Timing on most non-eth pools is floating + there’s buffer for potential (no official dates, mind you) L2 pools.
The analysis is awesome, and we’ll be looking there closely. Must note that one of the questions is — unfortunatelly — not “how to cover for most swaps” (the biggest swap size is order of magnitude bigger than median one), but “what size of pool / config of pools is stable enough”, so the price can’t be manipulated on the cheap. That in turn feeds into money markets positions safety & stETH holders expectations.
- I do feel there’s significant room for juicing more effectiveness from reWARDS as those are now.
- The setup on ETH is targeted not for median swaps/activity, but for overall price stability (not a single number, but basically making it complex and expensive enough to dramatically drop the price in money market price feeds).
- We’re working on model covering the q from 2., but can’t share the results just yet.
“what size of pool / config of pools is stable enough”
Ok, my question is “what’s the definition of 'stable enough”? I don’t have any resources other than 62,464 on-chain actions. If under 5,000 stETH volume can cover 99.7%, does the left 0.3% really that emergency to be swapped in one transaction, which none of them is for liquidation.
Let me finish my comment with the last part.
3/3 Know your LPs
Before making a incentive plan, you should know you LPs.
Let’s use Curve pool as an example.
https://dune.com/queries/996880
Actually, the liquidity pool is dominated by a very small group of LPs. They are purely APR driven. Some of them even compounded their yield more than 3 times a day. So their expectations will always be ‘more’!
Here is the question: Are we keeping high incentive costs(more than 10X than real demand, IMO) constantly just to make this small group of LPs feel happy? As they are purely yield driven, do they have other alternatives?
Summary:
Too much LPs’ concentrated domination is a double-edge sword. They might be helpful for a period of time, but for a long-term view, they may also be a threat and even become a blackmailer.
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Look through the above tables, we can figure that the unbalance of the pool assets is one of the most influential factors of price slippage. About 4 times of liquidity(ETH and stETH combine) will be needed to keep a 1000 stETH transaction at the same slippage while pool weight went from 1:1(stETH-WETH) to 3:1.
So, keeping the LP APR at a level of more attractive compared to other ETH yield generated options and less attractive compared to the stETH staking yield is very important to build healthier liquidity pools. Fundamentally, our incentive target is to encourage more ETH to join in the pool, not more stETH.
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Due to an accident with Crema Finance:
- we decided to hold our budgeted incentives 5000LDO for stSOL-SOL pool
- and we do not launch new pool stSOL-USDC with 10 000 LDO as incentives.
We are following the investigation process and will keep you updated.
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@banteg Do you think Yearn has a better option for ETH yield farming than provide liquidity on stETH-WETH Curve pool, if the $LDO incentive decreases 50%? What level of APR do you expect as a liquidity provider?
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We try to look at the comparison between paths. Which path will give us the most liquidity for each $1 spent. Due to the over competitiveness of bribes via Votium the efficacy has dropped sharply and is less cost effective than direct incentives. We are currently working on analysis for additional options such as buying CRV, CVX, using Paladin, Hidden Hand etc.
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Chuck, I wanted to say this was great analysis and thank you for the contribution. Would love to ask if you are interested in contributing more directly to rewards processes? Even if not, I would welcome your feedback as we continue to improve process around this.
Candidly this takes time as Lido is conservative and not willing to risk breaking things in a rapid pace. I agree that there is room to significantly lower both emissions to Curve, lower the total amount of liquidity required in the pool (depth), optimize the path between bribe, direct, or buy and greater than most will find with other ETH options.
We are also exploring work with Tokemak/Ondo finance to allow targeting single asset LPs which would increase the granular control we have to target one side of the pool at a time.
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@Chuck the important thing to understand here that perception of “what is adequate liquidity” in the my eyes, your eyes or a trader’s eyes does not matter so much here. What matters is - what our integrations consider adequate liquidity. Reducing incentives/liquidity at some point will translate to delisting from AAVE and very low limits on Maker - we need to understand and deduct this point, which can’t be directly sourced from counterparties in practice nor can be calculated just from the swaps amounts. Liquidity pool that can be manipulated to cascade liquidations with a very small amount of money just won’t cut it for them.
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@vsh I get your point. The liquidity pool does not only take the role of utility, it also should be viewed as an insurance, even if the utility is low most of the time. Somehow, the incentive is just the premium of the insurance. I should say that I agree with you on this point and will adopt this factor into my framework.
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@vsh Have no doubt about the importance of sufficient liquidity. I guess the key point here is how to distribute the LP incentives in a more efficient way. Incentives to liquidity could serve 2 purposes here:
- Liquidity/Depth of the pool
- Price Pegging (thx to the mechanism of AMM)
We understand the implications of the 1st purpose. The second one would also be of strategic importance to Lido - (close to) price pegging is the prerequisite for Lido’s growth simply because no rational and well informed users will opt staking over purchasing.
In general, we have 3 possible scenarios in theory in terms pool balance (= price depegging) .
- ETH >> stETH (ETH price >> stETH price): crossed out - this will provide stakers or arbitrageurs space to do the arbitrage, closing the price gap. So impossible in practice
- ETH stETH balanced (ETH price = stETH price): Possible
- ETH <stETH (ETH price << stETH price): Possible -liquidation, FUD etc. will all add much selling pressure and ETH LP withdrawal that contribute to this scenario
In most of the cases, the pool is having deficit in ETH (sometimes balanced). As a result, the effective liquidity here is always ETH liquidity, which effectively determines price depegging. For both liquidity effectiveness and growth of Lido, which requires price pegging, it will make sense to come up with a dynamic incentive distribution model that
1.differentiates stETH LP from ETH LP
2.distributes the incentive (semi-)dynamically based on the the pool balance
This is in line with single asset LP rewarding effort @jbeezy mentioned above.
Another approach to the more effective/efficient LP incentivisation:
- Don’t differentiate the incentives for ETH and stETH LPs
- Providing better incentive to stETH in other application scenarios, possibly some nice stETH based yield strategies
Will provide more thoughts and details on the above suggestions.
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Lido on Polygon budget update for July:
There has been an ops mistake while assembling the July budget for stMATIC rewards.
The total difference between the current budget and planned oneis 100k LDO tokens for July.
Lido reWARDS committee has enough LDO tokens in the buffer on gnosis safe to cover this difference, so no additional LDO will be requested for this month.
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Lido on Ethereum budget update:
Idle Finance was priced in USD TWAP and not LDO tokens as is standard. This will be corrected next month.
As such the original amount should have been 46,000 LDO instead of the sent 30,000. This is a notice that we are going to send an additional 16,000 LDO for July.
There is enough in the buffer to cover the difference so no additional LDO will be requested for this.
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Totally agree with the core thoughts you have mentioned. The core observation I want to point out is that the LP incentive purpose in making it more attractive to ETH holders and less attractive to stETH holders. If the LP total APR goes much higher than stETH staking APR, it will make more stETH join the pool as LP and dilute the increase of joined ETH.
Even considering the discount(2.5% currently) and assuming the withdraw will be enable in 1 year, a 6% LP total APR will significantly attract more stETH joining the pool.
https://docs.google.com/spreadsheets/d/11Z-3GGkIfsFT1ZDXi87K-SsCTnyXSbupYxBWbS6ik5g/edit#gid=0
Glad to know more about your thoughts on this matter.
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Just adding more details on top of this to make the differences in planned and posted budget transparent:
Balancer Bribe 24k → 40k (10k per week)
Beefy 54k → 90k (30k per vault on Balancer, Curve and Quickswap)
Curve 48k → 80k
UniV3 24k → 40k
Total diff is 100k LDO as mention in the previous post.
We launched our new pool stSOL-USDC on Lifinity.io
Unlike other DEXs, Lifinity owns its liquidity, so it is able to provide stable liquidity (not dependent on LPs).
According to the agreement LDO rewards need to be sent. Lifinity distributes protocol revenue to token holders on the 25th of each month, based on revenue that has accrued up until the 22nd. Here’s the information for the first period:
Calculation period: 2022070706 UTC - 2022072200 UTC
Total volume: 13,963,818.817923 USD
0.05% of total volume: 6,981.909409 USD
LDO price: 1.61 USD (Coingecko’s open price on the 22nd July)
Amount to be sent: 4,336.589695 LDO
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Pleasure to talk to you, bro. Have been bogged down by other stuff, so dealyed my reply. The model you provided is interesting, pretty much in line with what Im thinking. There are a couple of practical things here:
-
How to decide an LP’s token composition (stETH vs ETH) to accurately reward him based on the new weighted model eg. the one you proposed? Once his/her tokens are in the pool, they are part ially converted to match the pool’s token ratio. We need to have a way to record/prove the type of deposit token.
-
A possible trick LPs potentially will use to circumvent the weights in the new model is LPs could sell stETH for ETH before they deposit the tokens in the pool. The effect of this selling action will offset the his ETH contribution to the pool, for which he will receive better LDO reward. To mitigate such actions, the new model should be designed in such a way that the cost of selling stETH for ETH should be higher than the gain in the extra reward in the new model. Here we also need to consider the average sustainability of LPs.
-
Should the new model be applied to the new LPs or old LPs’ benefits should also be considered?
Further, we are working on some interesting new stETH based strategies, which likely will distract part of the stETH in curve. Let me know if you have interest.
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It’s really kind of you to share all these details here. Using stETH as the rewards token will bring more certainty and stability return to the LPs, which is also what I recommended. Glad to join you on the upcoming new strategies.
July budget update / August budget heads-up here
With Balancer’s BIP-19 drastically increasing bribes on the Balancer ‘core pools’, and both wstETH and stMATIC pools being considered ‘core pools’ by the Balancer governance, the Committee has decided to discontinue direct rewards on the wstETH<>WETH pool for August, while keeping the bribes at its current level of 200k LDO (50k LDO per week).
Bribes via the hiddenhand protocol proved to be much more effective than direct incentives in terms of APR impact, and given the recent LDO pump, we expect the resulting yields to at least stay at the same level in August as those were in July.
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DMed you, bro. Plz. check it out. Tx