This is a summary post for ideas proposed in the community Discord in order to grow RAI, attract more minters and minimize the bias brought to the controller.
There are two ongoing proposals on the FRAX and FEI forums to co-incentivize a Curve and a Balancer stableswap pool and strenghten the ties between our communities. Each integration would receive up to 20 FLX per day which is subtracted from the Uniswap v3 RAI/DAI allocation.
Another potential proposal could be written for MIM/Abracadabra to accept Yearn RAI vault tokens as collateral as well as co-incentivize a RAI/MIM base pool on Curve.
Some of our community members expressed the need to continue incentivizing a RAI/ETH pool. A good path forward would be to leave the RAI/ETH Uniswap v2 pool with 20 FLX per day and instead reduce the Uniswap v3 RAI/DAI pool by 20 FLX per day, bringing its allocation to 120 FLX per day.
Another good idea brought up by @quit on Discord is to modify the incentive algo for Uniswap v3 RAI/DAI. Instead of concentrating liquidity as much as possible, choose a moving range around the latest redemption price (e.g 1.5% left and right of the redemption price) in which LPs can concentrate as much or as little as they want and receive the same APR like all other LPs. This would make LPing much simpler at the expense of not covering the RAI market price in case it deviates from redemption beyond the predefined range.
Our community is asking for a saviour that uses Convex in order to LP in Curve RAI-3Pool as well as protect safes from liquidation. The simplest an safest implementation for a saviour like this would leverage the RAI Yearn vault. Safe owners could deposit RAI directly in the saviour which is then lent out on Yearn. The saviour would then take out RAI from Yearn in case a safe is getting liquidated.
Money God League
After brainstorming a bit more, it would be a good idea to not bias the RAI controller with token distributions coming from RAI friendly forks and instead give all allocations to FLX/ETH LP and single-sided FLX stakers.
Feedback is welcome!
Thanks Stefan. Agree with some aspects and respectfully ask others are reconsidered.
Uniswap RAI/ETH v2
- Agree strongly to keep some incentive to this pool, min 20 FLX/day, at least until an alternate Saviour is created. A non-incentivized saviour will be abandoned (at least in part) which I suspect will lead to riskier minting behaviour and more liquidations - potentially knocking a few people out of the community unnecessarily.
Uniswap RAI/DAI v3
- Agree with a modest drop in rewards as TVL is a little lower post curve, but not a continual erosion each month. Uniswap is the leading DEX and the first place new defi users look to trade so we need deep liquidity there. The mint + LP is particularly beneficial to the protocol so should be rewarded above other pools
- Disagree with change to liquidity concentration as proposed (1.5% either side of redemption price). I have been an active LP in uni v3 and thought about this a considerable amount. The result will be net negative for swappers (who will have greater slippage on large orders), for LPs (who will be disincentivised for being ‘active’ and instead incentivised to be ‘lazy’ liquidity), and the protocol (the incentivized range will not include the market price during a volatile period >1.5%!) .
- I would leave the current mechanism alone for now and gather more data. If the community wants it changed without delay consider two alternatives. 1) enforce a minimum tick size of 2. This would stop the 1 tick concentration that occurs from time to time but still allow LPs to concentrate which is the key feature of v3; or option 2) keep the existing mechanism but add a booster for LPs who are “in-range” the vast majority of the time - eg. 1.25 boost for 95% in range for the month, 1.5 boost for 98% in range. This would discourage liquidity from jumping in and out of the pool and encourage loyalty, even during the volatile times. The optimal strategy would be for LPs to adopt larger ranges and concentrate less which I think would achieve a good result. Downside is it might be overly complex to code and might limit users to a single LP per safe.
- I suggest involving Guillame in the plan as whatever change is made needs to be easily implemented in the reward script without wasting alot of time. I suspect option 1 that I proposed might be less work for him than the +/- 1.5%, but I favour leaving as is and observing for longer post curve launch.
- agree but would prefer if more skin in the game was required - eg. mint + LP.
- consider a test period for rewards of X weeks
- try not to continually strip the uniswap pools of incentives for other pools but balance between all pools.
Money God League
- proposal makes sense but note there will likely be pumps in the FLX price prior to any distribution from the League snapshot followed by dumps. This might be disruptive unless the snapshot is taken over a longer period. If the distribution included non-FLX pools the FLX pump and dump might be less.
We must drop rewards over time, there aren’t infinite tokens and keeping a continuous distribution forever is not healthy, RAI must stand on its own.
For the Uniswap v3 strat I’ll let Guillaume comment although execution will not be impacted that much with a 1.5% range around redemption. As people in Discord mentioned, farmers leave Uni v3 and APR is sky high only because they have to constantly rebalance. APR must go down and deposits up, otherwise it makes no sense to continue incentivizing V3.
Hey frenz, sorry I was a week off.
- We will soon have new saviors for Uni-V3 and Yearn. Once ready there is no reason to keep Uni-V2. Am I missing something ?
About enforcing a minimum liquidity width instead of only include MP + RP:
will be net negative for swappers (who will have greater slippage on large orders)
Depends, if a simpler incentive plan requiring less active management attracts more capital, swappers can be better off.
Implementation wise, the 2 ticks minimum liquidity band or 1.5% around MP/RP is easy.
Booster is a bit more complicated but feasible. However, I feel like it’s adding a layer of complexity to an incentive plan already quite complex.
Overall I agree that we should not rush into a new solution. I will spend some time looking at the data this week, see how Curve impacted the RAI market, etc…
My personal opinion:
- mistake to kill Uni V3 as Uni V3 is the only spot where RAI creation happens with tight pricing
- mint+LP also essential, should not kill mint + LP
- Uni v3 allows entire supply of RAI to be absorbed nearly instantly (2 days) and then recreated at low price dislocation (see kyoronut charts)
- Uni v3 significantly stabilized price when mint + LP was transitioned from v2 to v3 - it is just a more responsive tool, not just the tight range but creation in a tight range (synergistic for a stable)
- Uni v3 is reflexive: the more people mint RAI and deploy into Uni v3, the safer to do the same and recapitalize the pool when it is depleted. With low rewards this doesn’t happen, and the pool might stay at low RAI supply while price climbs (adverse to protocol stability goals). Uni v3 did indeed self-stabilize but high APR was required
- Curve will only trigger prints when price goes too high which brings instability
140 - 20 - 20 - 20 = 80 FLX/day is cutting rewards in half right when TVL went up +30%, in my opinion that will kill all the attractive attributes of the role Uni v3 plays in the system
On the Uni v3 minimum width requirement, it depends.
- Current Curve A parameter of 100 is effectively equal to 100x liquidity amplification or suit 1/100=1% volatility. (Not sure about numbers, but something like this.)
- If we require minimum width close to 1% for Uni v3 mint+LP incentive, Curve mint+LP would be just better.
- If we set minimum width tighter like 0.3%, using Uni v3 still makes sense.
Is Uni RAI/DAI liquidity necessary? I’m not sure. Things to considers:
- Oracle usage
- Some people use only Uniswap UI for trading
- Capability of having both incentivized wide range LPs and organic narrow range LPs (even JIT is welcome) in the same pool is good. In this case, 1 bps pool would be better.
Keeping both Uni v3 incentives the same and co-incentivizing other pools at the same time isn’t reslly feasible, treasury gets depleted extremely fast.
The FEI and FRAX co-incentivization also brings more visibility to RAI which is extremely important.
@pelvis4084 point is important. Currently Uni V3 (and to a smaller extend V2) is driving mint. Long-term, it will be the redemption price’s role but right-now, APR on Curve and elsewhere are way too high for the redemption price to be any significant. Providing mint incentives somewhere is important short term. Overtime, ETH whales will get confident that Reflexer is the right place to leverage their ETH.
Anything ranging from terribly designed protocols like LUSD to other stuff that’s minted with ETH like alETH increased supply solely with Curve APY. They don’t have mint + LP.
I understand the point and Uni v3 will stay. We also need to balance incentives and continue to drive emissions down across the board. All this while RAI is exposed to other communities.
The thing with all of those is that they didn’t have upside to the thing being minted / borrowed. alETH will never trade for 2 ETH for example, and there is no liquidation. So you never ever have to grab it back. Maker DAI and their problems when DAI was above peg is more illuminating in my opinion. Rai can go a lot more over recent price (and it did) which can cause terrible problems to minters in a scenario where ETH drops and they have to cover at a big loss. None of the other protocols have that issue, their token is pretty much capped at 1, mostly downside peg loss risk. Rai intrinsically has double sided risk which is different.
I would argue Uni v2 is not terribly important once we get different saviors and once Curve can be oracle and has highest depth TVL. The mint + LP in Uni v2 is much less efficient as it is full range - buyers can at most absorb very small amounts of the mint without price impact.
My argument is that Uni v3 should not be seen as a liquidity pool, but as the adaptive buffer against Rai going @ $4.0 which was almost going to happen here with Curve insta-soaking all the RAI. If you’re a whale ETH minter and you just once have to cover at 4.0 (can happen on Eth decline), it’s unlikely you’d ever come back again. Uni v3 is that low slippage adaptive valve that can bring in new Rai on short timelines.
I agree with you that the V3 pool absorbs a quite large amount of RAI demand. LPs are willing to take on a pretty big IL risk because FLX rewards are quite high.
But turning on Curve bribes was a one time event and now it’s behind. Under what circumstance will we need to absorb such a big shock again in the near term ?
The TVL of the V3 pool is currently low for the amount of FLX distributed because of the high IL risk + gas cost. So in a way we loose a bunch FLX incentives to cover for IL and gas of farmers. Instead, we could reward only larger range, get more capital in the pool and more mints because IL and gas are less significant.
IMO, the best of both world is to add a minimum tick width on top of what we already have. So the rule would be: The range needs to include both, RP and MP + be at least 10 ticks wide (1%).
Temperature check polls
Should we revamp the Uni-V3 pool to favor larger liquidity ranges
- Yes, revamp
- No, keep as it is
If yes to the previous poll, what is your preferred approach ?
- Minimum liquidity width of
x ticks + Include MP and RP
- Minimum liquidity width of
x ticks + Include RP only
- Minimum liquidity width of
x ticks + Include MP only
- Fixed liquidity range updated manually once per month by soft consensus
For reference, currently the Uni V3 pool is a 2 ticks game most of the time. So for example with 10 ticks you get in theory 5x shallower books. However, since it will be less IL and gas wasted on re-balancing, TVL might increase.
If you chose a “
Minimum liquidity width of x ticks” answer in the previous poll. What should be the value of
- 5 ticks (= 0.5%)
- 7 ticks (= 0.7%)
- 10 ticks (= 1%)
- 15 ticks (= 1.5%)
- 20 ticks (= 2%)
I think a minimum tick width would be ideal, and it would solve a lot of the issues we currently see with regards to frequent rebalances, which as others have stated, effectively burns unnecessary FLX. I voted for 15 ticks, but I think 7 or 10 are also perfectly reasonable and I don’t have a strong preference either way.
Thanks for taking the time to consider this.
@pelvis4084 articulated the function the uni v3 plays as a volatility reduction mechanism very well. I had been thinking of it as a “shock absorber” (think driving a bumpy road) whereas pelvis elegantly describes it as an “adaptive buffer” which I like alot.
Although I think the current approach probably aint broken - I agree with @Guifel the minimum tick width approach is the best solution discussed so far.
With a wide tick width LPs get a smoother ride with less rebalancing. RAI/DAI is a bumpier ride with less volatility absorption from uni v3 pool.
With a narrow tick width LPs get a bumpier ride with more rebalancing. RAI/DAI is smoother with greater volatility absorption from uni v3 pool.
If there is a change, I’d favour it to be the minimum to start with and see what happens - ie. 5 ticks (or even less - like 3 ticks) and review. There will continue to be shocks to the system post curve - ie. big buys/sells (DAOs), ETH crashes, new liquidity pools etc.
Currently, people seem to mostly do 2 ticks. Forcing 3 ticks wouldn’t be significant enough. Also, to respect farmers, better avoid too frequent updates
i would go towards 10 ticks