Summary
This proposal seeks to update the liquidity mining allocation if NZDS were to be accepted as a new stablecoin on the DFX protocol. This proposal is not expected to apply to every new stablecoin addition.
Motivation
Liquidity mining rewards will need to be updated to incentivize liquidity to the new NZDS-USDC pair if token holders decide to vote the stablecoin into the protocol. This proposal will minimize disruption to existing stablecoins while leveraging the DFX ecosystem fund to allocate additional DFX to help bootstrap the new stablecoin onto the DFX protocol. This grant and proposal applies only for the first staking period.
Specifications
**** Revised proposal ****
A point system such that each currency can have up to a max of 10 points. It scales down linearly by default based on currency volume but the community can vote to increase/decrease it by up to 2 points if the community deems the stablecoin as high/low demand (i.e. PHP, INR, etc.).
The allocation will be based on the total amount of points allocated and the total points distributed.
This proposal suggests leaving the Polygon allocation (20%) untouched with existing stablecoins.
Previously, Ethereum mainnet stablecoins had an 80% allocation. The proposal will allocate 10% of the liquidity mining rewards to the NZDS-USDC pair and reduce the allocation to 70% for the rest of the existing stablecoins. This will represent a 12.5% decrease in rewards for existing stablecoins. DFX Ecosystem Fund will match the allocation of NZDS-USDC liquidity mining rewards giving it a total of 142,187.5 DFX tokens for the first period of NZDS-USDC pair launching.
CURRENT
Total
710937.5
Polygon (20%)
142187.5
CADC
47395.83333
EURS
47395.83333
XSGD
47395.83333
ETH (80%)
568750
CADC
189583.3333
EURS
189583.3333
XSGD
189583.3333
NEW
Total
710937.5
Polygon (20%)
142187.5
CADC
47395.83333
EURS
47395.83333
XSGD
47395.83333
ETH (70%)
497656.25
CADC
165885.4167
EURS
165885.4167
XSGD
165885.4167
NZDS (10%)
71093.75
NZDS Ecosystem Grant
71093.75
For
If this proposal passes, there will be a small decrease for existing stablecoins, but adding NZDS will help increase DFX’s network effects. The DFX Ecosystem Fund would strategically be leveraged to help bootstrap a top 10 currency.
Against
This proposal is a stop-gap solution in creating a framework to allocate liquidity mining rewards when new stablecoins are added to the DFX protocol.
While I fully support the addition of NZDS to DFX as soon as feasible, I do wonder if now is the opportune time to put forth the aforementioned framework for allocating liquidity mining rewards to new stablecoins.
Potential benefits of such a framework include:
Clarity to current and future LPs regarding how they can expect LP rewards to shift as new stablecoins are added
Reduced friction for the addition of new stablecoins as reward discussions don’t need to be hashed out each time
I’m not sure the optimal distribution scheme but one concept would be a tiered system for LP rewards:
• Top 1-10 currencies by traditional forex volume as a group receive “x” proportion of monthly rewards (equally weighted for currencies in the group)
• Currencies 11-20 receive “y” proportion of monthly rewards
•Currencies 21-50 receive “z” proportion of monthly rewards
• Currencies 51-100 receive “…”
This could of course be paired with initial incentives by the DFX ecosystem fund to help bootstrap the # of supported stablecoins.
I like this a lot. Maybe we can provide a point system such that each currency can have up to a max of 10 points. It scales down linearly by default but the community can vote to increase it by up to 2 points if the community deems the stablecoin as high demand (i.e. PHP, INR, etc.) which aren’t as high on the list, but can be very useful for the DFX protocol.
I believe that a more wholistic way of determining final point allocation would be to also consider actual demand and usefulness to the DFX ecosystem - i.e. some kind of metrics on the volume, volume / liquidity over 30 days etc.
After all, DFX ecosystem and DeFi is not just about replicating traditional forex, is it?
My fear for the DFX ecosystem is using traditional forex as a proxy, and ending up incentivising large liquidity to pairs without volume (usage), sucking out incentives from other pairs that may see usage, that doesn’t sound very right
Usage on DFX and DeFi doesn’t exactly follow forex, each stablecoin has a different community around it
Sorry about the multiple edits - just added on a thought that having somewhat of a volume consideration that is not prone to abuse (such as washing) would encourage use of the ecosystem, what use is just providing unused liquidity?
The issue is that it is difficult to determine the volume before the stablecoin goes live since most of the stablecoins we offer probably doesn’t exist yet or have existed for a very short period of time. Using traditional forex will give us a way to guestimate the demand (obviously not exact). It should be a good enough starting spot.
Instead of just allowing the ability to add points to currencies, we can also allow the ability to subtract points at each proposal. This way we can lower rewards for currencies that have low on-chain volume but high traditional forex volume.
Therefore a combination in which the traditional forex serves as an initial floor as a good guesstimate makes sense
While the ability (as you mentioned) to subtract or add points based on metrics such as volume (and potentially others) will also incentivise activity
This would also incentivise the stablecoin issuers to encourage usage of DFX, and / or encourage their respective communities to interact with DFX
After all DFX can and should help to bootstrap stablecoin issuers which don’t yet exist or exist for a very short time, after which these stablecoin issuers should then help DFX achieve its goals such as volume and usage
I’ll rather DFX move towards an ecosystem where a traditionally lower forex stablecoin, which have an active community encouraging DFX growth can surpass the incentives for a traditionally strong but low on-chain volume and no community encouraging DFX growth
Quid pro quo, no? Basing purely on traditional forex just doesn’t seem to incentivise the right long term behaviour that is the best for DFX and would just perpetuate the pre-ethos of DeFi and might even encourage sleepers as partners to the DFX ecosystem, first to launch gets to partner with DFX and get the rewards as opposed to one who genuinely wish for a symbiotic relationship where the success of each other helps the other to succeed
100% agree with everything you’ve mentioned. We shouldn’t put the smaller stablecoins at a disadvantage if there is a strong community around it. The adding and subtracting allocation points may also incentivize demand for the DFX token.
While I do think traditional forex volume metrics provide a helpful baseline given the nascency of most non-USD stablecoins, I too like the concept of being able to increase/ decrease points based on other tangible metrics. Gives the community more voice.
One note regarding the updated proposal (and this may be purposeful as you await further feedback prior to re-wording), but the current language seems confusing as to what is now being proposed (I.e. specific incentive plan for NZDS vs. general purpose incentive plan applicable to NZDS plus future stablecoins).
Just took some time to look at NZDS in more detail, wanted to spark a discussion on what everyone thinks about having some kind of baseline metrics before a token can get liquidity incentives
True there is some kind of chicken and egg problem that tokens find themselves in, need integrations to have market, need market to have integrations (especially platforms that have an insane bar to reach for even listing)
At the current level of NZDS having a combined total holder of 7 and for future stablecoins to be integrated, find myself questioning that perhaps DFX incentives could be a good booster and bootstrap opportunity, while DFX incentives being the only long term incentive for people to want a stablecoin doesn’t sound like the right incentive
After all, a community is a network effect, more use cases (other than DFX), more organic demand (other than through only DFX) is beneficial to DFX and a stablecoin that revolves only around DFX is unlikely to spark the network effect that is necessary for each stablecoin to “cross the chasm”
Or perhaps the suggested model of being able to subtract points if no community forms around it already accounts for this, then in that case perhaps we could set a review of say, every quarter?
DFX is unlikely going to be the only incentive to use NZDS. The team behind NZDS will continue to find other market opportunities and build on top of it. DFX is more of a stepping stone and coming out party for the stablecoin as it develops stronger corridors and grows.
It is likely the stablecoin points and allocation will continuously change as more stablecoins come into play. Anyone from the community can create a proposal to increase/reduce the allocation points (doesn’t need to be quarterly) if the community sees abnormal allocation to volume ratio.