Astroport Incentive Framework

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
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@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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Posted an ARC.

After thinking a bit more about the framework and about the discussion started in this separate post, I think we should consider changing the max percentage change in emissions for a particular pool from 25% to somewhere between 35-45%.

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I agree with this change. Given the circumstances, I’d say the max percentage change should be adjusted from 25% to 45%. There are two reasons.

  1. When Astroport launches on Injective mainnet, there will be a need for ASTRO to incentived the new Injective pools. The more under-utilized ASTRO incentives we can free up on Astroport Terra, the more we can redirect to Astroport Injective, where they’ll presumably be better utilized.

  2. Increasing the max change from 25% to 45% will more quickly level the playing field when it comes to LUNA LSDs. Due to the change from the legacy way of assigning incentives to the new Incentive Framework, the three LUNA LSDs LunaX, ampLUNA, and bLUNA have an unfair advantage compared to new LUNA LSDs, such as cLUNA and stLUNA.

The sooner the incentives going to incumbent LSDs pool are brought down to the 0.1 fee / incentive level, the sooner the LSD playing field will be leveled.

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This is a fair take. Thanks for sharing your thread on twitter. I would’ve missed this other wise

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Hi @stefan , thanks for bringing this up. Generally, a max reduction of 25% of the pool’s incentive does not eliminate the pool’s allocation points. We currently have 8 pools on Astroport that are incentivised with ASTRO emissions, which we can all agree are excessive for certain pools.


30D volume from TFM.com (snapshot at 24th Jan 2023)

We currently have 4 stableswap pools that commands over 30% of the ASTRO emissions (31,255 allocation points over a total 104,989 allocation points). However, these 4 pools only produce 1% of the total fees, making emissions to these pools highly wasteful.

This may be controversial to most, but I believe a max cap of 15% of the total emissions should be allocated to stableswap pools that are determined based on a 60d prorated volume. This is significantly higher than the fees that these pools are producing based on their own justification/marketing, ie 100% fees back to community, fees from other products, highest security.

The remaining 85% will be allocated to the remaining highest 5 pools on Terra, and further expanded to 10 pools once Astroport hits Injective’s mainnet.

Going by a % reduction not only benefit the incumbents like John mentioned in his post but also breeds complacency. However, I propose that a dual incentive to be in place for at least 2 weeks rather than 4 weeks.

In summary, I suggest to amend the Astroport Incentive Framework to:-

Before Astroport launches on Injective mainnet

  1. 85% total ASTRO emissions to be allocated to maximum 5 Astroport xyk pools based on the previous 8 weeks trade volume with the exception of LUNA-ASTRO since LUNA-USDC & ASTRO-USDC are incentivised.
  2. 15% total ASTRO emissions to be allocated to stableswap pools, which includes both stablecoin & liquid staked derivatives like LUNAx.
  3. New pools to be included only after 2 weeks of external incentives.

After Astroport launches on Injective mainnet

  1. 85% total ASTRO emissions to be allocated to maximum 10 Astroport xyk pools based on the previous 8 weeks trade volume with the exception of LUNA-ASTRO since LUNA-USDC & ASTRO-USDC are incentivised.
  2. 15% total ASTRO emissions to be allocated to stableswap pools, which includes both stablecoin & liquid staked derivatives like LUNAx.
  3. New pools to be included only after 2 weeks of external incentives being enabled.
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Thanks for pulling fresh data for us, Max.

I’m not sure I understand your justification for assigning 15% of ASTRO incentives to stableswap pools. Why that arbitrary number?

In my view, the wonderful thing about the Incentive Framework is that the free market decides incentive levels. It the market finds a certain pair useful, there will be lots of trading volume, and incentives will be adjusted such that fees / ASTRO incentives = 0.1.

Whether the pool is stableswap, constant product, or Curve V2 style concentrated liquidity (coming soon! :smiley: ), incentives should target the 0.1 ratio for all.

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Yes, I agree thats a pretty arbitrary number but it’s chosen to ensure that sufficient ASTRO allocations are allocated to the liquid staked derivatives. If you see the metrics above, you’ll see that from a fee perspective, LSDs and stablecoins are only generating 1% of the total fee. In a pro-rated basis, this will mean that only 1% of the total emissions being directed to all LSDs & stablecoin pool, hardly sufficient to build any meaningful TVL on these pools for any sort of utility.

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Now that Astroport is deploying outposts on multiple chains/ It makes sense to review the entire incentive framework and adjust it proportionately. As it currently doesn’t take into the need for building initial liquidity on a new chain into account. It’d be a horrible strategy to deploy on a new chain, list pools and subsequently wait 4 weeks to start incentivizing.

Each subject should be discussed and voted on separately.

In regards to increasing the maximum change in emissions per pool, as discussed by @stefan, @John_Galt and @MaxCallisto. I’m in favour of decreasing emissions per pool by a max. of 45-50%. This will ensure sufficient stability and be dynamic enough to adjust to decreased demand.

However a max increase of 45-50% isn’t sufficient imo. A pool getting very low emissions experiencing massively increased demand (because of increased utility for example) can take many months until it reaches the desired incentives ratio. I’d suggest capping the max. increase of incentives per pool by x% of overall incentives (for example x = 5%). ‘X’, should be high enough to cater to sudden increases in demand, but low enough as to not incentivize ppl to game it.

I’m in favour of this approach over hardcoding 15% of emissions to stableswap pools in general as suggested by @MaxCallisto, because it leaves more room for the market to decide appropriate incentives. If incentives to stableswap pools are low, that’d be due to a lack of demand. If pools should be deeper for a protocol to function, external protocols should provide appropriate incentives from their side to reach the desired liquidity.

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Changing the maximum incentives reduction in an eight week period from 25% → 50% sounds reasonable. This will result in the LUNA LSD playing field being mostly leveled in about three months (so two incentive reductions).

As incumbent LSDs lose their unfair advantage over the next three months, I predict Astroport will benefit greatly. Without being hugely subsidized by the Astroport community, Stader may resume SD incentives, and Eris may choose to devote some LUNA from its recent grant to incentivizing ampLUNA liquidity. Also, without their competitors receiving unfair ASTRO incentives, Stride and Prism will likely feel more comfortable about incentivizing with their native tokens. So huge win for Astroport!

Also, setting the maximum incentives reduction in an eight week period to 50% is generally a good idea, considering the volatility of crypto. A token could easily fall 75% against ASTRO over the period of a month (token goes down in price, ASTRO goes up). Astroport would need to be able to adjust incentives by a large percentage in this case, to return the 0.1 incentive / fee target.

Agreed with your other points, as well. In general, the Incentives Framework needs to be updated to reflect new chains. One thing I’m concerned about is multiple ASTRO-USDC pools across multiple chains. Appears to be avoidable, but it’ll leak a lot of value to arbers.

The maximum change in incentives should only be increased to a maximum of 40%.

50% is chosen as a random destination without any based analysis. A smaller step allows to check whether the intended goal is achieved in the market.

Unfortunately all shown data is based on not including single-sided entries into stableswap pools as fee generation, while they do generate fees for Astroport. We have seen that many users of stableswap pools like USDC-USDT or LUNA-[LSD] are using this kind of enter / exit process, which is not reflected in the data or the GUI. Without having the right data available we can’t make the right choice.

Maybe off-topic, but an important part of the discussion started by John.

Stride is playing a dangerous game here right now in Cosmos against free market and competition. John argues using “incumbent” as a negative while all projects receiving incentives have built hard since May 2022 and doing the best for Terra’s and Astroport’s revival. Stride has decided to launch on Osmosis first, ignoring Astroport and even now we are not talking about bringing stATOM, stOSMO which would be a lot more valuable for the Terra ecosystem!

They are activly forcing other chains and projects to make exclusive deals and being anti-competitive right now. In the meantime claiming Astroport is not allowing free competition.

Growing Terra also grows Astroport and this is not the goal of Stride.

Let’s move the discussion to this new ARC.