End POOL distribution to LPs, replace with Olympus DAO Bond program. Continue POOL distribution to POOL pool depositors.
Motivation
Overall, the community has been making an effort to use POOL distribution more effectively. The protocol governance is already sufficiently decentralized and as such, going forward we should be more focused on using POOL effectively to promote growth and strength of the protocol.
This proposal would do that by 1) ending the 300 POOL per day to Uniswap LPs and replacing it with a “Olympus Pro Bond” program and 2) keeping the 200 POOL per day drip to depositors going.
This proposal implemented in tandem with our other changes means PoolTogether will have fully moved away from yield farming and be building more long term value!
Rationale
Implementing bonds reduces the need for POOL incentives over time, which only create temporary liquidity and persistent sell pressure. Importantly, bonds incentivize active PoolTogether community members to participate in the program and help distribute tokens to these users similar to traditional liquidity mining programs.
To make it very basic:
Currently PoolTogether provides 300 POOL per day in LP incentives. This is “renting liquidity” because as soon as the incentives disappear, the LP’s leave. Leaving nothing behind (this happened when incentives decreased from 500 to 300).
With a bond program PoolTogether can provide a similar amount of POOL per day to people who GIVE their LP tokens to the protocol permanently. This builds long term value and opens a path to reduce LP rewards to zero.
In short, the protocol will be left in a stronger position while distributing a similar amount of POOL to what is being used currently.
Technical Specification
Transfer 20,000 POOL to the executive multi-sig to be used to initiate the Olympus Pro Bond Program
Transfer 12,000 POOL to the POOL pool faucet. This will extend those rewards for 60 days
Shouldn’t LP rewards be gradually reduced? Seems like this could be a disaster as the Olympus deal only covers a small percentage of current LP, leaving the other 80% to be dumped as it’s earning nothing. I have voted oppose for the time being but would support this with a more gradual reduction to LP rewards.
My suggestion would be reduce to 200 per day this round. Then 100 next round.
After careful consideration and talking it through with other people, I see the benefits in using the bond program to acquire part of the LP in the Uniswap pool and I would normally not reject this proposal.
However, just like @TheRealTuna, I voted against this PTIP because an immediate reduction of POOL emissions to 0 seems way too drastic. The current proposal will allow us to buy about 10% of all Uni POOL/ETH LP. Maybe we have too big of a pool considering the trading that takes place, but a potential 90% reduction of its size if we just completely drop the incentives is probably over the top.
In the long term, I absolutely see the advantages from the DAO owning part of the liquidity. However, from an ideological standpoint, I would never support a DAO owning a big majority of DEX liquidity. In my mind, that just does not rhyme with decentralization. If we completely eliminate rewards in one step, we risk exactly that scenario.
It could be pointed out that we are not making it impossible for other people to be an LP, but unfortunately LP’ing is somewhat risky if there are not enough trading fees to offset IL and baseline incentives do counter that.
As a whole, I’m also quite suprised by this proposal. As I remember, Leighton, we talked on Discord a couple of months back and you were a big proponent of incentivizing DEX liquidity because you thought LP’s were doing the protocol a service. Furthermore, in the discussion about the v4 launch, you explicitly advocated for continuing LP incentivization. What changed on such short notice?
Great question! In mind, I see the Olympus Bond program as a different way of doing incentives for LPs. LPs still can get POOL at a discount. It’s not quite as good as our current incentives but it does still award them.
So I don’t really see this as ending LP incentives. I see it more as a way for us to use those same incentives more effectively.
I do though think you and @TheRealTuna bring up good points and it might be too risky to simply cut this to 0%. Tuna suggested a reduction to 200 per day and I think that is sensible. This keeps rewards but also puts us on a more sustainable path. I will update.
I’m cool with trying out the bond program with 20k POOL. What is the proposed time period? I thought we had discussed 1 month but this PTIP states “similar amount of POOL per day”. If it’s 1 month the amount of POOL per day is more than double our current awards on Uniswap of 300 POOL per day. I’m not opposed to that, but where possible I would like to see more specifications when sending funds to multi-sigs.
I agree with @TheRealTuna@drcpu that we should not take LP rewards to zero. I think 100 or 150 POOL per day would be good. Looking back to April we did have some decent liquidity before rewards started. I see $1MM or so in liquidity then compared to $3MM or so now (chart below). Noting that prices were different then.
We are also reducing overall emissions something like 80%. As emissions really wind down there could be some turbulence that would be nice to have a high level of liquidity for. Though I think there has been a well-thought-out tapering of rewards by @Leighton - halving USDC from 1000 to 500 POOL p/day, DAI 500 dropping off soon and then another 500 POOL for USDC ending a few weeks later. I think 150 POOL per day is a good middle ground.
