We propose reducing liquidity rewards for DPI:ETH Uniswap pool inline with IIP-28 mandate from 700 INDEX per day to 530 INDEX per day. The 30 day period from 9th May to 7th June will consume 15 950 INDEX and cost $876,150 at $55 per token.
Mandate for days 31-60 within IIP-28
- $55 M liquidity based on 7 day average to day 25 (01May21)
- Minimum 15 000 (500 INDEX per day)
- Maximum 30 000(1000 INDEX per day)
- 15 950 INDEX represents ~0.16% of total issuance.
- 7 day average liquidity = $ 72.42M
- 20 day TWAP for INDEX = $37.81
Calculation of new LM rewards:
$72.42M/ $55M = 32% excess in LM pool.
LM rewards will be reduced by 32% (21 000->15 950) to target $55 M Liquidity in Days 31 -60.
30 day LM campaign for DPI:ETH Uniswap pair using the existing contract to start on shortly after the current contract ends with a total of 15 950 INDEX.
The below table and charts highlight what the potential slippage is for the average trade size. Slippage is the difference between the expected price of a trade and the executed amount. The trading sizes were gathered for a minimum of 16 weeks and bucketed into the different percentile groups. A trading range is calculated by deducting the 10th percentile from the 90/95th percentile. We can approximate what the slippage is vs the liquidity pool size.(Trade Size Range / Liquidity Pool)
Analysis of the trade size shows the following:
Note: * Percentile calculation includes all trades (i.e. does not exclude arbitrage where slippage = profit)
Liquidity seems to be in line with the trading range size.
The specified INDEX rewards rate of 530 INDEX over 30 days and the INDEX 20 day TWAP price of $37.81 is a 13.34% APY in mining rewards for a $55 M pool size.
In addition to the LM rewards, the LP’s trading daily fees have averaged $9 745 over the 7 days 25th April to 01 May 2021 which is 6.42% on a $55M pool size.
Extension beyond 30 days
After 25 days of the continued liquidity mining, the Product and Treasury Working Groups would review the average value of liquidity in the staking contract over the previous 7 days and agree on the ongoing reward rates for the next 30 day period.
Liquidity incentives methodology
- 7 day Average Liquidity / Target Liquidity which determines whether we are over or under our target as %.
- If we are over or under our liquidity target we will reduce or increase the rewards proportionately.
- Update of the fees earned from the liquidity pool based on the last 7 days volume, this is also used as a metric when comparing to the future incentives.
- Additional info such as the slippage calculations will also be updated.
This post is the formal recommendation of the rewards for days 31-60 as per IIP-28. Implementation is planned under that mandate. The community needs to take no action.