How do we use incentives to drive product growth?

authors: @DocHabanero, @puniaviision

reviewers: @Cavalier_Eth, and many others

Summary

IC has launched and continues to launch top notch Indices to the crypto space. We offer many benefits to our methodologist such as, smart contract engineering, a leading growth team, and a strong community supporting all other operations. Yet, we don’t have a clear plan for how IC should leverage it’s capital when launching new products.

I wanted share some thoughts on how IC can use our expertise and capital to accelerate new product growth.

An IIP is likely to follow this post.

Situation

As the Index Coop scales its product offerings we need to continue iterating and perfecting our go-to-market strategies. One of those key points is how we spend and negotiation with methodologist on capital needed for product launches. With the situation today, our product teams are spending far too much time and energy engaging in conversations about how much capital is needed to launch a product and who pays for it.

We’ve made significant headway along standardizing our fee split offering, and @Cavalier_Eth will be addressing this in another forum post.

A few questions we’re looking to solve:
1. Who will provide the capital for seed liquidity and incentives?
2. How much capital is necessary?
a. How does this change per DEX?

3. How much in incentives do we provide and for how long?
4. How do we decide to discontinue incentives?

Giving methodologists clarity on each of these points and positioning IC as an expert in these questions will continue to make use the best GTM partner. At the end of this post we have outlined our request for capital that we would like to have approved by the community.

Complexity

A few key points before diving into each question:

1. We do not have a clear vision of how much is necessary to fuel the right amount of growth for new products.

2. Seed liquidity and LM/Incentives are a constant negotiation piece between PWG and methodologist (this is the current hold up for $PAY, $LDI and $GMI)

3. This is a multi-party problem that will need the approval of Treasury WG and the relevant product pods.
4. For now, this standardization will only be relevant for Composite Indices and other non-FLI products as the dynamics behind FLI products are radically different.

5. These considerations will need to be upgraded as our expertise and knowledge in the area increases.

6. Seed liquidity and incentives are inherently different. Seed liquidity can be recuperated with minimal loss while incentives are a spent cost (we will not get the capital back)

Answers

1. Who will provide the capital for seed liquidity and incentives?

Currently, this conversation is handled on a product-by-product basis. The Index Coop has paid out 100% of incentives for $DPI and $MVI, while Bankless helped provide incentives for $BED, and IC did not provide any incentives for $DATA.

The Index Coop will have the ultimate burden on providing the appropriate amount of incentives. We are the go-to market experts and primarily responsible for making sure the products we launch are successful. Operationally, it is also much easier for us to manage the incentive spend so we can manage, test, and iterate on different strategies.

Seed liquidity will also play a big portion in the go-to market process. Having some liquidity on a DEX at launch helps kick-start any liquidity mining program as people are able to purchase and stake easily without minting.

Acknowledging that IC has limited capital, requesting methodologist to pay seed liquidity removes a portion of the opportunity cost if IC funded all of the capital.

2. How much capital is necessary and how does this change per DEX?

There is no single answer to this question because the there are so many options and market conditions varies for each product. We haven’t had the opportunity to test different options and there’s little market research.

We will aim for certain standards when figuring out the right mix of liquidity mining and incentives, such as:

  • 2% price impact is ~1.027% of the pool AUM
  • $2.4 M pool AUM for $25 K @ 2%
    • Or ~$3 M for 2% including a 0.3% LP fee.
  • If we assume LP’s are happy with 20% APY LM rewards then $480 K pa
    • $40,000 per month to maintain 2% price impact @ $25 K trades.

3. How much in incentives do we provide and for how long?

We understand that incentives are a great way to draw attention to new product launches, but it’s not clear how much and for how long incentives need to run. There are also many incentive options, such as Liquidity Pool rewards and single sided staking.

Our current hypothesis is that enabling $25k purchases at 2% slippage is sufficient enough to gauge PMF. The exact APY this translates into changes per DEX and Index, but is what our liquidity mining programs will target.

4. How do we decide to discontinue incentives?

As a standard we would run incentive programs for 2 months.

Within those two months, we have a chance to test growth programs, integrations, and talk to potential customers. Based on the data we receive, after those two months, we may choose to increase, extend, or eliminate our incentive programs.

Some of the things we look for:

  1. Liquidity on other DEXs.
  2. AUM growth.
  3. Unit holder growth.
  4. Transaction volume.
  5. Customer feedback.

The Index Coop would like to maintain full control of how incentives are managed, the incentive schedule and total capital spent. This allows us to test and iterate on the best incentive strategy for new product launches.

As an example, we could decide to taper off incentive spend if the product reaches a certain AUM within a set time period (eg. $50M in 2 months)

Summary of request to community

In order to remove friction with methodologists and speed up the Go-to-market process, we’re recommending the Index Coop provides $400k for all product launches. This money can be used on any combination of liquidity mining and incentives.

We are requesting that methodologist provide seed liquidity.

If the Index Coop is able to launch one product per month, this would amount to $4.8m per year to launch 12 products. We understand there is inherent risk in providing this amount of capital per product so we would like to expand on the market research completed for each product. More details will be provided on the market research once they become available.

By placing more rigor on products in the pipeline, and providing capital for product launches ensures the Index Coop is able to launch the highest quality products quickly.

We work in a space where incentives are provided everywhere. We feel our products, in the long-term, will not require incentives because they’re great products. The request for this proposal is not to set this as a standard for all products, but to use this opportunity to understand how effective our capital can be to launching new products. We’ll provide insights as we receive feedback from the market.

6 Likes

Broadly for and cool to see. I think implicit in this is that, while it will always be a bit of guesswork, we need more robust systems for identifying success potential and we should be extremely conscious of the kind of deals that are underpinning the economics of these products for us (e.g. fee splits).

If we are more explicit about the financial investment (not to mention the countless hours ewg, pwg, and other groups spend) perhaps the community will have high expectations of the entities receiving these.

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Thank you for the thoughtful, analytical post, @DocHabanero!

Here are some thoughts/questions I have:

Is the specific recommendation that Index Coop provides $400k of growth budget for each composite product launch that can be spent on liquidity mining AND/OR any other kind of growth activity?

Who is responsible for deciding how to spend these funds? I feel strongly it should be mutually agreed upon between the product methodologist and the Index Coop product owner. Personally, I would find it frustrating if $400k budget was approved for DATA and Titans of Data had no influence over how funds were allocated.

Will there be a separate IIP on seed liquidity and how much methodologists are expected to bring and on which chain(s)?

Honestly, I find it very strange that Index Coop would not provide seed liquidity given how relatively inexpensive it is to provide.

Why is providing liquidity not a core competency of Index Coop? Shouldn’t Index Coop at least be outsourcing this activity?

For context, of the ~$2m DATA liquidity, Wintermute is currently providing 63%, Titans of Data 18%, and Sushiswap LPs most of the remaining 20%. Investors can make a ~$25k buy of DATA on Sushiswap at ~2.8% price impact, but it really is closer to 3.5% inclusive of ETH gas fees.

I’m confused - is Index Coop planning to continue relying on liquidity mining programs for growing liquidity? As mentioned above, this seems like an incredibly inefficient way to grow DEX liquidity when there are better options.

Also, what do you mean by gauge PMF? What is the thinking/philosophy underpinning this?

I tend to subscribe to the belief that PMF is forged, not discovered.

image

There is no doubt that DATA has had the slowest product launch of any composite index despite DATA having comparable social engagement as MVI in the first month post-launch. I’ve given considerable thought as to “why?” this is. Are incentives necessary to attract users to composite products? Was liquidity too low? Is there not enough buzz around the narrative? Are ETH fees too high? Do people not like the product? Are staking fees for tokens like GRT and LPT too high?

I’m not sure it’s possible to have answers to these questions post-hoc.

What I do know is that DATA is growing robustly despite low/no incentives, high gas fees, and an environment in which unit supply ha shrunk or stagnated for other composite products over same time period (MVI is an exception post Facebook/Meta news). Starting on 10/30, DATA’s address and unit supply growth reaccelerated. Addresses are up 38% and unit supply up 13% in less than 3 weeks with virtually no incentives (Sushi is currently providing ~$4k/mo in incentives).

In the context of this post, does PMF mean $50m TVL within 2 months post launch? As a reference point, DPI got to $35m TVL after 2 months, but incentives were ~10x higher than what is being proposed here, so this doesn’t seem like a realistic expectation to have of the natural growth of composite index products.

7 Likes

Many thanks DocH and Punia. This adds a lot of clarity. Some feedback …

  • Specify if there’s a time-lock on the seed funding provided by the Methodologist
  • Consider bringing the seed fundraising on-chain with a crowdsale/launchpad partnership or minting pool.
  • Highlight that IC is still paying for gas costs while the product is unprofitable. Otherwise I think a lot of potential methodologists could be discouraged by the fact that they’re giving $1-5M+ of capital and 70% of the upside in exchange for $400k.
  • Consider profitability when evaluating whether to continue incentives, particularly since the Methodologists have no financial incentive to control costs while the product is unprofitable. For example, we could juice the market interest with lots of component additions and rebalances with the Coop footing the gas bill.
  • At risk of oversimplification, I think a simple graphic that summarizes what everyone is contributing and receiving would have a lot of value. Think of it as a recruitment ad for Methodologists.

Cheers,
J

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Highlighting gas costs doesn’t really help that much. Even if product runs at a loss for 2 years, at $30k per month (or say $30k per quarter for DATA), you’re giving up 70% of upside for ~$650k and rebalancing-as-a-service. By contrast, numerous accelerators like YC offer startup founders $120k for 7% equity. IC is effectively valuing a composite methodology at less than ~$1m market cap vs YC valuing its seed stage companies (often just an idea) at $1.7m.

I’m not sure what you mean by this - can you explain?

Not true. As a methodologist, I am quite incentivized to get on Polygon and other L2s. At $150 per Uniswap transaction, many of the potential DATA buyers are effectively priced out. I have people urging me to launch on Polygon pretty much every day. In addition, if fee splits are post-gas in the future then I am heavily incentivized to minimize gas costs!

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I think it strengthens IC’s appeal to that they’re paying this cost initially but I agree with you that it doesn’t tip the equation.

Currently, the seed funding discussions are opaque, lengthy and meatspace-based (although my experience has so far been very positive). Seed fundraising could be done much more seamlessly and on-chain with a crowdsale/launchpad platform (eg, Sushi Miso, Balancer Liquidity Bootstrapping Pool, or a custom solution) or a minting pool (eg, a PieDAO Oven).

I should have been more clear. Yes, you’re motivated for the success of the product and to reduce costs for your customers but you don’t have a personal financial incentive to control IC costs until the product becomes profitable. Stated another way, when the product is pre-profit, you receive zero income regardless of the costs. If the decision to dis/continue LM incentives also considered profitability and not just uptake then you would have some incentive to reduce costs. Another way to think of it is that the proposed LMI dis/continuation metrics don’t look at streaming fee income at all, which is rather important. You could get a lot more holders by lowering the streaming fee to 0%.

1 Like

I appreciate that I stepped away from the liquidity conversation and what follows here may not be well-received in light of that; also acknowledging that I couldn’t be more frustrated with the absolute disaster that has been Index Coop’s relationship with Liquidity Management. I feel strongly and I’ll regret it if I don’t leave it on the court given how I feel here.

image

At a $400k spend, in addition to all other launch costs, which are high, per product, we’re setting a pretty high standard for what many would consider the Index Coop seal of approval. I think that’s a move solidly in the right direction; we absolutely should provide all the elements for a successful launch, add spark, break atmo. I think where we differ on viewpoint is around the type of rocket fuel we’re using.

I prefer renewable energy. If it requires jettisoning a $400k booster every time we launch; well sir, that’s energy exiting our precious rocket, and well, I just won’t have it.

We are in a position to OWN the liquidity we deploy and $400k well-managed is MORE than enough liquidity to ensure a desirable retail trade experience, coupled with new integrations via 0x, well, we’re just bridging a gap now aren’t we? With any luck from the market, we might even grow that pot of rocket-fuel.

You have no actual way to know how long it will be required to continue putting treasure out the door in your scenario and the effect becomes worse as PMF declines. I would rather bet on the price performance of our composite indices than competing for mercenary capital with bribes in our governance token and proven sell pressure on the open market from LM campaigns.

In my opinion, all of these things should be delegated to a liquidity pod with the sole mandate of deploying the capital allocated to product launches sustainably; perhaps with some interfacing with F.Nest:Accountability and Growth. I want IC to be expert deployers of liquidity, and we’ll need to be, given the multiverse of scaling solutions - we should be leaning into this challenge and learning, not deploying the same strategy we were at INDEX token launch.

@Thomas_Hepner I’m receptive to Methodologists directing deployment of their liquidity allocation as long as the protocols are deemed sound and the redeployment period not overly frequent; I’ve been hearing good things about liquidity managers but I’m a big fan of removing money legos when it’s Coop treasure. I also like the idea of keeping trading fees low for our users and we can control that if we deploy.

To put this another way, if I extrapolate our current launch schedule at your projected spend alone (no Owls get to eat in this scenario) we blow though our current MC before IC’s 4th birthday in LM alone. I’ll do everything I can to prevent it.

I believe a spend of this magnitude with no clear revenue associated violates my sense of responsibility toward sustainability. I do not see a path to being supportive of this proposal in it’s current form. Should this go to vote I would implore large INDEX holders to vote sense, as LPs are likely to vote their interest.

8 Likes

Tagging @Finance.Nest for review prior to vote, please.

Appreciate the positive initiative here but this post leaves me with quite a lot of questions…

First up. Before coming to the forums with a ~$5m a year proposal how much consultation has there been with Treasury/Finance? As a representative of growth & marketing WG, it would have been appreciated to have some opportunity for input.

Are the sums here based off of the recent analysis carried out by AWG (Harmonic Liquidity)?

Is this taking into consideration the future moves to L2’s where depth of required liquidity is reduced?

How does PWG propose to raise the potential $4.8m a year to fund this?

What considerations are we taking together in exploring alternatives to expensive incentive schemes? A deliberately exaggerated hypothetical: what if we spent $4.8m acquiring users by investing in a self-hosted “learn to earn” program? (Evidence suggests coinbase spent just 1% of year 1 revenue on L2E, our collective LM programs to date are >100% in contrast)

Over the last few Q’s there has been a growing unease/perception among many that PWG has a tendency to act with a unilateral mindset, without objectivity and has a somewhat undefined remit. I fear posts like these will only amplify such concerns.

Our collective repeated failures on liquidity to date suggest to me we should be concentrating on agreeing on a solution/compromise there before rushing to commit yet more resources to LM incentives. We know that LM can be incredibly wasteful if not fully understood and correctly managed.

The product pipeline and prioritisation schedules have been previously criticised by many methodologist’s (both internal and external) for lacking objectivity, direction and even bias. I fear a flat $400k price tag on every product will actually create more friction at this point as it will serve as an easy excuse to NOT launch products. The barrier to launch is already very high with many feeling it is too high which is leading to delays, lack of agility, unwarranted risk aversion, and an unwillingness to experiment with new ideas and products.

To be clear I am all for investing in growth initiatives. But there are many issues that need solving before we talk big numbers.

7 Likes

Agreed!

Maybe my message was unclear - if DATA were to be allocated $400k from IC, I would not want to use it on 2 months of LM rewards without careful consideration of how else that capital could be most effectively deployed. I think it is unlikely an LM campaign would be the best use of resources.

4 Likes

One important but tangential point is dropping the community reluctance to indices with overlapping compositions. On the DG1 proposals I’ve noticed questions about composition overlap but if we launch 1 product per month and restrict ourselves to the top 50-100 most liquid tokens then the products will inevitably have substantial overlap. Otherwise we’d be looking at a hard ceiling of 10-20 products. This will be even more acute if we move to new chains with even lower component liquidity. Ideally, the cannibalism would be offset by the new AUM. It will be key to manage Methodologist expectations around overlap though since they wouldn’t benefit from the new AUM.

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Fully agreement here. I am particularly keen to dispell the overlap / cannibalisation narrative. TVL = TVL

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Really appreciate all the thought and analysis that has gone into this recommendation. You raise all the right questions about how to make sure our products are primed for success right out the gate. As I’ve proposed in IIP-XY: Forming a Liquidity Pod, I’d like to see a group of specialists take ownership of handling liquidity for new products. I envision PWG / Composite Indices Pod being a part of this group.

I will say that I’m not a fan of a standard $400K for every product. It may be the case that we want to throw a lot of weight behind one product, in which case $400K won’t be enough. I’m usually a big fan of simplicity, but in this case I like having some freedom of movement.

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There’s a tonne of technicalities that are beyond my current understanding here - however, as someone with strategic new product and service growth experience (consultancy), I have a few questions, based simply on logic. I love the intention here but there seems to be a number of [logical fallacies]

Given the requested budget is 4.8M I don’t see how ‘limited capital’ [red herring] substantiates the argument that methodologists pay seed liquidity. That said, methodologists contributing seed liquidity seems a logical idea - an investment in your own product.

Given the above quoted premises, logic shows that IndexCoop should take the initiative/responsibility to provide at least some portion of seed liquidity, as a sensible investment, especially being this “…cost can be recuperated with minimal loss…”

Q: What split is being considered here?

Arguments in Favor of Liquidity Mining

It is clear that liquidity mining is the preferred (only) strategy presented here. Yet given the amount of savings it has recently provided imo there needs to be a whole lot more supporting evidence as to why this is the best option “amongst others”. Imo, as a business proposition, this proposal seems to favour a product growth strategy of sunk costs over investment.

Given the kind of target assumption of $50M in 2-months plus the complexity and diversity of projects.
Q: What’s the actual horizon here on a hard stop.
Q: What is the likelihood that funding 12 products w. LM return no clear answers?
Q: Has anyone yet considered the ROI on 4.8M

Control Study

From a research perspective (PMF), I would highly recommend PWG take a close look at the success and natural growth trajectory of $DATA. @Thomas_Hepner @Kiba are imo obviously doing something right, there must be lessons we can learn from existing products first. Thomas has outlined a number of learning throughout the forums.

I would be super keen to see a comparative analysis between products that received LM funding DPI, MVI vs DATA. How can DATA growth be optimised ( without LM, yet) to develop a comprehensive control study for these ‘other options’ against which the performance of any future LM projects could be baselined.

Worth reading Liquidity miners: hands of 💎 or 🧻? — Mirror
.

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Hey, @DocHabanero thanks for the post - wanted to give feedback earlier, but alas, here we are. Sorry for the delay!

I think this all hinges on whether we have strong confidence that 2-month LM programs (at ~$400k) can build ~$1.5-2m in sticky liquidity?

$400k in incentives over 2 months would essentially be incentivizing $1m in liquidity at 20% APY for just two months - so we are making the assumption that 20% APY means much to people chasing yield and that that liquidity / growth would remain sticky. Otherwise, you are back to the same problem where your liquidity is not quite effective enough and you have to deploy from your Treasury.

So, if anything, I would be keen to try an experiment of this size with one product before we commit to doing something like this for all future products.

If the argument for incentives (which is really the only reasonable argument I have heard) is that short-term boosts can build hype and buy-in, then I don’t think $400k is getting you that type of reaction, unless it is for just a few weeks.

The Coop should take a stronger position on providing seed liquidity for our products. And we should be ok with slower, organic product growth at the onset. $DATA is a good example - overall AUM is not large yet, but we are seeing increases in growth metrics. We are in the business of creating products that people want to hold because they are great products - we should lean into that.

For smaller AUM products, I don’t think you can effectively gauge PMF when there are incentives involved anyways. PMF will be watching $DATA grow to $10m AUM even if we do no incentive programs.

I am not saying I am opposed to occasional growth experiments, but I believe it would be a mistake to commit to a base $400k in incentives for every product launched. I would like to see us commit to $500k in seed liquidity for every product - focused on managed, concentrated liquidity. If, between the Coop, Methodologist, Wintermute, and others can build ~$1.5m within +/- 50% of the price on a concentrated liquidity pool, then you can facilitate a $25k trade at less than 2% price impact. My point being - there are more sustainable ways to provide effective liquidity at launch.

If we go this route, we eventually find ourselves with $5m in protocol-owned liquidity after 1 year (as opposed to spending $4.8m and being unsure how much we have to show for it) that we are migrating between our products and new product launches. As successful products no longer rely on protocol-owned liquidity, we have assets ready to be deployed into new product liquidity.

Plus, with the improvement of exchange issuance - larger amounts of capital will still be able to enter new products even as liquidity grows on DEXes.

9 Likes

Just chatted to JD about this, correction for the record:
$400k over two months on $1m TVL = 240% APY not 20%

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With these kind of numbers coming from an established team and backed by a token like INDEX, I would be pretty darn keen to ape in and then find out more about the product after the fact.

Putting a BD hat on, if we can grow AUM aggressively at launch, we can then pivot to some kind of incentives for providing liquidity through either Visor or Gelato pools. This gives us a means to withdraw some Index Coop liquidity and roll it into the next product. We simply don’t have enough capital to PCL every product for extended durations of time. To do that means slowly ship product.

We collectively are starting to get really good at integrations and creating extrinsic use cases for our products. If we can transition from Index Coop staking incentives, to a burst of LP incentives and then into extrinsic use cases, we will create a really sticky product roadmap. Once we have liquidity and AUM, we can utilise our existing networks/partnership to drive extrinsic use cases.

I’m less set on pinning down a universal budget per product, as I don’t think one shoe fits all. I do like the concept of having a spend estimate from launch to say 6 months post launch. We receive feedback that some folks are seeking more productive assets from us and without intrinsic productive, we must accelerate the time from launch to extrinsic productively. A Go To Market roadmap and budget is key.

Organic growth is amazing! Slow burn organic growth is boring. We operate in a fast paced, short attention span industry. We need to go from zero to hero, fast. We need to capture market surface area, tap into every segment of the market we can and then capture as much capital as possible within that area of the market. In some ways, we minted a governance token to bootstrap a community via bootstrapping a product into success. The more market dominating products we have, the stronger we are as a community.

To me the challenge always has been, how to get from launch to domination mode. Do it once, do it again, then again, just faster and more efficient. That takes skills, planning, hustle and spend.

6 Likes

Thanks for the feedback everyone, and apologize for bad timing while I was out for holiday.

A key theme in the comments seemed to be around the duration of the project.

I propose we do this for $GMI, $LDI and $DATA. The products are relatively diverse and $DATA has already been in the market for a few months so it’s a good indicator of how necessary incentives are.

We know that $DATA has/had roughly 30% APY so is 240%, or 100% appropriate. There are also many different incentive options, such as single sided staking, that we’ve never explored.

I agree with @jdcook’s point that we should be building products people want. But that doesn’t always determine market success. There are crappy products with great branding that beat out better products. I was thinking about this while doing black Friday shopping. People are obsessed with getting good deals, sometimes over buying the best product.

@lee0007 brings up a good point about building case studies and including as much external information as possible. I think that’s a critical part to ensuring we’re collecting and acting on the right data. Your input on some of those parameters would always be welcomed!

@edwardk I agree with your point but it becomes difficult to create criteria for how much money each product should get. I prefer something to the effect of: each product gets up to $400k and if certain thresholds are met we increase of decrease. This comes from optimization. If products don’t hit a certain AUM in a certain time period that is likely an indicator of product-market fit. We can decide to pull back spending at that point.

Note: Seed liquidity will be handled separately and is the main focus of IIP - 110 - forming a liquidity pod. This pod would manage the strategies and execution of capital for this project.

@mel.eth I’d like to run a poll for a vote on allocating up to $400k for $GMI, $LDI and $DATA to test the effectiveness of incentives on growth.

If passed either 1 of the 2, whichever happens first

  1. These products (excluding DATA) will have these terms included in their DG2 snapshot
  2. I’ll work with our internal liquidity experts to create a plan for incentive strategies and request a IIP snapshot
1 Like

Thoughts on Incentives

At this point, I definitely view incentives as a separate tool from liquidity.

MVI and DPI both had really big “pops” in their first 30 days of launch in terms of users. DPI went from 0 to ~4,500 addresses in its first 2 months of its LM campaign; MVI went from 0 to ~1,200 users in its first month when incentives were highest. Incentives did attract liquidity, but arguably, more importantly, they created a critical mass of enthusiastic users.

DATA is growing robustly (60% address growth in November) but did not have a big pop in its first 2 months (we just crossed ~312 addresses on Ethereum mainnet today) like DPI and MVI did. Is that because its not a good product, or because we simply did not offer enough incentives to attract a critical mass of users post-launch? For comparisons sake, both the DATA and MVI launch videos received close to the same numbers of views on Twitter, so why did they not receive similar numbers of investing addresses post-launch? It’s not a certainty, but it’s definitely plausible (maybe likely?) that $400k in MVI incentives from IC vs. ~$13k in DATA incentives from Sushi is the primary driver (to be clear - I’m not pointing fingers or blaming anyone! I’m not upset about this).

Obviously, I am extremely biased here, but running a big $400k LM campaign for DATA is a way we could see if incentives do give products a big pop or not.

Thoughts on Liquidity

Liquidity is closely related to incentives, but is a separate tool to solve the problem: Can users buy the amount of the product they want at a price they are willing to pay?

The reason we get big spikes in total addresses when we launch on Polygon (DATA launched on Polygon less than a week ago and already has ~20% of all DATA addresses) is because anyone who wants to invest less than $5k is pretty much priced out of Ethereum mainnet at $150 per DEX swap.

On the other hand, users who want to purchase >$50k of DATA cannot do it with just $2m of Sushi liquidity. On DATA launch day, I bought ~$63k of DATA tokens from Wintermute (IC’s market maker) who sold them to me at just 50 bps of price impact (~$300). That same value trade on Sushi now has 576 bps of price impact (~$3,600)!!!

Right now, because of liquidity issues, DATA users who want to buy/sell >$20k from a DEX (as opposed to KYC through Wintermute) are priced out of the product.

2 Likes

I will say that I think its a mistake to treat every product as if they should get similar programs.

For one, I think its fair to say products like DPI, MVI, and GMI had better demand signals than most pre-launch

I think in DATA’s case, I am against that level of rewards for a few reasons

  • Aforementioned lack of stated demand for theme / product
  • Structurally inequipped to handle high throughput growth program (staking) due to outdated DEX architecture choice
  • Liquidity mining on that older architecture is wasteful to the end of liquidity
  • Liquidity mining on v3 would be a fine but hilarious use of the funds (and if we’re moving to PCL, what’s the point?)
  • at $2m AUM, the product earns $13,300/yr for the Coop before costs, making back $400k seems pretty tough.
  • DATA’s case uses appeals based on DPI and MVI but fails to recognize that another composite product, $BED (why no retroactive rewards for BED?) is performing better in AUM and users despite $0 in incentives. Part of this has to do with dex choice, ofc.

I would be pretty staunchly against giving a program of similar size to the launch budgets of newer ones, especially if the product doesn’t have the organic traction we’re hoping for. If DATA methodologists were at something closer to 90/10, I think it could make economic sense for the Coop. Otherwise, I would be willing to try something like $40k for a month-long program.

But this $400k rewards program, which I believe you are modeling off of my request for GMI, I think should be given on a discretionary basis at product launches should the product clear some demand signal hurdle.