A few thoughts on liquidity incentives and how to track / pay them. The above table shows the actual USD impact of paying for liquidity over the past month. Granted, when the January budget was set, the price of LDO was ~1 USD but it goes to show the futility of using the native token as a ‘payment’ token. We have rewarded LPs an extra 50% in January but it’s not clear that stETH to ETH slippage has decreased by 50% for example.
The approach of cutting until we hit turbulence seems appropriate because it’s anyone’s guess what the lower bound is. It could well be 0 (sure hope it is) given stETH’s level of organic demand and adoption, not to mention the incipient arrival of withdrawals which should provide an arbitrage route to bring the price of stETH closer to ETH organically.
Proposal
- Going forward, track every line item in USD terms and measure/report effectiveness relative to USD value
- Enforce a budget setting process that ratchets down the amount of liquidity incentives in USD terms
The idea is that when we set the March budget we commit to the max total budget to be the smaller of the LDO tokens issued in the previous month, or the USD value in LDO tokens (at the new prevailing price).
Would like to see a more aggressive reduction % ≥50% as we are not seeing any meaningful impact on liquidity so far and we will observe the stDOT and stKSM results keenly.