DPI Liquidity Mining#7

Another consideration is our competitive relationship with bDPI. Not sure what thoughts you guys have there.

Thank you @george great work.

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My understanding is that the calculation subtracts the value of the trades in the 0 to 9.999% percentile ranges. So we look at the middle 80% of trade count and the size of those. I’m not sure that we are that interested in the lower 10% for this analysis. However, the Low 10% is a small number (~$250) subtracting it doesn’t have much impact.

@Gearoge is planning a forum post around his analysis and what it can tell us.

The incentivised AUM is taken from @jdcook excellent KPI dashboard. I believe that this looks at the staking contract. If you look at holders on Etherscan, it’s showing ~90% of the LP tokens in the staking contract. This is only a single time point, (i.e. Now) but I think it’s pretty consistent.

The $55 M target was set to maintain liquidity at the height of the Basket DAO launch when they were offering ~400% incentives. The competitors APY has dropped to ~18% due to reduced issuance and Token value. LP’s are also seeing lower trading fees (Zapper.finance):

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Hey Punia, @overanalyser has covered your queries. I will update the wording to to include that the calculations do take incentivized liquidity based off @jdcook dashboard. I am also going to write a bit more of a post around the analysis to give a bit more of a detailed picture.

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Are you concerned that they were able to drop their APY that much and still hold that amount of secondary market liquidity? Does the market’s response to incentives look like a curve or do you think it would be more of a stepwise function given competitive dynamics?

Curious about your thoughts too @george.

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I think it’s an interesting question around the loyalty of liquidity. I think there are other factors to consider such as market conditions and the underlying products. Inclined to go with a stepwise function as liquidity improves/reduced at incremental moves in incentives. bDPI at the height was around $90 M in liquidity.

Thank you @george for submitting this proposal and for all the thorough work behind it.

I will summrise my thoughts below:

1- What is the point we are trying to achieve by reducing incentives now. Is that part of a longer term strategic goal? If it is, I would prefer we formulate our goals on a broader strategic level, and then apply the approach to each product. (I have worked on a proposal with @overanalyser that addresses this, and will be posted very soon).
2- I can see that the liquidity mining APY returns for DPI are not particularly high. It does not seem to me that we are overpaying on this front, especially VS what competitors are doing, although I agree that liquidity levels are more than adequate.
3- I have previously voiced concerns about continuous & unpredictable changes to LM incentives, and how this might affect the “loyalty” of our Liquidity providers. I would rather we approach this problem in a more consistent & predictable way. (My proposal with OA mentioned in #1 is also an attempt at providing this type of consistency).
4- I also share @puniaviision concern that a competitor can have better liquidity levels than DPI, which has always been one of our strongest moats in the market.
5- Finally Uniswap V3’s launch is also another variable that we need to monitor for now, and see how the migration unfolds. I would rather we wait till we have a clearer picture and have better context to take action, especially that for a while there might be some liquidity fragmentation.

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Great work here @overanalyser and @george - it is clear to me that we are absolute market leaders when it comes to analyzing and measuring the effects of liquidity mining. Here are some high level thoughts around our LM.

  • I strongly agree with @puniaviision and @snasps that the depth of $DPI liquidity is one of our strongest moats. Our investors at the institutional and large individual level are laser focused on liquidity. Large investors who want exposure to the $DPI theme are looking to make market buys in the $1 - $10 million range.

  • Our current level of liquidity supports frictionless retail and small whale purchases it is still too little for major players. We want $DPI to be a product that major global financial institutions are comfortable buying - we should never be in the position where we have to tell a fund manager that he needs to DCA into $DPI in order to avoid slippage.

  • $MVI and $DPI both need continued liquidity mining support to enable those products to grow and thrive - this is not a bad thing. We need to view this support the same way traditional companies view CAPEX - an investment in the long-term success of our products.

We need to expand our time-horizon on LM - these projects take time to fully take hold and we should not be caught in short-term thinking around supporting our products. If we can support multi-year LM for our flagship products we absolutely should. $MVI will be an absolutely dominant product over the next two years, we need to ensure we are supporting it as it grows into its full market potential. Two years from now some of our Indies films will be major blockbusters and we need to recognize that the market doesn’t always react immediately.

I firmly believe that we need to aggressively invest in growing the liquidity for our core products. We already are underpaying for liquidity in comparison to basically every other protocol in the top-20 - we should commit to growing $DPI to $100 million of liquidity on Uni.

TDLR We need a long-term strategic vision for our LM. We need to commit to supporting core products through LM (specifically MVI and DPI). Liquidity is one of our most important moats.

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They are running a vesting scheme as well

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I think the next steps here are to implement the top-up of the DPI LM rewards according to @george’s spec above. IIP-28 was voted in by the community, and until another IIP is voted in to override that decision, it seems the Coop should honor that decision.

If we want to update the LM parameters for day 60 - day 90 of DPI/MVI Liquidity Mining, I suggest someone draft an IIP!

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I think it’s a case that for many people they enter a staking contract and they are pretty sticky, we have managed to cut incentives a few times since the end of the initial liquidity mining campaign without huge losses (although I’ve not looked at the number fo LP tokens).

This is good in that it can save us cash, but it may mean that we might not see additional liquidity joining the pool even if we boosted the rewards by 100% - Index shows 19% APY @ 62 INDEX. Will double the rewards result in double the liquidity? I suspect not.

The 90 day programme targeting $55 M was an attempt to give more certainty to the market. LP’s and the coop treasury. It should have been obvious that the number of tokens were going to be cut based not he design of IIP-28.

There are multiple stake holders when it comes to liquidity mining (methodologies, traders, LPs, Coop treasury) and I think we all agree that there needs to be a long term strategy.

Various members of the PWG have been discussing a few different ideas with a number of people. We are hoping to kick off a discussion around LM strategy next week and hopefully, we may have an agreed strategy by the end of the month (which would result in an IIP to supersede the current LM campaigns).


Edit to add, we also need to consider the impact of Uni v3…

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+1 to consider v3. It seems to provide giant depth with a small TVL. This could reduce the need for LM significantly and free up a lot of DPI for investment elsewhere if there are opportunities. The INDEX saved on LMing might in a short time, come late summer, be used to incentivise an L2 pool, perhaps?

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Is this live yet? The dates on the site need updating
image

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will update as soon as LM is live

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OK, following on from @gregdocter 's question in the weekly call.

The proposal was based on calculations from the 4th May:

If we look at the supply break down when we had 68,000 units incentivised (@jdcook this is just the staked DPI in the uniswap pool correct?):

We now have 72,000 units so an increase of 6% while we have decreased the number of INDEX tokens by 32%.

@george @Matthew_Graham

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Ya, that looks correct. I am interested to see more of what @Matthew_Graham was talking about on the call - do you have anything to share that shows those LP distributions? You mentioned that a few players control a lot of the liquidity at this point? I haven’t ever looked at those distributions and am intrigued. That can either be a great thing (if they are sticky and want to see DPI succeed) or a bad thing (if they decide the APYs aren’t high enough and pull out causing major drop-offs in liquidity).

hey @jdcook,

My charts are based on DPI-ETH LP token of which there are 27,644 in circulating supply.
25,934 of the 27,644 tokens are in the staking contract.
There are 5 wallet addresses with over 1,000 LP tokens in the staking contract. The largest sub 1,000 wallet size is like <620. There are 5 wallet address that have 13,012 of the 27,644 tokens in the staking contract.

ie: 47% of all INDEX incentives are going to 5 wallets
We have alway known Index Coop’s liquidity mining program is being gamed I raised this back in like February or something when I first looked at this data.

Wallet Address: 0x4a3e950c35c6d9c2d8f5f0a6cc03af9942134840
This address had 64,773 INDEX tokens back end of February, 5.77% of circulating supply back then.
Now it has 77,636.15 and INDEX tokens were most recently retrieved 16 days ago. So this address has at least another thousand plus index tokens.

Now that wallet address has 4,461.5 DPI-ETH LP tokens or 17% of of the staking contract pool.
ie: A single wallet address is receiving around 91.2 INDEX per day at 530 INDEX per day
This address deposited the LP toke on 7th December and hasn’t moves its capital since. Prior to that, the address originally deposited into the October staking contract on the 7th October.

I have a chart that maintain from Etherscan tracking the number of units going into and out of the staking contract. We can below there was a spike up (net inflow) around early May when the rewards were extended at a reduced rate. By comparison April had a spike down (net outflow).

I disagree with this sentiment - we are paying for a service (liquidity) and some of the providers of that service are large holders and investors. Everyone here is a rational economic actor intent on maximizing profit. We can expect every stakeholder to act in such a way that maximizes their profit - this is why I stake MVI.

What we need to determine is how important liquidity mining is for these five wallets - because they are all big Index holders we can assume they have some stake in the success of our protocol. If liquidity mining is not a major incentive for them to provide liquidity and if they would be supplying liquidity regardless of staking rewards, we need to ask ourselves if this investment would be better spent elsewhere.

@jdcook sums up the good and the bad the questions I outline above.

What this discussion tells me is that we need to have more conversations with our major liquidity providers. They are clearly big stakeholders in our community and we are all working together to maximize the profitability of this protocol. If they are willing to provide large amounts of liquidity regardless of incentives it makes sense for us to start investing that capital elsewhere. While this may lower short term ROI around providing liquidity it will significantly enhance the long-term value proposition of the Coop.

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Sorry @Matthew_Graham , I’m with @BigSky7 on this one, we are making an offer to everyone in DeFi, some people had deeper pockets, but they are still providing the service (liquidity) that we are looking for.

Smaller stakers are penalised by having a higher proportion of their assets spent on gas, and we can try to reduce this (using the same staking contract since early Dec 2020, L2 liquidity mining), but I don’t see trying to prevent / reduce incentives for larger participants as being productive way to spend our resources.

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Looking past the INDEX token concentration and what implications that has on governance at Index Coop being increasingly centralised.

I would like to draw attention to the fact, units in the staking contract went up whilst INDEX rewards per day went down.

The quantity of LP tokens is increasing, the size of the liquidity pool on Uniswap is increasing and APR is falling. This data indicated LM rewards are still too high. This all happened when gas price was high, so capital should be reluctant to enter the staking contract. The data is showing the incentives are sufficient to bring in new capital despite high gas prices.

I believe the data is telling us we are over paying for liquidity. Furthermore, we are centralising our governance token distribution. Although the later is not a priority, there are indirect negative knock on affects.

The question I think we ask ourselves is how much should we be paying for liquidity ?
IMHO the data suggests less than we currently are.

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