@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.
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.
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.
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.
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
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.
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.
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.