[Temperature Check] - Should Uniswap LP's be incentivised?

Uniswap Liquidity Incentives Part 1

TLDR: Snapshot vote for incentiving uniswap LP’s of $IDLE. If this passes, more to follow.
Link: Snapshot Poll

This post is intended to help facilitate a focused discussion for plans regarding a uniswap liquidity incentive program, my previous post Link mentioned this as a key factor in bootstrapping the protocol.

There are a number of reasons to encourage liquidity to uniswap, first and foremost it serves to give legitimacy to the project, new users may be discouraged when they see the low liquidity levels of $IDLE, as this is typically a red flag! In addition to this point, I feel that it doesn’t really make sense to say that providing liquidity to idle returns some crazy APY, in $IDLE, but at the same time selling $100 worth impacts the price by > 7%. (Not that I would be selling my $IDLE, I plan to be a long term holder) This is a use case that needs to be considered, and new users might find themselves disappointed when the returns that are claimed, don’t reflect reality.

There a number of different mechanisms to incentivise liquidity providers, the most basic would be to use the $IDLE community treasury to fund a uniswap liquidity mining campaign to reach a certain goal level. A second approach could be some other benefit within the idle protocol itself, such as reduced performance fees. A third approach could be a bonus $IDLE reward, similar to how curve offers boosts for users who lock up $CRV.

The target which we should aim for with this proposal is to reach a satisfactory level of liquidity where a user can purchase $X on uniswap for less than 1% slippage. I’ve suggested this level could be $1000 as an initial target. If you feel that this is not ambitious enough please share your opinion.

With that said, I want to start a series of community sentiment polls to gauge how the community feels about this, and what the best approach the community feels regarding liquidity mining.

I plan on creating a total of three snapshot votes, each one dependent on the previous one in the following order

  1. Should liquidity providers of $IDLE be incentivised? Link: Snapshot Poll
  2. What mechanism should be used to incentive $IDLE LP’s
  3. (Optional) Mechanism parameters

If the first snapshot poll looks promising, I would like to hear back from the community on suggestions for a mechanism to incentive LP’s.

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I think Uniswap liquidity providers should indeed be incentivized but in a way that it would not turn in yet another " farming and dumping" machinery.

Maybe, we could imagine that one would need to lock a required amount of $IDLE to access some some of those rights listed above (Perf fees reduction or reward bonuses).
Or $IDLE could be exchanged (burnt and/or going back to treasury) for some NFTs giving access to those rights.

The ultimate goal would be that people would be incentivized to rather put their earned tokens at use rather than dumping them.

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I agree, with the idea that the incentives shouldn’t facilitate a “farm and dump” cycle like we’ve seen before.

Could you please elaborate on the lock/burn, not sure how it would be used to incentivise uniswap liquidity.

I’ve made a list of what we want out of this program, and what we don’t want, maybe this will help with the decision process

Want

  • Achieve a suitable liquidity level in uniswap
  • $IDLE Liquidity providers to be incentivised to bootstrap liquidity
  • Retain liquidity after incentive are over (long term incentive)

Don’t want

  • Liquidity providers to dump their position as soon incentives are over
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On a side note, regarding the Snapshot poll, I think that the time choose for the snapshot was a bit too early because at the block choosen for the snapshot, the 11341374, probably there weren’t already a lot of early LP who claimed their IDLE tokens (or much distributed IDLE to LPs)

Hi William, yes I realise this, how about in future polls regarding this topic I add a ‘eject’ option something like “I don’t want any uniswap LP incentive program”, so people who claimed late still have a say.

I’m not getting the relation between the two statements could you expand it a bit? How can this be helpful for people who claimed late? Currently there is a ‘Yes’ and ‘No’ option (with the No basically equal to ‘I don’t want any uniswap LP incentive program’) but if at block 11341374 you had no IDLE you cannot vote for neither of those options

The lock and burn process would be there to offer liquidity providers a profitable way to use their earned tokens rather than selling them on the go.

We could also imagine, on top of that, some sort of tax mechanism for the earned tokens from liquidity providing:
For example, if you sell them directly after farming, then 20% goes to IDLE treasury or token holders or are burnt.

I think we should be more specific about which pools we want to incentivize. I.e. pools like ETH-IDLE or DAI-IDLE only helps with the liquidity of IDLE token. Unfortunately, they don’t incentivize liquidity providing. They help with speculation on IDLE price.

To actually help to grow the protocol, what means get more people to deposit their DAI, USDC etc, to bring more profit to the protocol from fees, we should incentivize pools that contain idle deposit tokens like IdleDAIBestYield and others.

I’m thinking, as most of Idle pools hold stablecoins, we could create one big Balancer pool for them, and incentivize providing liquidity to it. Like:
IdleDAIBestYield - IdleUSDCBestYield - IdleUSDTBestYield - IdleTUSDBestYield - IdleSUSDBestYield - maybe RiskAdjusted tokens too
allowing also for easy transfer of funds from one idle pool to the other on the open market. (probably also saving on gas comparing to withdraw from one and deposit to other).

Or we can create more individual pools like:
IdleDAIBestYield-DAI
IdleUSDCBestYield-USDC

or with 3 assets
IdleDAIBestYield-IdleDAIRiskAdjusted-DAI
You get the point.

Balancer pool can charge also higher fees than Uniswap, even better for liquidity providers.

So, what do you think? I can move these ideas to separate threads to keep the discussion focused.

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i think 8bit is talking about adding a “no incentives” option in the following poll for ppl that claimed late and oppose incentives.

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its painful for me to say this out loud… because i am a degen greedy farmer… and I want to be wrong on this one LOL …but yes krzysu makes some good points:

An IDLE/ETH pool or IDLE/STABLECOIN pool would actually promote pump and dump
and consequently it makes sense that LP rewards should be paid to pools (2 or 3 assets) that included idleTokens and IDLE because that promotes AUM and fees.

My favorites would be:
idleToken/ETH, reward IDLE
idleToken/IDLE, reward IDLE

and now the hardest part… this would mean that ETH-IDLE on uniswap would have to be LESS or NOT REWARDED .

krzysu in is original post mentions pools just with a combination of idleTokens and my opinion about that is that, from what I have witnessed in other projects recently, its a good idea theoretically but it does not work in real life because Curve rules. Users go to Curve.

3 Likes

I like the idea of having IdleTokens pools being incentivized.

Regarding this, for how the current idleToken fees are structured, I’m not sure that they are well suited to be in dexes such as Uniswap or Balancer, some more tests are needed

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The IdleTokens are already incentivised, holding them gives you $IDLE gov token :stuck_out_tongue:.

the more I read about balancer´s liquidity bootstrapping pools LBP, the more I think it’s something worth evaluating. They allow the community (or even algorithmically) to manage over time a total of 6 parameters:

  • Fee size
  • Token weights
  • Add/Remove tokens
  • Total market cap of the pool
  • Pause/Enable swaps
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Balancer built this simulator spreadsheet

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Still on the topic of IL in uniswap pools.
Possible workaround (feels like balancer without having to code anything lol):

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I know this is basically closed, but my understanding when providing liquidity on uniswap that you lose money if there are big chances in the price of the assets relative to each other. As a result providing idle liquidity should lose money if you expect idle to go up in value. How do you incentivize LPs in thst case?

The smart treasury on balancer pool should be up and running soon. You can keep up with the discussion here:

Beginning of the smart treasury proposal here:

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You don’t necessarily lose money. I had surprisingly good returns from LPing IDLE/ETH for a short while in its early days on the market, in a shallow pool with frequent price movements and significant volume.

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