By mid-December, the 30-days reward periods both for Curve stETH/ETH and Sushi wstETH/DAI liquidity pools will expire (on 11th and 16th of December respectively).
Curve stETH/ETH LP rewards
For almost a year, Curve pool used to be the foothold of stETH/ETH peg and keeps maintaining it steadily. It’s also the deepest pool across DeFi at around $5 billion TVL at the moment. Keeping it stable and safe is of paramount importance to the protocol, so we propose continuing the LP rewards with the same amount of 3,550,000 LDO for the next 30-days rewards period starting on December 11th.
However, there is an ongoing discussion in the community about more capital efficient options of Curve pool incentivization, e.g. Convex bribes, Olympus Pro bonds, timelocking LP rewards, etc. Please, feel free to come up with more ideas.
Sushi wstETH/DAI LP rewards
Sushi pool launched in the late summer’21 and has been consistently incentivized with 200,000 LDO per month since then.
As recently shown in @vsh’s analysis, these incentives look excessive for now. Compared to WETH/DAI pool, the wstETH/DAI pool appears to be roughly 5 times less useful for trading.
Similarly to 1inch stETH/DAI pool, we propose reducing monthly rewards for Sushi wstETH/DAI LP to 50,000 LDO for the 30-days period starting on December 16th.
Please comment on this post if you disagree with these proposals. If approved by the community, both allocations will be handled via the new Easy Track functionality over the next week.
Could you please elaborate on the point that the Sushi wstETH/DAI pool is 5x less useful for trading?
I see from @vsh post that total liquidity in Sushi for wstETH at the time of his writing was about 1/5th of that for WETH. Is that how you are looking at this comparison about relative utility?
I also see that same ratio of liquidity for the two Sushi pools is closer to 1/2 today, mainly due to sharp drop in WETH/DAI liquidity over the last week. Should we reevaluate the comparison based on updated numbers since the original analysis?
The main metric compared was the utilization rather than straight TVL. This metric is significantly higher for WETH/DAI pool and increases while the TVL drops. This means, a huge part of the wstETH/DAI pool probably only sits there for the incentives and hardly facilitates actual trading vs stETH as a primary asset.
That makes more sense… So you view the utility function as basically (#'s from 16d ago, time of @vsh post):
for wstETH - $0.4mm 24h trading volume / $37m 24h liquidity = 1% “liquidity utilization”
for WETH - 10m volume / 165mm liquidity = 6% liquidity utilization
The same calculations for the current 24h volume and liquidity numbers are I think a bit thrown off by a spike in wstETH trading volume, but if you look over the last week it seems like the ratio of utility between the two is roughly the same as the original post.
Do you think that the 5x decrease is still appropriate given updated metrics from the two Sushi pools?
If the goal is to reduce the total liquidity provided to the Sushi wstETH pool, is there reason to believe that a 5x decrease in LP rewards would result in a 5x decrease for the total amount of liquidity in the wstETH pool (which would get the two utilization ratios in line)?
We propose reducing the rewards by 75% for now, not 5x. Also, likely it won’t result in a 4x decrease in TVL like it didn’t for the 1inch pool, you can check its performance after 4x incentives decrease here (the incentives have been reduced a week ago). However, I personally expect it to improve the pool utilization in general, while it will still hold enough liquidity to facilitate trading even in case of spikes.
By the way, thanks for posting this, we do really appreciate the discussion. Right now there is a proposal in the works to form a more transparent process around the pool incentives, with proper monthly community reports and stuff like this.
Yea I will look at the 1inch reduction more, thanks. I think the proposal generally makes sense. Just wanted to understand more how you and others view these issues.
Glad you think engagement on these issues useful. I find that often only conclusions are posted in these forums versus the thinking behind them, so I am trying to make myself put put more of my own thoughts into writing with the hope that others would be able to take something from it as well. I think a regular forum on pool incentives seems like a great idea and I’d love to participate.
Very happy for you to engage @PatrickOD!
Truth to be told, we’re still looking for the perfect way to evalute the importance of an LP program for Lido. My thoughts here are that on non-ETH pairs what we want to provide is for people to be able to use stETH in trading the same way they are using ETH - as a useful half-pair in LP or as a bridge currency, or as an asset you are short or long.
On one hand it’s a lagging indicator (we need to make stETH max liquid for it to be useful and it has to be useful to be max liquid). On the other we don’t have a good way to measure exactly that, but I think that liquidity utilisation is a good proxy of success in that.
It’s interesting that following the decrease in 1inch LP incentives by 75%, stETH supplied to the pool dropped by nearly the same proportion (70%) while trading volumes stayed the same. In your view was that change successful in bringing the utlization of the stETH pools in line with the ETH pools? Just looking at the APYs on 1inch, it seems like stETH LPs are still earning a great deal more than those provided to similar ETH pools.
The success here was in reducing the incentives but keeping similar results in trading activity, in my opinion (which isn’t full success - full success would be to increase organic trading activity, but I think that needs a very different approach than just incentivizing LPing).