RFC Renew Arrakis liquidity mining program

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On a high level, it seems the community needs to decide if the protocol should:

  • Incentivize liquidity via LM rewards; AND/OR

  • Build protocol-owned liquidity (POL) positions

Liquidity Mining

External Programs

In the past, the community has explored different solutions to bolster POOL liquidity on Ethereum mainnet:

  1. PTIP-40: Olympus LP incentives & POOL pool Distribution | Vote Outcome
  2. PTIP-45: Fei / Ondo LP Partnership & PTIP-50: POOL Liquidity Management| Vote Outcome

Both of these experiments produced lackluster results and were reviewed in detail.These were managed by external protocols, who offered incentives that didn’t offset the divergence loss (a.k.a., impermanent loss) that the positions realized.

Community-Led Initiatives

After the Fei/Ondo Liquidity-as-a-Service program ended, PTIP-61 was posted, where it was proposed that 600k POOL be placed above the then market price and that would provide liquidity when the price of POOL moved up in USDC terms.

As an offshoot of that discussion, the Finance Team proposed a pilot POL program on Polygon, where community members held POOL but no real liquidity existed to allow more community members and users to acquire POOL and further decentralize ownership of the POOL token.

PTIP-69 was the result of this discussion, where 25k POOL and 12.77 WETH were paired together across three (3) POL positions. You can an analysis of that program in the Protocol-Owned Liquidity (POL) Analysis | Uniswap V3 [Polygon] | Part 1 post.

This initial research led to exploring a larger POL on mainnet, and potential options were presented in the following posts:

The Finance Team created PTIP-82 as of result of the discussions in the posts above, which passed and created the POL that was further expanded in PTIP-85.

Liquidity Mining in Relation to POL

The last discussion about LM on mainnet took place around PTIP-81, which was approved and distributed 150 POOL/day for a period of 60 days (total of 9,000 POOL).

Liquidity mining incentives for the Uniswap V2 POOL-ETH pair have ended and haven’t been provided since 16 November 2022. The pair still has 74,953 POOL & 35.3033 ETH provided as liquidity as of today.You can see the POOL-ETH pair on Uniswap V3 for comparison, which largely consists of POL held in the protocol treasury.

After community feedback that POOL incentives for supporting POOL liquidity were one of the only remaining ways to earn on POOL in the absence of POOL liquidity incentives provided to depositors and provided as a drip to the POOL pool in the past.

During the PTIP-81 discussions, community members provided feedback such as:

I hold zero DeFi tokens that don’t offer some sort of staking. I hold UNI, COMP, Aave, & Matic. All those tokens offer staking in some form. To me, some sort of staking is pretty much just an industry standard.

There was also feedback that community members who held POOL on Polygon had limited, if no, utility and had to bridge to mainnet to trade POOL, which was costly.In this vein, the Finance Team created a pilot program proposal, where Arrakis would be used to test a liquidity mining program on Uniswap V3, while making it easier for people to provide liquidity in an interface similar to the Uniswap V2 experience.

The goal, as outlined in the previous proposal, was stated as:

If we reach a cruising altitude of 33k POOL or more in total liquidity value then we will look to continue this incentive program.

In an update on 3 January 2023:

Currently 42,800 POOL value ($28,849.24 TVL / $.674 POOL price)

Which brings us to the current discussion.

Strategy Moving Forward

While I agree that establishing POL positions on target networks will be vital to supporting the hyperstructure, is it worth investing in POL on Polygon? The liquidity mining experience can be seen as either a waste of POOL or as a way to get more Poolers involved in LPing ahead of the hyperstructure, where the need for incentives may be reduced due to natural growth in volume (and subsequent trading fees).

The program has met past goals and has satisfied previous requests from the community, so it’s been successful in its objective.

I’d like to see a broader discussion about where POL needs to be prioritized, how much of the protocol treasury should be reserved for this purpose, and how much of the non-POOL assets will be needed for this. Allocating non-POOL assets toward any expense at this point with the protocol treasury declining with no growth in assets to support future development and adoption of the protocol should be focused on supporting growth, adoption, and development of the protocol.

For context: 3,000 POOL represents 0.078% of the protocol’s POOL holdings.The original aim to further decentralize ownership of the POOL token on Polygon has been successful given there are 35,797 addresses holding POOL on Polygon vs. 8,598 holders on Ethereum mainnet.

It seems important to decide what the objective is going forward, how strategy informs the objective, and how the community gets there.

Worth providing this context, imo, as it fills in the missing gaps in this discussion.

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