Astroport Incentive Framework

This proposed Emissions Framework for Astroport aims to achieve several goals:

• provide a blueprint for anyone to submit ASTRO emissions proposals which comply with guidelines accepted by the community
• serve as a guide to adjust ASTRO emissions for all pools that are currently incentivised
• balance the value of the fees generated by each incentivised pool with the value of the ASTRO given out in the form of emissions

In this post we’ll dive deeper into how this framework aims to achieve the above mentioned goals. We will start by looking at Astroport’s current token emissions. We will then dive into emissions offered by other AMMs and compare them to Astroport’s. Finally, we will propose a set of criteria which can be followed by the Astroport community when deciding which pools to incentivise and how much ASTRO to give to each of them as well as how current emissions may be adjusted.

Comparing AMM Incentive to Fees Ratios

Astroport

The Astroport protocol is currently emitting approximately 19 ASTRO per block across 6 pools. This equates to roughly 273,600 ASTRO or roughly $27,360 per day at current prices.

Over the last 145 days, Astroport has generated $165k in fees, or an average of $1,137 in fees per day. The ratio of incentives per trading fee is currently 0.042. Let’s compare these numbers to other AMMs’ token emissions.

Osmosis

Osmosis is currently in its second year of emissions where 200 million tokens will be released. Of the 200m, 45% (or 90m tokens) are reserved for liquidity mining incentives. This equates to roughly 250k OSMO or $317.5k per day at current prices. Over the last 145 days, Osmosis has generated $4.2m in fees or an average of $28,965 in fees per day. The ratio of incentives per trading fee is roughly 0.09.

Sushiswap

The Sushiswap Masterchef contract emits 100 SUSHI per block, priced at $1.70. Post-merge Ethereum block times are roughly 12s per block, meaning that Sushiswap is emitting $1.2m in incentives per day. Sushiswap has generated $18.9m in fees over the last 145 days or roughly $130k in fees per day. This ratio of incentives per trading fee is ~0.10.

Incentive to Fee Ratios Summary

Comparing the above incentive numbers, we can see that on average Astroport is paying approximately double the incentives relative to fees generated as compared to Osmosis and Sushiswap.

In our opinion and also based on community sentiment here and here, this ratio is too high and Astroport is in fact overpaying in incentives relative to the fees it gains.

To address this issue and prevent it from happening again in the future, we would like to propose a set of criteria which can be used by the community to streamline token emission proposals. If accepted by the community through an on-chain signalling poll, existing pools which receive ASTRO as well as upcoming ones should adhere to this framework.

Criteria for Existing & New ASTRO Emissions

Major assets

When defining the criteria below we distinguish between major and non-major assets in recognition that some assets have more strategic importance to Astroport than others. A major asset is defined as one that satisfies all of the following conditions:

  • Top 200 token market cap
  • Of special strategic interest to Astroport
  • Majority of trade volume occurring outside of Astroport

Note in the case of Axelar assets we consider them equivalent to their non Axelar counterparts, e.g native USDC.

Credit to Osmosis for their governance proposal from which this categorisation was inspired

Criteria

Each and every current and future ASTRO emissions proposal should meet all of the following criteria:

  • The pool has been trading on Terra 2 mainnet (Phoenix network) for at least 4 weeks
  • LPs in the pool should already receive token emissions (using the Astroport dual reward feature), unless the pool is comprised of two major assets (see definition above) or one major asset where the other is ASTRO
  • Dual rewards should continue for at least 4 weeks from the moment (and in case) the Assembly passes a vote to direct ASTRO emissions to the pool
  • The target ratio of fees to incentives should be 0.1, in line with those of Osmosis and Sushiswap as shown above

Besides the above criteria, we propose the following framework to periodically re-evaluate current pools that receive ASTRO emissions:

  • All emissions should be reviewed every 8 weeks. This includes reviewing pool performance (in terms of volume and thus generated fees) and third party incentives
  • A pool should only increase or decrease its percentage of ASTRO emissions by 25% at a time (in a proposal posted every 8 weeks). For example, a pool that’s currently receiving 100K ASTRO per year can only increase its emissions by maximum 25K ASTRO (for a total of 125K ASTRO per year)

Exceptions

Based on this framework both ASTRO-LUNA and ASTRO-axlUSDC should receive incentives however we propose that ASTRO pairs are treated differently from other pairs with the following justification.

It is beneficial to Astroport for the ASTRO token to have deep liquidity. Firstly, this is necessary for those seeking to participate in governance to swap in and our of the ASTRO token. Secondly, an illiquid ASTRO token would result in spiky dollar values for pool incentives, making them hard to reason about for LPs. It is also not desirable or necessary to fragment liquidity by incentivising multiple ASTRO pairs.

To satisfy this we propose that the ASTRO-axlUSDC pair will be allocated ASTRO incentives, but ASTRO-LUNA will not. Additionally the amount of incentives will be set separately from this proposal and for now will remain unchanged.

Proposed Emissions

This proposal seeks to reduce emissions by approximately half, bringing ASTRO emissions more in line with the capital efficiency of Osmosis and Sushiswap.

Furthermore, the current distribution of incentives has been decided by various governance proposals and is imbalanced compared to the fees generated to liquidity providers and xASTRO holders.

Current incentives

Pool Allocation Points Avg. Daily Fees ASTRO Incentives External Incentives ASTRO per Block Fee:Emission Ratio
axlUSDC-LUNA LP 40000 $991.42 $9,200.93 $0.00 7.10 0.1078
ASTRO-axlUSDC LP 30000 $176.36 $6,900.70 $0.00 5.32 0.0256
axlUSDC-axlUSDT LP 15000 $14.70 $3,450.35 $0.00 2.66 0.0043
LunaX-LUNA LP 10000 $7.56 $2,300.23 $0.00 1.77 0.0033
ampLUNA-LUNA LP 10000 $1.31 $2,300.23 $0.00 1.77 0.0006
VKR-axlUSDC -LP 2050 $12.12 $471.55 $0.00 0.36 0.0257
ASTRO-LUNA LP 0 $88.33 $0.00 $0.00 0.00 97.49%
TPT-LUNA LP 0 $49.48 $0.00 $3,080.74 0.00 0.00%

Proposed incentives for next 8 week period

Pool Allocation Points Avg. Daily Fees ASTRO Incentives (given 25% max change) External Incentives ASTRO per Block Fee:Emission Ratio
axlUSDC-LUNA LP 40026 $991.42 $9,201.60 $0.00 7.10 0.1077
ASTRO-axlUSDC LP 30018 $176.36 $6,900.70 $0.00 5.32 0.0256
axlUSDC-axlUSDT LP 11257 $14.70 $2,587.76 $0.00 2.00 0.0057
LunaX-LUNA LP 7504 $7.56 $1,725.18 $0.00 1.33 0.0044
ampLUNA-LUNA LP 7504 $1.31 $1,725.18 $0.00 1.33 0.0008
VKR-axlUSDC -LP 1538 $12.12 $353.66 $0.00 0.27 0.0343
ASTRO-LUNA LP 0 $88.33 $0.00 $0.00 0.00
TPT-LUNA LP 2152 $49.48 $494.82 $3,080.74 0.38 0.1000

Conclusion

The Astroport Incentive Framework is crucial to ensure the community has ample reserves which can be used for emissions as well as balance these emissions with fees generated by each pool. By standardising the way the community analyses emissions proposals, they can more easily make decisions on how to optimally use the ASTRO held by the DAO. We can also avoid the potentially political process of choosing which pools get incentivised and how much ASTRO each of them gets.

Disclaimer

Data snapshot taken on October 31, 2022.

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Given that we’re aiming to bring the ASTRO emissions in line with Sushiswap and Osmosis, I’m agreeable that the ASTRO emission is cut down by 50% to 136,986 ASTRO a day. This will effectively cut the ASTRO emitted per block by half.

That will effectively reserve more tokens for future emissions as more protocols launch.

With this new change, we will see the following changes to the emissions in both alloc_points & %:

Pool Allocation Points % of Total Emissions
axlUSDC-LUNA LP 40,026 40.03%
ASTRO-axlUSDC LP 30,018 30.02%
axlUSDC-axlUSDT LP 11,257 11.26%
LunaX-LUNA LP 7,504 7.5%
ampLUNA-LUNA LP 7,504 7.5%
VKR-axlUSDC -LP 1,538 1.54%
ASTRO-LUNA LP 0 0%
TPT-LUNA LP 2,152 2.15%
Total 99,999 100%

Given that the tokens will be adjusted every 8 weeks, will that be pushed by governance by any community members or shall it be initiated by the builders ?

Thank you for taking the time to research and write this thorough proposal!

I’m in favour of everything here, except for one point. I suggest that instead of readjusting incentives every eight weeks, we adjust every four weeks. Consider that Osmosis readjusts every one week. DeFi moves at a very fast pace, and a lot can happen in eight weeks. So I suggest adjusting every four weeks.

Also, I would clearly state that wash-trading is not allowed, and will be punished.

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It can be initiated by anyone. One of the main reasons for this framework is to allow anyone to propose changes as long as these changes are within the framework’s bounds.

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I’d argue 4 weeks is way too short. I believe communities should focus more on building and governance should be minimized as much as possible

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Each and every current and future ASTRO emissions proposal should meet all of the following criteria:

  • The pool has been trading on Terra 2 mainnet (Phoenix network) for at least 4 weeks
  • LPs in the pool should already receive token emissions (using the Astroport dual reward feature), unless the pool is comprised of two major assets (see definition above) or one major asset where the other is ASTRO
  • Dual rewards should continue for at least 4 weeks from the moment (and in case) the Assembly passes a vote to direct ASTRO emissions to the pool
  • The target ratio of fees to incentives should be 0.1, in line with those of Osmosis and Sushiswap as shown above

I propose to make a slight adjustment to the criteria above. Given that some protocols could by in itself generate sufficient volume without dual rewards, Astroport should strive to be the deepest liquidity to capture most if not all these volumes. To reflect this, I propose that the criteria:

All of these criteria:

  1. The pool has been trading on Terra 2 mainnet (Phoenix network) for at least 4 weeks.

AND,

Additional Criteria 1

  1. LPs in the pool should already receive token emissions (using the Astroport dual reward feature), unless the pool is comprised of two major assets (see definition above) or one major asset where the other is ASTRO;
  2. Dual rewards should continue for at least 4 weeks from the moment (and in case) the Assembly passes a vote to direct ASTRO emissions to the pool.

or;

Additional Criteria 2

  1. The target ratio of fees to incentives should be 0.1 or above, in line with those of Osmosis and Sushiswap as shown above.

Reasoning for the slight change adjustment is to cover protocols who launch without their own governance token but able to produce a large amount of volume for a pair on Astroport. I am in the view that Astroport should continue to incentivise the pair to increase Astroport volume dominance on Terra. For example, should Capapult decided to emit CAPA token to CAPA-SOLID, but not to SOLID-axlUSDC LP even though it generates high amounts of fees, I am in the view that Astroport should support a pair with high volumes.

I’m thinking through your proposed amendment, Max. This would result in every single pair on Astroport getting ASTRO incentives.

Say a pool launches with no ASTRO incentives. It has an average volume of $1,000 per day, meaning $3 per day in fees. When incentives are adjusted, the pool would be awarded $30 per day in ASTRO incentives, as this would give the pool the target incentives to fee ratio of, namely 0.1.

I don’t believe we should be incentivizing all pools. You mention that your amendment would “increase Astroport volume dominance on Terra.” But there’s no competition. Phoenix and Terra Swap don’t have any incentives at all.

I think this amendment probably isn’t necessary. If a pool doesn’t have two major assets, or it doesn’t have one major asset and ASTRO, or if doesn’t have external incentives - then it shouldn’t get ASTRO incentives. Because really, small assets like CAPA and bLUNA really have no choice beside Astroport.

If you’re a small asset, it shouldn’t be too hard to provide external incentives. Valkyrie and Terra Poker have both done this.

Do you really think that all small assets with pools on Astroport should get ASTRO incentives?

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This is a super hard topic, as it has many different facettes.

I think that a good framework makes 100% sense and Astroport overpays for liquidity right now as shown by the analysis. The ratio of incentives per trading fee of 0.1 still seems like a super low goal and not sustainable in the long term.

Any framework that can be gamed, will be gamed. The danger of wash-trading does exist for the current proposal and will be hard to detect.

My preferred way would be to just launch vxASTRO and let the LPs decide for which pools they vote for. No matter what, it should increase the demand for ASTRO. It provides a fair market based incentivation framework, where most people agree upon. I saw that some do not consider it the right time, but would like to get some insights into the reasons that are not clear to me yet.

Random thoughts:

  • Is it best to go only for trading fee capture, or Terra economic value capture? If Terra gets as big as before the crash, Astroport will grow a lot. So some kind of symbiosis is probably best for Astroport and Terra.

  • The proposal would prefer the creation of XYK pools against stableswap pools, while stableswap pools provide more value for users and hold the peg better. Should the stableswap pool fee be increased to 0.3%?

  • Stableswap pools will always generate lower fees also on entering / exiting, as you can provide using one side only and as far as I understand not paying any swapping fee.

  • Reducing emissions will reduce value locked on Astroport and Terra in general and this could also reduce the perceived value of both systems.

  • I think pre-crash trading volume and liquidity was mostly a combination of the great DeFi and UST/LUNA mint mechanism. So the second part will not be possible for now, but supporting DeFi usage and onboarding new people and projects will bring trading volume.

  • I would like to see a strategic goal set by Astroport and / or the community in general and align the incentives to this goal, working on what makes Astroport unique and leader in the DEX liquidity war.

    • Is it tech? trading fees? trading volume? unique market placement? unique users? etc.
    • Like slAMM. What kind of incentives would help Astroport for that goal?
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I tend to agree vxASTRO is a preferrable solution. This framework is a temporary solution until something better comes up.

Regarding your other points:

  • No one knows how much Terra will/might grow and making incentive decisions based on speculation is what this framework tries to avoid
  • There are XYK pools that generate less fees than stableswap ones (e.g USDC-USDT vs a brand new token with low traction on Ethereum). Leaving that aside though, if someone can show the community that a stableswap pool generates the same volume as a popular XYK one, I believe our community may be inclined to vote for that pool to get incentives
  • Stableswap pool code was updated a while ago to charge fees on imbalanced provision & withdrawal so this isn’t the case
  • Liquidity mining is a dying trend which will hopefully be replaced by a focus on building protocols with product market fit. Emissions drain value hence why they should be used sparingly
  • Sure, agree
  • slAMM is potentially an answer for this point but I don’t see why incentives have to/must help with that goal

@stefan Are you going to put the proposal to reduce emissions, or are you waiting for a non-builder community member to do it? If the latter, I’ll put it up. We’ll have to adjust the incentives reductions in the table above to account for the incentives bLUNA took from the other two LSDs.

I’ll prepare a proposal in the next 3-4 days

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