Appreciate your reply, which makes me more clear on the targets and base rules how the reWARDS Committee works.
Beyond what you have mentioned, there are still some unanswered questions, especially about specific mechanisms.
Q1: What’s the basic strategy of LPs incentive plan on Ethereum?
A1: Basically we need “at least” some multiple ETH/stable liquidity to cover liquidations of the most risky positions on money markets as the ballpark of total liquidity in the pools. On higher volatility this number would go higher due to more risk of sudden price movements, so the optimization for “price resiliency” is important as well. Not sure what you mean by “segmentation strategy” here.
“Segmentation strategy” means what the specific “some multiple” number is settled and what’s the variable numbers that will trigger the different level of volatility. For example, if ‘stETH to ETH average discount’ is the trigger, and ‘under 1.5%’, ‘1.5~3%’, ‘3~5%’ might use different strategies to match the demands. As you have done so much research and data monitoring in the past half a year, you might have these mechanisms to make the rewards setting more scientific.
Q2: How do you manage the LPs’ rewards expectations?
A2: We communicate the planned rewards amounts for the pools in monthly budgets to both 1) communicate the plans & get community feedback; 2) signal LPs what the amount of incentives would be in the next month. Should note, we don’t change the numbers drastically in single period (“no drastic motions”), so not to surprise LPs & cause massive liquidity outflow. All the communication is public — it’s exactly the budget posts & numbers you can see on AMM interfaces where reWARDS sends the incentives to.
Historical actions may give us some guides to the future, but things always change faster than we expected. That’s why specific mechanisms matter. LPs’ rewards expectations must have an outside reference system. It might be the Curve ‘renBTC-wBTC pool’ APR because of the same level of risks, or it might be the ‘sETH-WETH pool’ or the ‘AnkrETH pool’ APR because of the direct funds competition.
Q3: What’s the balance mechanism between liquidity utilization and rewards demands?
A3: As I’ve mentioned, liquidity utilization is important thing we measure, but don’t promote specifically. Most of incentivized liquidity is in pools to ETH, the price there is quite stable → not much arb opportunities. The liquidity utilization has been significantly higher on pools with stables, but the liquidity amount was way lower & ~5x more expensive. For ETH pairs the benchmark is staking APR — little sense to hold liquidity in the pool if the APR is significantly lower than the staking APR one can get just by staking & holding stETH.
This question is related to ‘Q2’, and tbh, I can’t support the view that ‘little sense to hold liquidity in the pool if the APR is significantly lower than the staking APR one can get just by staking & holding stETH.’. Holding stETH will always have a synthetic layer risk and stETH to ETH discount volatility risk. Provide LP gives them a chance to take less risk exposure on stETH, as well as addition return generated by transaction fees and incentive rewards. If the ‘benchmark’ means ‘cap’, that’s more reasonable.
Glad to see more discussions on these questions.