[Closed] AIP 001: Reduce the number of incentivized dex pools

Governance Proposals
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#1

Title of Feature: Reduce the number of incentivized dex pools

Author(s) Names: The Liquidator

TLDR Summary:

  • Main idea is to increase the liquidity while keeping the inflation at the same level via reducing the overall number of DEX pools that receive rewards (currently 6 pools for AKRO/ADEL)
  • Currently there are USDC, ETH and wETH pools for AKRO and ETH/wETH pools for ADEL
  • I would suggest reducing the counter pair (for both AKRO and ADEL) to either ETH/wETH or USDC (USDC would be one less volatile part and might mitigate IL)
  • With USDC there would be two incentivized only (instead of 6): AKRO/USDC and ADEL/USDC (this number could be increased to 4 if you want to have both Balancer and Uniswap as an option)
  • If you want to go from AKRO to ADEL you can simply go AKRO/USDC -> USDC/ADEL and vice versa
  • There is enough liquidity from other liquidity providers that would cover ETH/USDC

Benefit:

More liquidity will go together with a higher token price stability, this can attract more trading volume, which in turn could attract CEX to list the tokens

Potential negative consequences:

Less incentivized number of pools for people who might prefer holding ETH over USDC (or vice versa)

Summary

I think the benefits will clearly outweigh the negative consequences. Less DEX pools will also mean a higher APY in the DEX pools, which will automatically attract more liquidity. The rewards could then be adjusted on a weekly basis to keep the liquidity constant/increasing over time.

Thank you for considering :slight_smile:

15 Likes
#2

I agree that we need no more than 2 pools with rewards on Uniswap. In general /ETH pair will attract more liquidity but /USDS will be less volatile. Still I believe we should choose Akro/ETH and Adel/ETH pool and focus the rewards there.

2 Likes
#3

Great idea to reduce number of liquidity pools.
IMHO, ETH liquidity pairs should attract more liquidity instead of USDC , as it is human tendency to stay invested in growing asset instead of stablecoin. Moreover ETH token value would probably go up in future and so should AKRO/ADEL token values, thereby reducing IL.
Just my personal opinion. Might be wrong though.

2 Likes
#4

I don’t know about dropping /eth pools. The /weth pools are definitely redundant with /eth pools. Other then that might just weight the rewards towards the highest liquidity and if we could really be cleaver take into account the highest volume pools for a higher percent of the rewards.

#5

All eth inside a liquidity pool is wETH. If a user wants to swap out Eth or wEth that’s all decided by the user at the exchange interface level and doesn’t impact pool makeup requirements.

Are both uniswap and balancer needed? They’re both DEXes, users with web 3 wallets who are motivated enough to find uniswap are sufficiently motivated to find balancer, or vice versa. I don’t think people stumble upon uniswap and then pick which tokens they’ll invest in, rather they seek the exchange because of the assets there.

Volume will go where liquidity is more available, if there are no incentivsed pools on balancer liquidity will move to uniswap and vice versa. So, slippage could be reduced by consolidation with little impact if reward distribution is also consolidated. Mooniswap got the axe why not uniswap?

Balancer allows non 50/50 weighted pools. The 70/30 pools placed there are in favor of a bullish outlooks on akro and adel, and also allow LPs to loose out less on positive price direction than LPs on uniswap. Furthermore balancer has their own incentives for LPs. A balancer exclusive rewards distribution would further distance Delphi from sushiswap, mooniswap, sakeswap, etc. but also be competitive with such developments, as balancer has proven itself and is by defi terms a long time player. There is stability there.

1 Like
#6

The thing is the largest liquidity pools for AKRO are already on uniswap. I don’t mind balancer, but it seems weird to fight the market on this. I don’t think either should really be dropped but, it would make sense to weight the rewards by highest liquidity highest volume pools.

1 Like
#7

There is no need to actually remove Uniswap or Balancer pools but the incentives need to be focused.

And I agree that this should be dependent on the overall liquidity of the pools. I would decide on either ETH or USDC as the corresponding incentivised pair and basically let the overall liquidity of the pools decide, how large the AKRO/ADEL rewards will be per pool.

Personally I agree with DeptOfLabor that Balancer is more attractive with its 70/30 weight, which could also attract people who are bullish on AKRO/ADEL and are currently staking, compared to a 50-50 Uniswap pool.

If we were to decide on a Balancer solution for the short-term, there would be two options in my opinion:

Option 1: wETH pairs

  • Balancer pool 70/30 ADEL/wETH (40% of the LP rewards)
  • Balancer pool 50/50 AKRO/ADEL (20% of the LP rewards)
  • Balancer pool 70/30 AKRO/wETH (40% of the LP rewards)

Option 2: USDC pairs

  • Balancer pool 70/30 ADEL/USDC (40% of the LP rewards)
  • Balancer pool 50/50 AKRO/ADEL (20% of the LP rewards)
  • Balancer pool 70/30 AKRO/USDC (40% of the LP rewards)

The Uniswap pools can be kept but liquidity will move towards the incentivised pools. I would suggest starting from here and see how the market reacts. Of course this can be changed on a weekly/monthly basis.

2 Likes
#8

The purpose is to focus LP rewards, splitting them up among the same asset pairs with just differences in pool ratio seems counter productive. It makes sense to provide the liquidity mining rewards where the most volume already is. I agree the liquidity pools on balancer might grow to the larger pool size on uniswap, so they probably should not be dropped, but only one of the ratios should be focused on there, along with uniswap weighted by most volume.

#9

I vote for USDC pairs.

However do we really need a AKRO/ADEL pool at all? Isn’t balancer able to route AKRO -> USDC -> ADEL itself like 1inch and Uniswap do?

2 Likes
#10

yes thats possible and dropping it would increase liquidity further. It’s not really necessary but some people may be interested in having it.

#11

Has there been any vote or consensus about how the protocol will move forward based on this proposal? I still think it is a mistake to “drop” liquidity pools, the rewards following the market by being distributed weighted on total liquidity in the pool and volume (use) makes the most sense to me. Eliminating redundancies might be fine, like dropping pools that are only a different ratio on balancer, but even this could have a negative effect if that pool is the dominate pool the market favors.

#12

I don’t think there has been a decision yet. The idea is to focus the liquidity into fewer pools with overall higher rewards. Currently the advantage of being in a DEX pool is not that great compared to either staking or putting stable coins into the Delphi pools and you also take a risk of IL. This should be compensated by higher rewards, which will attract more people and overall more liquidity. :slight_smile:

1 Like
#13

In order to come to a conclusion regarding this topic, I will create a couple of polls to get a feedback about a few topics:

DEX pools

  • Keep DEX pools as they are
  • Reduce the number of incentivized DEX pools

0 voters

ETH pairs vs USDC pairs

  • USDC pairs only (AKRO/USDC, ADEL/USDC)
  • ETH pairs only (AKRO/ETH, ADEL/ETH)
  • USDC and ETH pairs (reduced overall liquidity within each pool and leads to less rewards)

0 voters

Additional AKRO/ADEL pool

  • Additional AKRO/ADEL pool with incentives
  • No AKRO/ADEL pool (would force more liquidity into the ETH and USDC pools > increased liquidity)

0 voters

Uniswap vs Balancer

  • Uniswap pools only (fixed 50:50 ratio, users will have to keep 50% USDC or 50% ETH, might be bad for people who are more bullish and want to keep a larger percentage in AKRO or ADEL). Currently no additional token distribution (UNI) for AKRO or ADEL pools.
  • Balancer pools only (enables 70:30 or 80:20 ratios, users would have to keep only 20%/30% USDC or ETH, might be good for people who are more bullish and want to keep a larger percentage in AKRO or ADEL, people who are currently staking might be more inclined to switch over to such a pool). Earn additional Balancer tokens as APY.
  • Keep Balancer and Uniswap pools (would make it harder to focus and increase the overall liquidity, only via dropping either USDC or ETH pairs completely).

0 voters

Additional rewards for people who take IL risks (LM)

  • Keep inflation at current levels / only increase LM rewards via dropping pools (USDC or ETH pools only. Balancer or Uniswap only)
  • Increase LM DEX rewards (slightly) to rewards them for the higher risks of IL.

0 voters

Keep staking vs. AKRO/ADEL pool

  • Keep staking as an option with lower rewards compared to DEX pools. (Don’t force people who are currently staking into an ADEL/AKRO pool to be able to receive rewards.)
  • Remove staking in favor of an ADEL/AKRO pool (increases liquidity, but risks of IL are present). Rewards might be higher compared to staking only.

0 voters

2 Likes
#14

Thanks for the very thoughtful polls @TheLiquidator

5 Likes
#15

Little late to the party here, so, sorry for the rushed and disorganized post.

Since Sept 2, ETH is -23%, AKRO -63%, and ADEL -78%. Don’t let these large losses next to ETH’s fool you, -23% is still a massive amount of wealth destruction. When ADEL launched, the team projected values of risk mitigation through a guarded launch, stablecoin pools, and USDC/AKRO AMM pools. The other launch options were AKRO staking and ETH/AKRO AMM pools. Compounded with the fact that USDC/AKRO pools had less liquidity than ETH/AKRO pools but the same amount of rewards, the big winners have been those that have taken the least amount of risk.

I’ve seen a big misconception across defi that IL risk translates to taking on more portfolio risk, when in fact it reduces it. IL risk is real, but trying to eliminate it further increases the symmetry of your bet (diminishing rewards are also causing stablecoin and USDC/AKRO pools to approach symmetry, but they have been the most asymetric bets up to this point in time). Exposure to AKRO is minimized in the USDC/AKRO pool, allowing LPs to provide more liquidity than in ETH/AKRO for the same amount of portfolio risk.

Moonboy gamblers have gotten rekt this month, responsible investors are sitting comfy. Every mid-small cap token that got crushed this month has lines of people in their discord blaming tokenomics, when there are much larger global market forces at play. In a year that GDP has dropped across the world, market valuations have reached an ATH and a strong correction to the mean is to be expected. The S&P 500 bounced off its 50-day MA last week. Today it has broken through it.

Right now would be the most inopportune time for ADEL to turn its back on the values it launched with. Those values are what differentiates us from the rest of defi and is what we should use to build our moat, IMO.

Looking at early voting results I fear I will be overrun by the super-bulls on this, so I offer an alternative proposal to consolidate LPs into one large ETH/AKRO pool: staking and rewarding Synthetix’s iETH to hedge risk. It’s not perfect, but staking put options is impractical, and staking iETH already rewards SNX so it would be double dipping on the rewards. Of course, this is dangerous to those that don’t know how to properly use it to hedge risk so education would be needed.

4 Likes
#16

Collectively dipping into the iETH pool would be awesome since we would indeed grab some nice SNX while doing it.

Also it would be indeed a clever way to hedge, especially in those volatile times.

However there are efforts to reduce and ultimately kill off the iETH staking pool rewards altogether. Kain is still trying his best to keep it alive but community sentiment is strong and I am sure the community will push through eventually, especially if they actually go ahead with siphoning SNX from the inflation rewards into the iETH pool instead of sDAO paying for it. So we would need a quickly deployable fallback solution.

I don’t say I am 100% for your idea. I do want USDC pairs and I really like @TheLiquidator proposal. However if we actually go ahead with an ETH/AKRO and ETH/ADEL pool we should indeed consider hedging those with iETH and use the rewards from the iETH staking pool for something…

But tell me: From what do we buy and stake the iETH if people are just providing ETH and AKRO/ADEL into the UNI/BAL pool?

1 Like
#17

Another (maybe crazy) idea regarding IL:

  • small amounts of IL should already be compensated by the actual rewards of providing liquidity.
  • larger token price fluctuations causing larger IL (such as the high volatility of the beginning of this week) could directly be “partially compensated” by the community/team via distributing an additional one-off token distribution to the people in the ETH pools.

This would be like a “partial IL insurance” (covered in AKRO/ADEL tokens) for liquidity providers and might cause additional people to switch from staking only to providing liquidity.

#18

I would also prefer to keep the USDC pairs, but when the time is right I also want the option to go into ETH pairs or an AKRO/ADEL pair. So coming to a middle ground to achieve the goal of consolidating AMM liquidity, I see the two best options as a) USDC pairs + one AKRO/ADEL pair, or b) ETH pairs + iETH staking.

The easy implementation might be users buy iETH on their own from the SNX exchange, then staking on Delphi would be like the other pools and stake users’ iETH on mintr for them. But that brings up one of the other values I’ve seen from the ADEL team which is making DeFi accessible and easy to use for everyone. So a more elaborate solution might have users deposit sUSD on Delphi, then the smart contracts will trade to iETH and then stake on mintr.

If SNX rewards are killed off, then we would need to quickly migrate to our own staking contract like you said. Perhaps it could lead to absorbing a small portion of the SNX community.

#19

Reply from Robertus (sent from his mobile):

"Quick reply here: Not a fan at all of the “additional” rewards on big price movents.

We are not responsible for hedging IL risk. The slightly higher rewards for liquidity pools are already the compensation for taking a riskier position. If we start hediging all IL risk of the LPs then it isn’t a “risky” position anymore and wouldn’t deserve higher rewards. See the issue with this?

I was just brainstorming with xdq for a managed vault/pool in the future.

I want your initial proposal to happen for the time being."

#20

I really like the ideas brought up by xdq. Using iETH to hedge is a creative solution and even more important, I think the use of Synthetix helps build relations between both communities and is a good marketing for Akropolis due to the unique solution & interconnection that is possible in Defi.