IIP-XXX Draft - DPI liquidity mining #5

iip: XXX - TBC
title: DPI Liquidity Mining #5
status: Proposed
author: OverAnalyser @overanalyser
created: 2021-03-04

Simple Summary

Extend INDEX liquidity mining incentives for the DeFi Pulse Index (DPI) Set for 30 days with a lower (44% reduction) issuance rate or 700 per day.

Start liquidity mining incentives (using coop hosted staking contract) for the DeFi Pulse Index (DPI) Set for 30 days with an l issuance rate or 700 per day.

Abstract

Extend the current INDEX liquidity mining program for the DeFi Pulse Index Set with the following parameters:

  • Uniswap Programme runs for 30 days (from ~12PM PDT, March 10th 2021 to ~12PM PDT, 12th April 2021).
  • Uniswap programme will use the same staking contract as IIP-11, -13 and -14 to remove the need to unstake and restake.
  • Uniswap programme will have reduced issuance rate (700 vs 1,250) compared to IIP-14 (a 44% reduction)
  • Sushiswap programme will have a separate staking contract hosted on the INDEXcoop.com website.
  • Sushiswap will go live shortly after the Uniswap rewards (ideally same day, but dependent on code development and verification timescales).
  • Sushiswap will have the same rewards
  • 42,000 INDEX represents 0.42% of total issuance.

Motivation

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 March 8th. 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 planned 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 ~75% unincentivised

There has been extensive community discussion on the merits of incentivising a second L1 pool on uniswap. Splitting the main liquidity pool is a step into the unknown in terms of impact on large purchases and ease of access. The arguments for Sushiswap include building links with a strong community, a celebration of Sushi’s admittance into $DPI, extending the visibility of $DPI to more crypto natives. In addition, it may influence the SushiDAO in favour of DPI when diversifying their treasury.

The planned exchange issuance module for DPI, is progressing, but not yet live so large liquidity is considered helpful in maintaining the confidence of larger holders.

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 further reduction in February rewards also had little impact (compared tot he price action in late Feb) (The use of the same staking contract meant that no action was required to continue the farm which probably helped retention)

image

Other DEX liquidity

We have recently agreed to a continuation of AMM liquidity mining on Loopring L2 for 1,000 INDEX over 14 days. A related Market maker incentives for order book trading on Loopring L2 was not approved.

Ongoing works
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 goal 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.

KPI’s

The key KPI for this proposal is that there will remain over $30 M liquidity in both Uniswap and Sushiswap $DPI: $ETH pools.

A secondary KPI will be that the % fees from trading volume will grow for the Unidwap pool as trade volumes increase combined with a reducing pool size.

Sushi volume should grow with liquidity.

The balance between UNI and Sushi AUM and trading volume is really an unknown to be observed.

Temperature check votes.

A note on Onsen
I have recommended that the coop deploy our own staking contracts based on my understanding that paired rewards with Sushi as part of the onsen programme is not straight forward. And typically required a protocol to deploy a contract outside the sushi swap Onsen portal, and to manage the dual token staking.

I do not consider this to be a feasible solution at this time, and if Sushi rewards continue within Onsen (I’m not sure they will) The we will effectively be competing for SLP to be staked. This allows LP’s to decide which reward they wish (INDEX or SuSHI) and allows smaller holders to save gas and do nothing in the expectation that the market will equalise the APY’s as people enter/leave/migrate seeking the best returns. Personally, I would love some INDEX+SUSHI reward for my LP tokens, but I’m unlikely to spend the gas to move out of Uni.

FOR

  • Extend liquidity mining incentives un Uniswap and start identical incentives on sushiswap for the DPI set according to the parameters above.

AGAINST

  • Do not extend Uniswap, nor / start liquidity mining incentives for the DPI set according to the parameters above. i.e. let LM incentives laps in Early March.
    .

Specification

Overview

The deployed smart contract being used for the current liquidity mining programme on Uniswap can be extended, but only for the same time period.

Existing stakers on Uniswap need to take no action.

New stakers would need to:

  1. Users deposit ETH and DPI into the Uniswap ETH - DPI pool and receive Uniswap ETH DPI LP tokens.Or Sushi pool to receive SLP tokens.
  2. Users deposit their Uniswap ETH DPI LP tokens into the proposed Index Coop liquidity mining contract. as appropriate.
  3. Users receive INDEX tokens in proportion to the quantity of ETH DPI LP / SLP tokens deposited.
DPI:ETH liquidity mining #5 - 30 days for both Sushiswap and Uniswap @ 700 INDEX per day each.
  • For
  • Against

0 voters

1 Like

Something to consider

1 Like

My newest take on this is that we should hold off creating a Sushiswap incentive pool until they end their rewards on the DPI/ETH pair, I don’t see a positive of creating one (unless we were able to sneak in double rewards)

@overanalyser how long is this poll open? I want to think more deeply on this!

Hi Greg, Good question.

If it was an easy majority, I would plan to close on Monday morning just after the weekly call.

It’s currently looking like it’s unlikely to be a super majority (or whatever the term is), we may have to go to a snapshot. In which case it may make sense to start the snapshot over the weekend - However, I’m not sure who can create snapshot votes (so it may be Monday).

1 Like

An abrupt stop to rewards may trigger a drop in liquidity right before Uniswap goes v3. While complete speculation, I think there is a chance that v3 will come with some kind of L1/L2 bridging. Keeping liquidity for the trading possibilities that such a change would enable is worth it if the cost of keeping the liquidity there is low. How do the treasury see this cost?

If the reason for risking a liquidity reduction is only to double up rewards in other places, I don’t see the point. Basically it’s a request for holders to incur transaction fees and move from pool to pool. The overall liquidity is unlikely to increase.

To use the cut to boost Sushi for potential consideration in DAO diversification and other community benefits should only be done with signed agreement: ‘Diversify this much and we will incentivise this much. After a review period we can consider further steps.’ Fair and open, not cap in hand.

Unless there are clear and sizeable benefits to cutting the the rewards, I favour the slow tapering off to zero.

3 Likes

I think UNI v3 is one of the known unknowns:
When will it launch?
Will liquidity need to be moved to v3 contracts?
Will UNI incentives be offered to move to v3?
How quick after announcement will we start to see significant liquidity volume migrate?
How long before will it take aggregators to adjust to v3?
Will v3 have a longer delay to drop back to l1 (I think optimism rollups can take days to finalise…).

In some ways, there could be a few days / weeks of changes. uncertainty, so Loopring / Sushi / other L2 Dex may have an advantage while everyone adjusts/moves liquidity.

I’m not a fan of trying to make conditions offers between DAO’s, I can not guarantee anything on behalf of the coop, and other DAO members can not guareentee that they will or will not agree to specific things. I prefer to act in good faith that if we are seen to act in ways that are constructive to others they will reciprocate in due course.

Edit to add.

Even with an abrupt stop on liquidity mining, there is significant volume in the pool. I’m currently seeing 10% APY in terms of fees and 12% in INDEX rewards. IF rewards stop, the rational liquidity will drop ~50% to stabilise the overall APY from the pool.

2 Likes

Hey OA, voted against just because the Sushi part is included alongside Uniswap. I started changing my mind on Sushi after looking at the numbers of small holders there/LPs generally, a month ago the ETH/DPI pool looked like this:

23 LPs with only 13 of them holding less than 10 DPI. That was with Sushi rewards from the Onsen program. I think continuing to taper is the right move given our Uniswap liquidity target, but the opportunity to collaborate with Sushi is perhaps not going to be on the AMM side. The data in Lemonade’s post above clinches it for me.

2 Likes

OK, I think it makes sense to reframe the vote here.

The poll I proposed yesterday was based on two considerations:

So, I grouped them together.

However, it’s apparent that such a proposal does not have overwhelming support. So I think it is in everyone’s interest to split them so we can attempt to achieve consensus (ideally without going to snapshot).


In order to allow us to keep m moving the discussion forward, I’m going to add 2 polls to this post:

  1. UNIswap incentives at 700 INDEX per day
  2. Sushiswap incentives at 700 INDE per day.

Then add some logic:

  1. If both get overwhelming FOR votes (I believe > 90% is required), we will do both as described above.
  2. If one gets overwhelming FOR, and the other doesn’t we will do the one that has > 90% support.
  3. If both are between 50% and 90%, then we will take just the one with the highest % FOR vote to a snapshot For / Against vote with a simple majority required to confirm.- My understanding is that this is what would happen if an IIP poll gets between 50% and 90% support → we goto snapshot for a simple majority vote.
  4. If both are greater than 50% AGAINST, liquidity mining will not happen.

(You can see why I thought a single combined vote would be easier :thinking:).

I propose that we run this poll for 48 hours, i.e. until 17:00 UTC on Monday 8th March 2021. This means the result / next steps can be confirmed during the weekly call. If we need a full 72-hour poll, we will continue until Tuesday. In either case, I’m sure we will discuss on Monday.

Best regards

OA :owl:

30 days of UNIswap liquidity mining at 700 INDEX per day
  • For
  • Agaisnt

0 voters

30 days of Sushiswap liquidity mining at 700 INDEX per day
  • For
  • Against

0 voters

5 Likes

Agreed, there are a great many unknowns. I guess I just wanted to hear that these things are in people’s thoughts - thank you, @overanalyser for your reply. Overall, as incentives are reviewed each month, the coop can will stay responsive and can gain experience and build relationships.

With regards to relationships, I also favour a constructive and reciprocal approach in general. My worry is based on not having a feel for how they are thinking.

A thought that struck me is that the FLI architecture might enable a leveraged DPI/ETH LP product. This could create a deep pool, even if just self seeded, and be attractive enough to DPI holders that mining wouldn’t bee needed anymore. A raw new thought that needs details filling in.

@overanalyser thank you for the hard work putting this together. My biggest take-away from our last couple weeks of discussion around LM/Sushi/Uni is our need as a community to eventually have a dedicated liquidity group monitoring our liquidity across L1/L2s/CEXs.

The battle for liquidity is only just beginning - and it will only grow more competitive from here. Very soon we will be a multi-billion dollar project with $100 of millions spread out across multiple L1 and L2 AMMS as well as centralized exchanges.

We attract top methodologists like DeFi Pulse (@snasps ) and Coinshares (@mcgpetch) because we have the strongest infrastructure on which to build and support indices. An important parts of this is ensuring that products are fully backed at launch with strong liquidity and exchange listings. We are still early in building out our capabilities - but in my opinion this is one of Index’s strongest selling points as a community.

We are building a powerhouse platform from which to launch indices and conduct meta-governance. The true value of the investments we make now by building strong-frameworks around liquidity and meta-governance through the advice of experts like @overanalyser, @verto0912, and @DarkForestCapital will only be felt over time. But it will be a powerful driver for our long-term growth and success.

I voted yes because I would like us to build our Sushiswap pool and I do not think that it will draw liquidity away from our Uniswap pool. I have read the analysis on both sides and my gut tells me we should try this - we are still a young project and we should feel comfortable experimenting. There is a good chance that liquidity remains as is on Uniswap and grows on Sushi. This would significantly boost AUM for DPI which is a win for the Coop.

Regardless of the outcome of this vote - I think it is imperative that we formalize a group with a broad mandate to manage our liquidity across all markets and products. @overanalyser is the obvious choice for this role - there are few people with a deeper understanding of AMM liquidity dynamics.

I don’t know if this should fall within our working group framework because this will be an ongoing effort. But the investment we make here in the people and structure to manage this highly complex area of our business - will give us a massive competitive advantage over time.

2 Likes

Hello everyone,

I’m not as knowledgable as some of you here and voted Yes for UNI and NO for Sushi.

My reasoning is that based on my own experience that sushi is not really used by real users compared to UNI pools. And in order to limit slippage having one big pool is better than 2 split in half. As others showed SUSHI has little numbers of LP and around 10% of trades which I suspect are mostly bot and arbitrage.

I did not take into account futur L2/UNI v3 for my decision to vote Yes because I believe building slowly (by reducing incentives) is a good way to maintain LP in UNI. As for myself without the index reward I might withdraw my LP shares because the 1X% is too low to compared to the divergence losses.

I’m just giving my reasoning here to have it challenged to make sure I have understood everything about the topic

6 Likes

Hi Crema and welcome.

I think you have understood the pros and cons for both pools. Some of this is simply experimentation where we try things and observe what happens.

2 Likes