the pool's overall balance.

Protocol Fees: Polaris DEX also has protocol fees, which are 50% of the swap fees collected by the pools. These fees are used to build up the Treasury Reserves (DAO) and can be utilized or held as deemed appropriate. Initially, the protocol fees can be adjusted by future governance votes. These fees are taken from the existing swap fees, and do not affect the amount collected from traders.

xPOLAR

xPOLAR is an important reward and governance token on Polaris DEX, as well as a component of the vexPOLAR tripool along with SPOLAR and NEAR.

As a reward, xPOLAR is distributed to liquidity providers for staking their LP. Its yield is adjusted over time by vexPOLAR incentives in gauges, ensuring the fair and efficient distribution of rewards.

sPOLAR

SPOLAR's use case in Phase 2 remains the same, with additional utility being added (governance). It serves as the "minter" of seigniorage assets when demand surpasses the desired peg. However, SPOLAR’s emissions ended on December 15, 2022, it is no longer offered as a reward from liquidity pools. Its total supply is 50,001 tokens. The only way to obtain SPOLAR is through the SPOLAR / xPOLAR / NEAR (vexPOLAR) pool on the open market, which is also used in the locking yield mechanism based on Balancer's veBal. By locking SPOLAR / xPOLAR / NEAR into voting gauges, the supply will decrease, and the price will rise.

Polaris DEX investors were able to participate in an airdrop campaign. Long-term investors were to receive 20% of the 1st year emissions, which is 200,000 xPOLAR. From August 8 until December 1, a snapshot was taken daily. The airdrop was divided into three parts: SPOLAR & SPOLAR / NEAR, Seigniorage LPs & assets (POLAR, ETHERNAL, ORBITAL, USP, BINARIS), and Bonds (PBOND, EBOND, OBOND, USPBOND, BBOND).

To be eligible for an airdrop, you had to meet certain conditions: each asset (staked or held) was accumulating xPOLAR. When an asset is sold, the accumulated xPOLAR for that specific asset is removed and divided among other investors.

The last snapshot was taken on December 1, 2022, and the start of xPOLAR vesting was planned for December 24, 2022. However, it was then postponed to February 17, 2023. The xPOLAR airdrop is linearly vested for 60 days, and as of March 26, 2023, it was 36 days into the vesting period.