SIP-2: Liquidity Mining Emission Proposal

Simple Summary

n order to incentivize usage of the network and increase TVL, a rewards program is proposed to incentivize liquidity providers to provide funds to the network.

Abstract

The recommendation is that a reward based on the schedule below in Si tokens be placed into the staking contract as a reward to liquidity providers during a fixed time window of 84 days for both the WBTC and USDC pools. This is 5% of the total supply of tokens and strikes the right balance to incentivize early players. An illustrative set of values is placed for reference. Its recommended these pools be unlocked as TVL increases.

Week Value at $0.25
1 $25,000
2 $25,000
3 $100,000
4 $100,000
5 $225,000
6 $225,000
7 $400,000
8 $400,000
9 $750,000
10 $750,000
11 $1,000,000
12 $1,000,000

Motivation

Currently there is no reward to drive liquidity to the platform. Major defi platforms such as Uniswap and Synthetix provide rewards to incentivize usage of the platform, this drives liquidity into those platforms. In order to be competitive in the defi market, a grant program using the Synthetix staking and distribution contracts would help drive liquidity to the Siren markets pools.

Please vote and discuss below to evaluate the parameters.

SIP-2 Approval Poll
  • Yay
  • Neigh

0 voters

At a high level this makes sense, but would like confirmation that the numbers are correct before participating in the poll and potentially adding additional feedback.

I read over SIP-2 and have some comments & pushback on a couple parts of this proposal:

SI Emission Rate:
3.8% over 3 months, or 15.2% annualized… seems OK. For comparison, Hegic is giving 40% over 36 months, or 13.33% annualized, so 15.2% isn’t outrageous. A little quick though isn’t it? Why not double the amount but make the program last 6 months, so users have more time to participate in the program?

TVL Caps:
I assume you mean total value lended, right? Why even have these? We should get rid of these, because they’re a point of centralization, and who can tell ahead of time how much users will want to stake? I guess there’s concern about limiting risk, but that’s why we have audits right?!

Liquidity:
Maybe this is for another SIP, but we should have a DEX pool for SI/ETH or SI/WBTC so there can be some real price discovery as these rewards are disbursed. Uniswap or Balancer would be good.

So besides the TVL Caps, and maybe the emission rate (I could be persuaded) I’d vote for this :).

2 Likes

I think the program should be 5MM SI in total rewards rather than 3.8MM:

50,000
200,000
450,000
800,000
1,500,000
2,000,000

This program is really important for driving traffic and having good circulating supply upon launch.

Also lulz @ “yea or nay”, Missy

Edit: Adding a chart for new proposed schedule, since everything is better with charts

1 Like

I agree with both Tish and zareth.

5MM SI would be preferred over 3.8

I also like zareth idea of a longer distribution of 6 month, there’s tons of new projects launching wanting a share of liquidity - let’s reward those that would stay with us over 6 months when plenty will come between then to entice people to leave.

I also agree with his idea of incentivized liquidity pools to support better price discovery - these could be rewarded to compensate for the risk of IL. The pairings could be decided but SI/eth and SI/wbtc aren’t bad ideas - I would like to have at least one stable coin pair - maybe dai?

My only rebutle for this ideas is to use Sushi for the DEX over balancer and uni - my reasons being 1. We could likely get Sushi community to incentivize the pair for sushi rewards. And 2. Sushi is being a true community built DEX and feels more aligned with siren - if this will be handed over to the community :slight_smile:

I wouldn’t necessarily vote no to the proposed SIP but would like to see if community agrees with feedback above.

2 Likes

big numbers :eyes:… charts are good.

More info on target circulating supply and why? Agree that current one is slower, but what is the right circulating supply?

You mean what should our liquid supply targets be? Ideally I’d like to shoot for a 5-10% circulating supply when we launch the token. The LPP is getting 5% out now, and we can discuss methods to get out the rest before the end of the LPP in 12 weeks.

SIP-2 has been updated per the comments: https://github.com/sirenmarkets/SIPs/pull/3

@meradmin - I am unable to edit the origin post.

Interesting point on the 6 months. Do you think a 6 month program would still be competitive / desirable? I’d be concerned that people would think that’s too long. We can always run another program after this one if we want! There’s also the wrinkle that if we want a healthy circulating supply at launch, we don’t want to actually launch the token until after the LPP is over, and waiting 6 months to launch the token seems like waiting too long…

1 Like

Hey hey, updated on GitHub. :+1:

I’m honestly a fan of incentivizing longer term participation naturally instead of forcing it (“during a fixed time window of 84 days”). Instead, you could build a flexible rewards system in which rewards increase the longer a user keeps providing liquidity.
You can structure it in a way that liquidity provided for less than 30 days earns nearly nothing, then rewards pick up pace nearing the 84 day period and afterwards increase more.
This way you don’t base the length on an arbitrary time frame, but instead create built-in flexible incentives that will even continue after the initial fixed window. Which may prevent some of the common issues of incentivization programs and that they often only work for a short period of time, before TVL gets lower and money moves to the next hyped thing.
You can also say that such a program will end after let’s say 6 months. Remaining tokens could be distributed to all depositors depending on: their amount of deposits in comparison to total TVL + the length of their liquidity provision.
The flexibility of not having funds locked up is also noteworthy.

I can extend on this if people like the general idea.

1 Like

only 5% of the tokens are being provided to LP’s?

sounds like heavy % for investors and team. hopefully I’m wrong and most of the tokens are up for grabs

1 Like

Hey guys. Just to expand on my previous comment about natural built-in incentives instead of forced locks.

For another project I and another guy I work with designed a mechanism which I called “Personal Rewards Curve” and which goes into this direction. I can use this concept to showcase my way of thinking and what exactly I mean.

So, the curve is individual to every user and defines the amount of rewards a user will receive. A user “proceeds” on this curve the longer he does not withdraw provided liquidity. The further the user is on the curve the more rewards he will get. The general idea here is to incentivize longer term liquidity provision and create a game theoretical system around it.

There are probably alternative implementation possibilities of this idea. There’s also a question whether it should be deterministic (ending at date x) or flexible. A flexible approach could be the following: You set aside a fixed amount of tokens for baseline rewards (rewards that every user earns no matter what, lower % of total tokens) and a fixed amount of rewards for the personal curve (higher % amount of total tokens). Now you set a minimum length of the incentives for the curve, e.g. 6 months. Afterwards, you set the timeframe when a user would receive maximum rewards, let’s say he does so if he doesn’t withdraw from his LP position for 90 days. The program would only run for 6 months if every LP fully utilizes the curve (keeps deposits in for 90 days), which is unrealistic. Now a user earns his rewards regularly and they are calculated by taking the user’s baseline rewards + the curve rewards. The curve rewards depend on his share of the total TVL and how long he did not withdraw his liquidity for. Let’s say he owns 10% of the pool. If this user is at the end of his personal rewards curve he will be eligible for 10% of the total curve rewards for this period of time. If the personal curve would be linear, he would only receive 50% of this 10% if he didn’t withdraw for 45 days. Obviously, the curve can be played with and linear may not result in the biggest incentives. Having bigger rewards kick in after only 30 days for example could be interesting. The rewards each month would simply be total % of tokens allocated to the curve rewards / chosen time frame for reward period. E.g. 10% of total supply for 10 months => 1% each month.

Now with the above system, there would be tokens that actually weren’t given out to users as they didn’t utilize their curve. If a user only left in liquidity for 45 days, he will not be eligible for the full rewards. The remaining 50% of his due share can now be put back into the liquidity pool to extend the program. All “leftover” tokens will result in the curve program to be extended.

If I left my liquidity in for 90 days to earn the full rewards and withdraw my provided liquidity now the curve will reset and I would have to deposit for 90 consecutive days to reach this point of the curve again.

A deterministic approach would be to burn these leftover tokens and choose an ending date for the incentive program.

As a quick side note, to link it to the token I also recommend to add that you are not allowed to harvest your earned rewards. Technically harvesting often triggers a withdrawal and therefore also resets the curve. Linking it to the token makes the psychological play even more interesting. Do I harvest at the current price but reset my curve? Am I in it for the short-term or the long-term? Etc. These decisions will be individual to every user, therefore there are no built-in bottlenecks of token releases or general selling pressure.

Now there are some interesting edge cases that need to be considered but that will totally depend on individual implementation. This for example includes: What if a user doesn’t withdraw his full liquidity (e.g. only 15% or so), should the curve fully reset? Should it only reset for this portion of the liquidity? Also, if a user deposits more funds it should start at 0 again for this amount. Can the curve progress be transferable to a different wallet? Can it be tied to for example an NFT? If yes, the curve position will actually have value on the secondary market but people can buy a “boost” without actually depositing for 90 days. Just thinking out loud here, like I said that depends on actual implementation and a lot is possible.

To summarize, this has several advantages:

  • Early liquidity providers can achieve the exponential part of the curve quicker and are rewarded for taking higher risk early on.

  • Long-term liquidity providers are key to the success rewarded accordingly.

  • The decision whether to withdraw stablecoins for an alternative opportunity on the market will not be a short-term decision anymore as this would reset the curve. The longer people have committed in the past already the more stickiness we will achieve with this structure.

  • Punishments over vestings. Token vesting structures often have a negative impact on the sentiment of investors, the price of unlocks and trader sentiment. Creating incentive structures which reward longer-term commitment but offer full flexibility is a more promising alternative.

All in all, I think it’s quite the interesting structure. Main question will be whether added complexity, risk and development work is worth it.

Personally, I would find something like this way more interesting though than a forced lock up with unknown performance of the LP token’s underlying assets. E.g. Hegic LPs lost a lot of money by LPing. Imagine being forced into that for 84 days.

If anything isn’t clear let me know and I will try to explain it better.

That’s a very interesting rewards scheme, thanks for a detailed writeup. Is this loosely equivalent to vesting? E.g. everyone earns equally based on pro-rata liquidity participation, but rewards don’t become available immediately, instead they vest over time. Such that if you withdraw early you only get a portion that’s vested and lose the rest. Or is it fundamentally different in some way?

Cool idea. Any insight into what you might do in this type of scenario, to prevent one person/party from creating multiple “users” and siphoning out all the rewards out of the reward reserve?

1 Like

Hey guys. I’m a bit short on time today, I want to go a bit deeper to answer the first question about burning / vesting vs this structure. Fundamentally, there quite similar for sure. Imo there are some differences though, I’ll go into my thoughts about how “big” they are. I’ll try to reply to this later today, tomorrow at latest.

On the second question on a user creating multiple wallets: So it only is a issue if you divide the max returns with the number of users. E.g. 100 tokens up for grab, every user can earn x / 100 with x being total number of users depending on where they are on the curve. That would obviously be gamable and wrong!
Instead, it uses total and contributed TVL as a measure. If you’re responsible for 10% of the total TVL you are eligible for a maximum of 10% of the rewards for the personal rewards curve. Here it now doesn’t matter if you split it up into multiple wallets. Obviously, depending on some design decisions it might make the process easier to do partial withdrawals (e.g. 20k-20k split into 2 wallets would allow me to withdraw 20k without resetting the curve for the other 20k, whereas one 40k deposit might lead to such a reset), but such design decisions can be taken accordingly to make such behavior unnecessary. E.g. you could allow for partial withdrawals leading to a partial reset of the curve and therefore the above wouldn’t be necessary.

1 Like

Early LP’s should be rewarded more due to the high risk they’re taking on, especially if they stay in the pool for the long haul.

1 Like

This proposal has been Implemented.