title: DPI Liquidity Mining #4
author: OverAnalyser @overanalyser
Extend INDEX liquidity mining incentives for the DeFi Pulse Index (DPI) Set for 30 days with a lower (50% reduction) issuance rate or 1,250 per day.
Extend the current INDEX liquidity mining program for the DeFi Pulse Index Set with the following parameters:
- Programme runs for 30 days (from ~12PM PDT, February 6th 2021 to ~12PM PDT, 8th March 2021).
- Programme will use the same staking contract as IIP-11 and IIP-13 to remove the need to unstake and restake.
- Programme will have reduced issuance rate (1,250 vs 2,500) compared to IIP-12 (a 50% reduction)
- 37.500 INDEX represents 0.35% of total issuance and about 0.75% of the unallocated issuance.
The DeFi Pulse Index currently has high liquidity on the Uniswap ETH - DPI pool. This is in part due to the liquidity mining incentive program. High Uniswap liquidity allows users and third party integrators to confidently enter and exit DPI positions.
The current liquidity mining incentive program ends on February 6th. This proposal seeks to extend liquidity mining incentives with a new liquidity mining program to continue growing distribution and adoption of the DPI.
However, it is planed to eventually stop the $INDEX funded liquidity mining programme, with long term liquidity provided by the trading fees (and 3rd party mining incentives). This will mean that $DPI becomes 100% unincentiviesd by the coop - currently ~65% unincentivised
value of $DPI activity in the pool.
Recent analysis has shown that the majority of economic activity within this pool is for transfers (trades and liquidity changes) between ~$10000 and ~$100,000 of $DPI per action.
Even so, there have been a significant number of larger value $DPI transfers (with trades upto $350,000):
These larger $DPI actions actions appear to be largely unaffected by the size of slippage effected (note most of liquidity deposits and withdraws). Even so, a large liquidity pool provides obvious benefits in terms of large holders confidence in maintaining a position holding $DPI.
History of $INDEX liquidity mining
The change from 15,000 to 3,864 INDEX per day in December was accompanied by a significant drop in liquidity in the pool. However, the reduction from 3,864 to 2,500 at the start of January did not result in a similar effect and with the recent increase in both $DPI and $ETH prices, the liquidity pool has grown. (The use of the same staking contract meant that no action was required to continue the farm which probably helped retention)
The current liquidity pool at ~ $48 M allows trades up to $240,000 with 1% slippage and ~$120,000 with 0.5% slippage. Note that this pool includes some staking in Harvest contracts, so ~$4 M of this liquidity is not rewarded by $INDEX.
Current liquidity, volume and income for LP’s
Looking at the last 7 days of trading, ~2/3 of the income is for the $INDEX farm is from the $INDEX liquidity mining. So a reduction of 50% in the INDEX rewards might be expected to result in the liquidity pool being reduced by ~1/3. i.e to ~$30 M.
Other DEX liquidity
Since launching DPI a number of other DE pools have opened. These add a further $ 3.7 M of DPI (equivalent to 7.4 M liquidity in a 50:50 pool)
Work is ongoing to activate intrinsic productivity contracts to capture more income from DPI (which may be used to incentivise the liquidity pool). However, this is a longer term coal for the coop
In addition, work is underway to allow easier access to exchange issue and redemption for large purchasers. It is hoped that this will be live and available to the market before then end of this proposed liquidity mining.
The key KPI for this proposal is that there will remain over $30 M liquidity in the main Uniswap $DPI: $ETH pool.
A secondary KPI will be that the % fees from trading volume will grow in this pool as trade volumes increase combined with a reducing pool size.
- Extend liquidity mining incentives for the DPI set according to the parameters above.
- Do not extend liquidity mining incentives for the DPI set according to the parameters above.
The deployed smart contract being used for the current liquidity mining program can be extended, but only for the same timer period.
The proposed smart contract for distributing liquidity mining rewards functions exactly the same way as the current liquidity mining smart contract:
Existing stakers need to take no action.
New stakers would need to:
- Users deposit ETH and DPI into the Uniswap ETH - DPI pool and receive Uniswap ETH DPI LP tokens.
- Users deposit their Uniswap ETH DPI LP tokens into the proposed Index Coop liquidity mining contract.
- Users receive INDEX tokens in proportion to the quantity of ETH DPI LP tokens deposited.