Proposal 002 - Framework for Implementation of DEX LP Incentives

Nice proposal !
I would say that 2-3 DEXs can be a correct number, based on highest TVL and also if they have a reward program themselves for LQ pools(or had one by the past).
The allocation per DEX could be proportional to the TVL of the LQ-ADA pool, with maybe a monthly snapshot to reevaluate.

2 Likes

There are many great dexes to come. Each with an unique user base. Since there will be tribalism about dexes anything less than 3 will probably leave out a significant part of the Cardano Community.
3 should be the minimum. I don’t think liquidity will be too thin if we spread it out over 3 dexes. 4% is a big part of the tokenomics therefore we should aim to maximise the effect.

2 Likes

I think it is important to ask the question: Why do people want to incentivize one Dex over another.
I fear the answer is because people have a financial interest in one Dex succeeding over another. Eg people have farmed up Min or SS tokens and would like to see number go up. This thinking is self serving and doesn’t serve the greater ecosystem.

That being said I think the fairest way to divvy up rewards is to make them dynamic. Eg the rewards will be the relatively the same regardless of which Dex you decide to allocate liquidity towards. This can be achieved by a simple flat APR across all dex’s that are included in the program. By doing this you remove the LQ incentive curve, and people can choose which dex they support based on other factors. LQ LP’s are rewarded the same regardless of which Dex they choose.

As for Dex selection, I think it is best to choose Dex’s that are part of the Defi Alliance and have a working relationship with the Liqwid team. Additionally, I think dex’s that incentivize LQ/ADA pairs with their own token should also be given favor.

4 Likes

Personally I would suggest that the DEX process should be chosen closer to launch, instead of in Proposal 001 where a particular DEX was named. We should also reward creativity in the Cardano ecosystem. There will definitely be Minswap copycats now that minswap open-sourced their code. The DEX we decide to provide the incentive to should have a different approach than that of the minswap. For example, genius yield or maladex where they have a different approach.

Bootstrapping liquidity is important, but we should also question whether that 4% allocation is really necessary and could be better used elsewhere.

4 Likes

I think the big challenge in choosing dexes for incentives is that defi is so new on Cardano and there are a lot of dexes coming out in the next few months. Dex TVL is going to vary greatly with the launch of each new dex.

At this point, what makes one dex on cardano better than another? Are there examples of successful dexes on other chains we can use to develop a basket of preferred characteristics.

Although it is important, I don’t think TVL should be the only characteristic.

Also, I think removing incentive should be covered as well. What happens if a Dex is in the top 4 great TVL, great volume but there’s a bad update or a major controversy that severely hurts the dex’s rep; keys are lost, admin keys revealed, etc etc… and people start pulling liquidity. We should have a way to reallocate incentive as well. Would be really unfortunate to have tens of millions allocated to a nearly dead dex.

2 Likes

Good point, we have two main dexes and one almost doubled the other tvl in a week. Now that dex is down over 24hrs for maintenance. I think it is very early for choosing which dexes to allocate the 4% to, but maybe not too early to create the process of allocation.

Maybe we should wait for more dexes to release and then open an application process for dexes to apply for the part or all of the 4% allocation. Making them compete for our lq.

3 Likes

The more I read through all these and the faster Cardano moves, we should really do a pilot phase where we test out on the Top 2 DEXs, with the idea to expand into UP TO 2 more, or to reallocate the extra funds back into the Top 2 if a vote doesn’t pass… Since this post opened, MINswap went from under 50m to almost 200m so it’s just so fast……

2 Likes
  • LQ allocation per DEX

I think the amount of rewards that the DEX is giving LQ should be taken into consideration. Sundaeswap and Minswap have both given good rewards for providing liquidity for each of their respective token/LQ pair.
If a new DEX were to launch and this DEX doesn’t provide any incentive for its LQ pair, I would be less inclined to allocate any of the 4% to this DEX, even if they are successful and have a high TVL.

1 Like

WingRiders needs to be consider more as well. Hats off to them for identifying the MinSwap vulnerability & alerting them, this type of partnership could be valuable to the LQ community. Tho I don’t believe they are out of test net yet

7 Likes

Less DEXs would be great to concentrate rewards for stakers, more DEXs would be better for decentralization

I think it is important to consider long term liquidity being incentivised, as well as reliability of price discovery as liquidations in Liqwid in particular depend on that. What we should want to achieve above all else is protection against price manipulation and gaming, cornering of the market, stop hunting etc. In order to be most successful this means we need to incentivise dexes that prevent manipulation by design, and do so in a way that prevents or disincentivises collusion across dex platforms and other undesirable behaviour. Until dexes that implement programmable swaps within their architecture are live I don’t think we will be able to judge which dexes are most likely to promote fair dealing in this way, and which are most transparent and open to objective assessment. These things are as important as raw TVL or other metrics like whether a dex’s tokens are used to promote LQ TVL, although those things could of course help or hinder the fair dealing criterion. There needs to be a good balance between initial incentivisation of the targeted liquidity / behaviour and ongoing maintenance and promotion of those things for LQ across the Cardano defi ecosystem. I think there are likely to be 5 or 6 dexes which will be both innovative and aspring towards these things and we need to give them all a chance, notwithstanding that being early, correct and well-aligned to Liqwid’s coding efforts and philosophy is important to reward.

2 Likes

Splitting the liquidity rewards on sundaeswap and minswap equally

I propose breaking DEX LP incentives up into quarters, each percent of the 4% to be allocated as determined by governance prior to that quarter. For instance, Q2 2022 should be allocated 1% of the 4%. Since SundaeSwap and Minswap seem to be far ahead at this point, that 1% can be equally distributed between the two platforms for Q2 of this year (0.5% SundaeSwap and 0.5% Minswap). Things will likely change prior to Q3 2022, and we can reassess at that time (of course knowing in advance that 1% of the 4% will be distributed in Q3). Same with Q4 2022, and so on until the year is up and the funds have been distributed. Does that make sense?

1 Like

Agreed Anthony , we want to align with the best dev teams , defiantly!! hopefully they launch there dex soon .

I would love to submit the data for splitting the 4% in half and using 2% for a fixed period of time, on Sundaeswap as they were early supporters of $LQ. I propose a 3 month LQ/ADA farming pair incentive that is weighted slightly heavier for full participation.

Hi marlowma,
I think this is an interesting approach. Would you consider a reevaluation of the prior quarter’s allocation if , as some have mentioned here, that a particular DEX has “fallen out of favor” for some reason, or a new DEX like GY, WR or Maladex comes on mainnet and is a compelling candidate for that allocation?

1 Like

Absolutely, I think that approach helps to keep everyone honest as well.

This recommendation completely makes sense to me. After seeing the psychology of crypto investors, I think this kind of “bonus” incentive is the type of thing that keeps a project fresh on people’s minds, and helps bring more people into the fold. I know that you don’t want to waste everyone’s collective attention until there is a working project, but that small bit of incentive serves to keep the project in the forefront of everyone’s mind. Plus is shows that the LQ project isn’t above putting additional resources back into the hands of regular liquidity providers, even this early on in the project.

I agree, having competitive dexes helps keep ecosystem fresh, especially for distinct projects that want to partner up with an LP incentive.

Dear all,
I have published on Liqwid Core Team – Solution for Proposal 002 our proposed solution to offer the DEX incentives in a consistent framework.
Please have a look and let me know what you are thinking about it.

3 Likes