[CIP-4] Extension of LP rewards and reallocation of pool weights
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Summary
As liquidity rewards on Demex pools are coming to an end, we propose:
- Further extending LP rewards to 30% of inflation value for 3 months (12 weeks), decreasing linearly each week to 20% for the last week.
- Adjusting pool weights proposed in [TIP-16]
Adjustment of pool weights
The overall sum of reward weights will be reduced from 111 to 51*, ensuring adjusted rewards generate competitive and attractive APRs for all incentivized pools.
View adjusted pool weights here.
+---------------------+-----+-----+-----------+-------------+--------+---------+---------+ | Pools | Old | New | Volume | Liquidity | APR | New APR | Change | +---------------------+-----+-----+-----------+-------------+--------+---------+---------+ | 50% WBTC - 50% ETH | 4 | 1 | $2,825.10 | $461,617.18 | 5.67% | 4.87% | -0.80% | | 50% USDC - 50% ETH | 17 | 4 | $3,455.17 | $326,919.36 | 34.04% | 27.52% | -6.51% | | 50% USDC - 50% WBTC | 7 | 4 | $3,127.06 | $183,114.72 | 25.02% | 49.14% | 24.11% | | 50% NNEO - 50% ETH | 4 | 0 | $263.05 | $97,818.78 | 26.77% | 0.00% | -26.77% | | 50% BUSD - 50% SWTH | 8 | 8 | $7,685.93 | $167,188.03 | 31.32% | 107.63% | 76.31% | | 50% BUSD - 50% NNEO | 11 | 0 | $2,482.72 | $181,550.52 | 39.66% | 0.00% | -39.66% | | 50% BUSD - 50% CEL | 4 | 0 | $146.21 | $63,044.27 | 41.53% | 0.00% | -41.53% | | 50% BNB - 50% ETH | 5 | 0 | $81.24 | $135,699.85 | 24.12% | 0.00% | -24.12% | | 50% CEL - 50% ETH | 3 | 0 | $93.61 | $100,490.96 | 19.54% | 0.00% | -19.54% | | 50% BUSD - 50% BNB | 10 | 2 | $2,112.69 | $223,428.09 | 29.30% | 20.14% | -9.16% | | 50% BTCB - 50% BUSD | 6 | 0 | $1,055.56 | $123,402.72 | 31.83% | 0.00% | -31.83% | | 50% LKT - 50% USDC | 5 | 0 | $3,379.77 | $48,416.29 | 67.60% | 0.00% | -67.60% | | 50% USDC - 50% SWTH | 16 | 8 | $7,021.03 | $386,672.63 | 27.09% | 46.54% | 19.45% | | 50% ZIL - 50% BUSD | 5 | 1 | $1,622.92 | $94,146.29 | 34.76% | 23.89% | -10.87% | | 50% GZIL - 50% BUSD | 2 | 0 | $437.96 | $29,596.81 | 44.23% | 0.00% | -44.23% | | 50% XSGD - 50% BUSD | 1 | 1 | $4.95 | $119,602.84 | 5.47% | 18.81% | 13.33% | | 50% ZWAP - 50% BUSD | 3 | 0 | $46.67 | $37,300.14 | 52.65% | 0.00% | -52.65% | | 50% SWTH - 50% UST | - | 8 | | $200,000.00 | | 89.98% | 89.98% | | 50% OSMO - 50% BUSD | - | 2 | | $100,000.00 | | 44.99% | 44.99% | | 50% SWTH - 50% LUNA | - | 4 | | $200,000.00 | | 44.99% | 44.99% | | 50% ZWAP - 50% SWTH | - | 4 | | $200,000.00 | | 44.99% | 44.99% | | 50% AVA - 50% SWTH | - | 4 | | $100,000.00 | | 89.98% | 89.98% | | Total Weights | 111 | 51 | | | | | | +---------------------+-----+-----+-----------+-------------+--------+---------+---------+We propose changes to the existing pool weights are based on the following considerations:
- Removing rewards for under-utilized and deprecated pools
The CEL, LKT, ZWAP pools have poor volume and do not see much trading activity other than arbitrage. Removing rewards will allow incentives to be diverted to other pools that may organically attract more volume. The nNEO pool should also be removed due to migration to Neo N3.
- Capping rewards for non-SWTH pools
We suggest capping rewards for all pools that do not use SWTH as an asset to reduce selling pressure on the native SWTH token. The premise is that pools where LPs are already holding SWTH have a lower likelihood for farm-and-dump behaviour. By pruning the number of pools, Carbon will focus on supporting spot trading of just a few major markets, such that liquidity can be better concentrated. With this structure, users that want to move between multiple chains within Carbon will use SWTH markets and perform two swaps. In this way, SWTH is also positioned as the gateway token for cross-chain access.
- Simplified methodology for choosing pool weights
We suggest a simplified method for choosing pool weights. Pools with assets that have SWTH is set to either 4x or 8x, depending on whether they are paired to stablecoins or not (more potential IL = more rewards). Pools without SWTH are set to either 1x, 2x or 4x, depending on the market cap of the constituent assets (larger mcap = larger weight).
- Lower rewards for stablecoin / correlated pools
The volume to liquidity ratio for stablecoin pools is relatively due to high slippage and low organic trading volume, as well as smaller arbitrage opportunities. Additionally, pools with highly correlated assets do not need as much incentives to compensate for the potential impermanent loss. Therefore, we suggest setting rewards for the XSGD-BUSD and WBTC-ETH pool to 1x. We also suggested removing BNB-ETH entirely due to its heavy under-utilization.
- Addition of IBC-based pools
With IBC integration and connection with Osmosis and Terra (upcoming), we propose allocating rewards for the following new pools so that Carbon may potentially act as a gateway for IBC users to BNB & ETH chains, and vice versa. We omitted having a OSMO-SWTH pool in order to continue concentrating incentives on the “L1” pool on Osmosis instead. These pool rewards will be enacted via admin txn when support is added on Demex.
OSMO (50%) - BUSD (50%)
UST (50%) - SWTH (50%)
LUNA (50%) - SWTH (50%)- Addition of ZWAP pool
We also suggested adding a ZWAP (50%) - SWTH (50%) pool, which provides an additional yield opportunity to users who are supporters of both the Carbon and ZilSwap ecosystems, with the same weightage as described in the above methodology.
Future plans
Going forward, Switcheo Labs has started two projects on Carbon Insights and Carbonscan, which will provide business intelligence data and charts regarding liquidity utilization. We intend to propose moving to an algorithmic approach after this 12 weeks of rewards, such that weights can be adjusted rapidly based on changing volume and liquidity every 2-3 weeks, in order to optimize reward allocations to their maximum effectiveness.
**Edits
- Reduce ZIL/BUSD pool from 2x to 1x
- Reduce gZIL/BUSD pool from 1x to 0x
- Include AVA/SWTH pool with 4x weights which will be added by admin key once $100K of liquidity has been added on 5 Apr.
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Sounds good to me. What about ATOM, seems that there is a lot of liquidity there too and would definitely bring volume from the cosmos.
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Sounds good, this is definitely an improvement of the current reward distribution.
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@galaxydefender21 said in [CIP-4] Extension of LP rewards and reallocation of pool weights:
ng rewar
Great reallocation, as i promised to provide 100k usd value LP in AVA/swth, should be around 4th/April 2022 while waiting for 5m swth unstaking. Possible to adjust some incentive for AVA/SWTH once liquidity over 100k usd 5th/April 2022?
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@menghow We can propose a 4x allocation since it's a core SWTH pool.
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@BigDog We'll can add SWTH/ATOM in the future with a 4x weight in the future. As the integration with Terra will be happening soon, the pool weights for the UST and LUNA pools were included first.
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@galaxydefender21 said in [CIP-4] Extension of LP rewards and reallocation of pool weights:
@menghow We can propose a 4x allocation since it's a core SWTH pool.
great idea
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Now that the proposal is executed, where is the ZWAP-SWTH pool?
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Hi I have just added 145k usd of AVA/SWTH liquidity
Looking forward 4x weight added to AVA/SWTH
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@menghow Devs are setting this today.
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@ravenxce said in [CIP-4] Extension of LP rewards and reallocation of pool weights:
@menghow Devs are setting this today.
great, thank you so much