ARC-38: Incentivize Stride’s stLUNA Pool

Proposals ARC (Astroport Request for Comments)
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January 30th edit: As a result of the discussion around ARC-38, Stride is no longer pursuing the below plan to equally distribute LUNA LSD alloc_points. Instead of making this except to the Incentive Framework, Astroport community consensus appears to be coalescing around the idea of amending the Incentives Framework, such that the LUNA LSD playing field will be quickly leveled. See further discussion here.

I am an employee of Stride Labs, and in this post I am speaking on behalf of Stride.

Overview

In the coming weeks, Stride will be launching stLUNA and setting up a dual-incentive stLUNA-LUNA pool on Astroport. Currently, the pools featuring the LSDs LunaX, ampLuna, and bLuna have 6,666 alloc_points each, for a total of 20,000 alloc_points allotted to LUNA LSDs. For the sake of fairness, we propose that stLUNA be given an equal share of these incentives.

Specifically, we propose:

docs.google.com_document_d_1703tNwXNAtfEuR_cgelXyCbTovXjKRPaBF4vqjx2hYk_edit

Justification

This proposal is not consistent with the recently ratified Incentive Framework. According to the Framework, the proper procedure would be to establish a dual-incentive pool, wait 4 weeks, then apply for an amount of ASTRO incentives determined by pool swap fees. However, this would put the stLUNA pool at a marked disadvantage to the existing LUNA LSD pools, those being LunaX, ampLUNA, and bLUNA. For the Astroport marketplace to maintain fairness and neutrality, we propose that stLUNA be grandfathered in under the legacy system used to assign incentives to LUNA LSD pools.

To elaborate, prior to the new Incentive Framework Astroport governance had set a precedent whereby new LUNA LSDs got a share of the alloc_points held by existing LUNA LSDs. At the launch of Astroport on Terra 2, LunaX was the only LUNA LSD, and it was given 15,000 alloc-points. Later on, a proposal was passed to decrease LunaX’ alloc_points to 10,000 and give ampLUNA 10,000 alloc_points. Then, another proposal was passed, to divide the existing LUNA LSD alloc_points evenly among LunaX, ampLUNA, and the new bLUNA, such that each had 6,666.

Thus, Astroport governance has repeatedly affirmed the argument that there should be fair competition among LUNA LSDs. It makes sense that the Astroport community continue this tradition by giving stLUNA an equal share of existing LUNA LSD alloc_points. If stLUNA is not grandfathered into the old way of assigning incentives and has to follow the new procedure, it would be at a marked disadvantage compared to the other LUNA LSDs, which would violate the principle of neutrality that Astroport was founded on.

How Will stLUNA be Different from Existing LUNA LSDs?

Firstly, in order to ensure deep liquidity in the stLUNA pool, Stride will be devoting 10,000 STRD per day to incentives. No other existing LSD providers have their own incentives (except for bLUNA, which uses a portion of protocol fees to incentivize their pool).

Secondly, Stride will use its connections and brand power to spread stLUNA across the Cosmos. As far as I know, ampLUNA on Kujira is the only LUNA LSD with an integration outside Terra. We commend Eris for this, and we plan to do more of the same with stLUNA. We plan to work with our partners to bring stLUNA to Shade, Demex, Comdex, Nolous, and so on. This would be very good for Astroport and ASTRO holders, as Astroport will always have the most stLUNA liquidity, meaning stLUNA usage throughout the Cosmos will increase stLUNA trade volumes on Astroport.

Thirdly, stLUNA will likely be one of the main LUNA LSDs used for Alliance. For context, Alliance, which is under development by Terraform Labs, will enable LUNA LSDs to be staked with any blockchain that has the Alliance module.

So to sum up, stLUNA will differentiate itself from current LUNA LSDs by: 1) having deeper liquidity, 2) more use-cases (both on Terra, and elsewhere in the Cosmos), and 3) likely being one of the main LUNA LSDs used by Alliance.

About Stride

Stride is the largest Cosmos liquid staking provider. Stride protocol is hosted on the Stride blockchain. We support multiple tokens, including ATOM and OSMO, and our LSDs are integrated throughout the Cosmos. The core contributors to Stride protocol are based in New York City, and are fully doxed. In the summer of 2022, Stride Labs raised ~$7M. With this funding, we have a very long runway and don’t have to rely on grants.

Stride protocol prioritizes security over all else. The code-base has been audited by three separate firms, and we receive continual auditing from Informal Systems. The Stride blockchain has a minimalist design philosophy, just like the Cosmos Hub. Our chain also has IBC rate-limiting.

Next Steps

The stLUNA-LUNA pool is not yet live, nor is stLUNA. Once these have launched, this post will be edited to include an executable message for the alloc_points change.

In the meantime, please ask any questions or provide any feedback you may have.

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Hey Jon, before going forward with this proposal, the stLUNA-LUNA pool will need to satisfy the criteria mentioned in this post:

It will need to be live for at least 4 weeks and receive dual rewards before asking for ASTRO emissions as well. Ideally you should reformat this post so it adheres to the incentive framework and it gives everyone a clear picture or what should happen before submitting on-chain

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Thanks for the speedy response! I’ll edit the post to acknowledge the new Incentive Framework. Originally, I didn’t mention the Framework because it appears to me that this is a special case. On two separate occasions, Astroport governance has voted to share existing LUNA LSD alloc_points with a new LUNA LSD. I think it’s reasonable to continue this tradition.

If a new LUNA LSD has to adhere strictly to the new Incentives Framework, it will give a huge advantage to incumbent LUNA LSDs. And after all, Astroport is a “neutral marketplace.”

For this special case having to do with a new LUNA LSD, I propose we use the legacy way of assigning incentives, namely redistributing existing LUNA LSD incentives, not the new Inventive Framework. Or perhaps the best thing to do would be to reset the incentives to all LUNA LSDs, making all of them comply with the new Incentive Framework.

Whatever the Astroport community chooses to do about incentivizing LUNA LSDs, I think it’s important to maintain fairness and neutrality.

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Everything after the Incentive Framework was posted has to adhere to it, including the current LSD pools. In late February there will be another analysis for all pools that get ASTRO and an on-chain vote that decides which pools get more or less emissions.

Fairness and neutrality means every pool adheres to the same framework.

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The problem is there are two frameworks - the old and the new. Incentives were given to LunaX, ampLuna, and bLUNA under the old framework - where a new LSD got an equal share of incentives going to incumbent LSDs. Now there’s a new framework, whereby a new LSD would get a much smaller amount of incentives. This gives an unfair advantage to incumbents.

But things change, that’s true. And there are often advantages to being first.

Unfortunately, the new Incentives Framework limits incentive reduction to 25% in an eight-week period. I estimate this means that LUNA LSD incumbents will have an unequal amount of incentives as opposed to newcomers for about six months - which is a long time in crypto. Until the incumbents’ incentives are brought down to the 0.1 fee / incentive level, this LSD incentive situation severely hinders competition. Perhaps this explains why Prism appears to be considering choosing Osmosis instead of Astroport as its main DEX.

If a marketplace favours incumbents over newcomers, it stifles innovation and growth.

If I may ask you your personal opinion, would you be in favour of taking measures to more quickly eliminate the discrepancy between incumbent LUNA LSD incentives and newcomer LUNA LSD incentives? I think it’s best to level the playing field sooner rather than later.

Just to clarify, Stride fully intends to launch an stLUNA-LUNA liquidity pool regardless of ASTRO incentives.

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If the max allowable % change between consecutive emission votes is too low (I now think 25% is low) then that percentage should increase.

I’ll think about an amendment and propose it next week

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We should not create a precedence of ignoring the new incentivization framework. This framework was exactly created for that reason of how to apply incentives to projects as well as LSDs.

Like on any other incentivization proposal where a project uses tokens, the incentivization with STRD token should start before considering ASTRO incentives.

There are some unbacked claims in your proposal.

  • Please list your Alliance chains that launch with stLUNA
  • The trading volume on Osmosis regarding Stride pairs was low until the recent “pump”
  • There are many different and unique approaches by Terra LSDs and there is not one to rule them all.

stLUNA has also disadvantages:

  • Highest fees across LSD protocols
  • External governance risks
  • External chain risks
  • Economic security risks
  • Harder to build peg protecting protocols
  • Harder to integrate in Terra DeFi
  • No terra focus

Why is Stride not using alliance module?
Why is Stride not launching on Terra first?
What is the progress of the stATOM launch?
Will there be a STRD-USDC pool on Astroport?

I think Stride has a strong case to launch stATOM on Terra and receive incentives for it, as this would provide real value to the Terra Ecosystem. The Possibility of stATOM on Astroport

The pros for Terra are the marketing and reach of Stride as you are quite known in the Cosmos ecosystem.

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I tend to agree with your point about the Incentive Framework.

It’s becoming clear to me that instead of making an exception to the Framework by implementing the above proposal, the best way to restore the neutrality of Astroport with regard to LSD incentivization is by amending the Framework, as @stefan has suggested here. By increasing the incentive max percentage change in an eight week period from 25% → 45%, the unfair advantage currently enjoyed by incumbent LUNA LSDs will be quickly remediated, which was the essential motivation of the above proposal.

To answer some of your questions:

I said that “stLUNA will likely be one of the main LUNA LSDs used for Alliance.” This claim is based on several conversations with key builders, conversations which have not yet been made public.

Regarding Stride’s volume on Osmosis, taking a glance at the stOSMO pool on Osmosis, OSMO incentives are ~$230 worth of OSMO per day, and 7 day average swap fees are $79 per day. That gives the pool a fee / incentive ratio of 0.3434. Notably, this is 3x higher than the target fee / incentivization ratio on Astroport. If this were an Astroport pool, incentives would be increased. And on the topic of fees, the stATOM pool provides a huge amount of fees for Osmosis without any OSMO incentives at all. Thus, the Stride pools on Osmosis are clearly a huge boon for Osmosis. Similarly, the Stride pools on Astroport will likely be a huge boon for Astroport.

Funny that you should question Stride because it didn’t launch on Terra first. I’ll remind you that the most significant LSD on Terra before the crash was Lido’s bLUNA, and Lido is native to Ethereum.

Clearly, there will be many LSDs on Terra. I don’t believe I have ever suggested there will be “one to rule them all.” Once the LSD playing field is leveled by fixing the ASTRO incentives, all LUNA LSDs will be able to fairly compete, and users can choose whichever they prefer.

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Hi John, thanks for raising this proposal. While I do welcome Stride’s move to Terra or Astroport, I do disagree that stLUNA should be treated the same way as the other Terra LSDs. I made some suggestions to the Astroport Incentive Framework that will limit the amount of incentives to LSDs.

We have 1 too many LSDs on Terra, and I don’t think the Astroport community should accommodate another Terra LSD. I do agree with @Philipp that stATOM will bring more value to the Astroport community since there isn’t an ATOM LSD on Terra, and this would provide great value to builders on Terra to tap into stATOM as a collateral.

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Erm, so when you say the Astroport community shouldn’t “accommodate another Terra LSD,” are you suggesting that new LSDs such as cLUNA, aLUNA, and stLUNA shouldn’t receive any ASTRO incentives, while the incumbent LSDs continue to receive incentives? Maybe I’m misunderstanding you.

Clearly that position is a non-starter, as it’s very unfair and violates the Astroport ethos of being a “neutral marketplace.”

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Perhaps its a misunderstanding of my position. stLUNA is more than welcome to list onto Astroport, and Astroport community remains as a neutral marketplace for such activities. However, listing stLUNA and directly obtaining 5k from the total 20k allocated points does seem to stray a little far from the AIF model.

Perhaps an alternative model will be on top of my recently suggested model:

  1. Listing stLUNA-LUNA in Astroport
  2. Allocate STRD emissions to stLUNA-LUNA LP for a 2 week period
  3. The current allocated 20k points can be redistributed after a 2 week volume period prorata.
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There are so many lsd lunas and currently there are few use cases for any of them. I know they are COMING SOON. Bluna will be accepted in Capapult, Eris looks like it will be accepted in cavern. Cluna eventually will be used in prism outpost on Luna.

Astroport is burning through tons of Astro propping up these pools, and gaining very little revenue from them. Initially it was encouraged to incentivize them as these early contributing protocols like stader, backbone labs, and Eris protocol were among the first to build on terra through its most challenging times. And they were rewarded by doing so.

Just because you have a lot of {apparent demand} for a nonexistent token in the {sometime future} doesn’t mean we should spend astro incentives propping up that pool in the meantime. How long will Astro holders have to wait before those pools start bringing revenue to the protocol? Six months? A year? Meanwhile the liquidity pools for All lsdluna are further shallowed out.

I think the model moving forward should be that a lsdLuna should already have a use case, and bring their proposed pool to astroport with both a use, and a duel incentive commitment. Framework requires the pool to exist w external emissions first.

Stride launched their st tokens with no osmo emissions (other than the Osmo stride bought), using stride to incentivize. Why can’t they do that here as well, until we see some demand for stluna and thus revenue for the lp?

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I agree, and I share your feelings. The Astroport community is tired of pouring incentives into LUNA LSD pools and getting nothing back in return.

You’re right - Stride has the resources to incentivize its LUNA LSD pool without the help of the Astroport community. And Stride is completely willing to do this, as evidenced by our many STRD-incentivized pools on Osmosis.

The thing is, it’s completely unfair for other LSDs providers to receive ASTRO incentives and not Stride. What’s more, it would be very ironic if Stride didn’t get incentives but other LSD providers did, because Stride is willing to contribute it’s own external incentives while no other LSD provider ever has contributed external incentives.

Maybe we should remove all ASTRO incentives from all LUNA LSD pools, and make them all complete fairly according to the Incentive Framework.

Whatever happens, I think the Incentive Framework should be amended with a special provision for LSD providers, such that they are all treated equally and fairly.

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A few key points:

  1. This is exactly the reason we passed the gov framework. So new players cannot come in and demand immediate Astro incentives without demonstrating volume or commitment. It might be true that after six months of emission adjustments via the framework that lsds move to Dexter, but that is dependent on volume progression. If the pools revenue generation picks up, it will continue to receive astro rewards. If the pool doesn’t pick up in volume, then it will be reduced.
  2. Saying volume has “yet to materialize” on a chain that many deemed dead and building hard through a bear market is frankly absurd. Volume had “yet to materialize” on all the pools including flagships like luna/usdc and Astro/usdc. Astroport needed projects to build during this period to attract attention to the chain. Stride could have chosen to launch on terra before osmosis, and maybe they would have been supported like the other lsds which were voted in previous to the passing of the new Framework.
  3. You keep talking fair and even, suggesting things like removing all incentives for 8 weeks (wtf?). Astroport is not “favoring incumbents” right now. Astroport governance is evolving and we are passing legislation as the market and development of the chain progresses. Fairness is not changing a piece of legislation to make exceptions which contradict the very purpose of the framework. It would make astroport look like a pushover letting someone with cosmos clout and apparent insider information strong arm governance into providing funding.
  4. Tvl is an important metric that shows user confidence in astroport.
  5. Prism could have had their liquid cluna incentivized if they asked for the same amount of emissions as the other lsds. They asked for twice the amount, and that was the main issue many people had with the prop.

Just like on osmosis stride can launch there, and after a few weeks of incentives from stride, we can asses the revenue generation of this pool, along with the utility of stluna. It’s too bad stride didn’t come to astroport with this prop last month before the framework was passed. I would have supported equal distribution of Astro alloc points between the lsds so long as stride committed rewards as well. This prop is in direct conflict with too many aspects of the recently passed framework, which took time, effort, and input from many community members to pass.

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Hey John, first want to acknowledge your implication towards Astroport and the alphas you’ve provided via your twitter. But on your proposal and idea to by-pass the new framework I disagree - two simple reasons below.

1- Any newcoming project might feel like the new framework is unfair to them in comparison to existing pools. Even if they would not be directly competing like stLuna is competing with currently incentivised Luna LSDs, creating an exception for stride now will set a precedent and encourage every newcomer to push the Astroport community the same way.

2- You’re well aware of what’s going on on Astroport and saw the new framework coming. You had all time to come up with this proposal before it got voted. Responsability for making this proposal this late is on Stride, so it’s not on Astroport to rectify your mistake by allowing a special amendment for Stride. Same case as Prism who asked twice the amounts of incentives as other Luna LSDs, hence was denied and didn’t even up a proposal, and now would have to go through the new framework.

Good ideas have been shared in previous posts, surely Stride can find something interesting from these feedbacks and pursue its integration on Terra.

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Great discussion.

This discussion highlights the importance of incentivizing pools according to the value they contribute to Astroport. When pools get over incentivized by Astroport it creates a barrier for new entrants, which is hard to overcome as mentioned by @John_Galt. It’s also detrimental to Astroport, as competition between LSDs is good for LPs and xASTRO holders. Initially there might be 10 LSDs, but given an equal playing field eventually it’s likely 1 or 2 will dominate. Such is the nature of the LSD market. Which is beneficial to traders, LPs, Astroport and the ecosystem as a whole.

While I sympathise with Stride and @John_Galt and I applaud their initiative in providing dual incentives, the first LUNA LSD to do so. I disagree with the proposal to incentivize the stLUNA-LUNA pool similarly to how the other LSD pools received them. Astroport adopted an incentive framework which it should adhere to.

One of the reasons to adopt the incentive framework was to level the playing field between LSDs. However this discussion shows that a maximum incentive reduction of 25% per pool every 8 weeks, might be too slow, at least initially. As mentioned by @stefan, It’s worth discussing increasing the maximum reduction to achieve the desired level playing field quicker, separately.

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