This proposal is for the restructuring of LQ tokenomics to reflect a more balanced distribution curve that rewards Liqwid’s key stakeholders with the ability to upgrade the protocol. Liqwid community developers, protocol users, LQ stakers and community members are all core participants who add value to the ecosystem in unique ways.
The initial token distribution schedule was focused mostly on the community incentives and for good reason, a community-led DeFi protocol must be represented by an empowered ecosystem of protocol users. The initial allocation of 70% total LQ supply to community incentives (suppliers and borrowers) is a large concentration of tokens to a single group of participants.
This proposal is to adjust the LQ tokenomics with respect to incentivizing all of the protocol participants, both in the near term and further out into the future. In general LQ rewards should accrue to users who contribute to the protocol’s TVL and provide liquidity. This includes community incentives, LQ stakers in the Agora Safety Pool (insurance pool) and LPs of LQ/ADA pools across DEX’s.
When considering the distribution of tokens as incentives (e.g. SundaeSwap Yield Farming) liquidity bootstrapping is the most common route for users to earn rewards. That said, if the community finds it worthwhile to instead optimize for increased liquidity across Liqwid’s three main liquidity pools (Liqwid markets, Agora Safety Pool and the LQ/ADA pool) this proposal represents an alternative potential path.
The specific updates to the LQ tokenomics include:
Removal of yearly halving in community incentives, this ensures sufficient rewards will be available for users who join the protocol in later times via a linear release (inflation schedule updated to 4 year schedule).
Allocate 17% of token supply to LQ stakers in the Agora Safety Pool; this pool serves as a protocol reserve and insurance pool in the event of a shortfall.
Allocate 4% of token supply to LPs of the LQ/ADA SundaeSwap pool to scale liquidity in the deepest LQ pool on any DEX. SundaeSwap is running a yield farming service for projects to incentivize their pools and they included LQ in their initial six month yield farming program. This represents a mutually beneficial opportunity for both Liqwid and SundaeSwap to scale liquidity. SundaeSwap has grown to over $125m and the team has established themselves as the premier DEX builders on Cardano. Please vote on the proposal to include LQ incentives to the LQ/ADA pool on SundaeSwap’s governance forum.
Replenish the initial 5% DAO Treasury allocation; it’s key for the community to manage the DAO treasury spending for future protocol improvements beginning with the launch of Agora.
Reduce the Community Incentives allocation from 70% to 47.5%; even with this decrease Liqwid is still distributing significantly more tokens as incentives to liquidity providers compared to other DeFi lending protocols on Cardano and Ethereum.
“At first glance, it now looks like only 47.5% are distributed to the community, when in reality, it’s 47.5% + 17% + 4% = 68.5%.
So I would tend to call those 68.5% as “Community Distribution”, split into 3 categories (lending/borrowing incentives, Agora safety pool, and LP staking).”
-A community moderator posted this in Discord earlier and it feels very relevant to be included here.
*Note none of these proposal changes would be implemented until v1 mainnet launch.
Updating the LQ tokenommics to reflect balanced incentives and hence liquidity provision across multiple liquidity pools is a strategic route for the community to analyze and consider. Spreading allocation from Community Incentives will give LQ stakers and liquidity providers a sustainable incentive for their deposited liquidity. Achieving the vision of implementing an ownerless money market protocol will demand a balanced set of incentives capable of rewarding long term participation across all Liqwid pools.