Summary
This temperature check is focused on introducing a targeting 15% APR for the ADA market suppliers. ADA is the largest market on the protocol so in effect this 15% APR target would be incentivizing the majority of protocol suppliers. Note this would not impact the latest proposal which updated the dynamic emissions rewards to target 50% APRs for stablecoin markets (this will fully remain in effect) and the targeted 15% APR for the ADA market will be in addition to the stablecoin targets. Enabling ADA market suppliers to earn 15% APR with no liquidation risk or impermanent loss risk is a sustainable way to grow the protocol’s TVL and attract new ADA suppliers.
Reasoning
In response to community feedback, a targeted and attractive APR for the largest market in the protocol is a sensible move that will result in a healthier distribution of LQ rewards to the majority of protocol suppliers. It’s also important to note the initial ADA market APR for the first 3-day rewards epoch following the update to dynamic emissions was 3.15%. The DJED market was 86.6%, far above the 50% APR target. Both the 50% APR for stablecoin markets and 15% ADA APR targets can be achieved.
Simulated distributions completed to calculate the amount of LQ emissions required to achieve an ~15% APR target for the ADA market at current TVL including the ~50% stablecoin target would emit slightly over 70,000 LQ per month at current levels. Using current data allocating ~35k LQ/month to the ADA market would achieve an ~15% APR target. As new stablecoin markets are added this will increase the LQ emitted per month until the 100k ceiling is reached, as outlined in the previous update to dynamic emissions proposal.
This temperature check is now open for community discussion and feedback.
Do you support a 15% APR target for ADA market suppliers?
The temp check has been updated. Also important to note the DJED market APR during this 3-day epoch was 86.6%. Both the 50% APR stablecoin markets target and 15% APR ADA market target can be implemented with LQ monthly emissions still under the maximum amount. This is the main reasoning behind the proposal.
Great point here @LapinMalin and I think it’s time to have a more focused discussion around specifically what target each market should be set to we are at the 100k LQ monthly limit now.
Some questions to hopefully spark a deeper analysis and community discussion:
With the highly anticipated launch of Cardano’s first fiat backed (and 1:1 redeemable) stablecoin USDA from Emurgo/CF should stablecoin APR targets be adjusted such that they are not all receiving the same blanket 50% target or keep it as is?
Should USDA or iUSD receive higher targets than DJED (or vice-versa)?
Should stablecoin APR targets be decided solely based on market utilization, or should TVL, DEX liquidity (an important metric for on/off ramping stables into the real economy) also be considered?
Should the stablecoins specific properties be considered in target APR analyses (e.g. capital efficiency based on min. collateral ratio, slippage, ability to redeem 1:1)
Should ADA market have a 5,10 or 15% APR target if we are already at the community voted 100k LQ monthly limit (before the USDA market launch).
All things we should begin to discuss leading up to the USDA launch and eventual vote to support this market on Liqwid.
For Q1 and Q2:
I think we should keep the current arrangement as it is. USDA, DJED and iUSD all should have the same target 50% APR.
And for now I am inclined to maintain the current 100,000LQ monthly emission cap for user distribution, at least for 2-3 months before considering any possible changes.
For Q3:
I don’t quite understand. Can I get a little more explanation or example of stablecoin APR targets based on TVL and DEX Liquidity?
For Q4:
I don’t quite understand this too. I believe we already considered stablecoins specific properties such as iUSD which cannot be redeemed 1:1 until Indigo v2 is launched; hence that’s why we set 0% collateral factor for iUSD.
For Q5:
I believe there is no need to incentivise ADA holder because
(1) ADA is already over supplied in Liqwid (i.e. 58% of the total supply value), and
(2) we already breached the 100,000LQ cap.
Increasing to 15% target APR would result in reward increase from 500LQ to 40,000LQ per month for the ADA market; further throttling down the stablecoins APR to ~38%.
Nonetheless, perhaps a target of 5% is still okay to incentivise more ADA holder to supply into the protocol; giving them chance to earn (1) 2.70% supply APY and ADA staking reward, and (2) ~4.7% target APY =~ 7.4% APY, as opposed to the average 3.20% staking reward.
YES, if USDA will have a full redemption system and no scaling issues once launched. It’s very likely it’s gonna be the main stablecoin for all Cardano DeFi.
Based on point 1. USDA absolutely YES. Rest NO until they have the same features as USDA.
USDA should have 50% APR target. Rest of the stablecoins proportionally by their TVL to USDA TVL in Liqwid.
Further metrics could be developed and implemented to support more advanced/used stablecoin between Djed and iUSD as they progress.
To keep ADA market competitive we should target cumulative APY from native staking + interest paid + LQ user rewards at least 2x compared to ADA native staking only, currently around 3.5% APY.
Liqwid could increase ADA staking rewards by providing more info in advance about the margin fee and saturation level of each pool before voting in any further SPO selection.
Currently out of 16 SPO only 3 staking pools have a margin fee of zero % while 7 pools have a margin fee of 2% or above.
Also should any SPO increase its margin fee during its 12-week cycle, Liqwid should have the right to fully redelegate its stake to a new pool not selected that was next in the vote with the most votes.
