I think the incentives (and market conditions) have skewed behaviors to a point where the RAI ecosystem is not acting rationally. Instead, some people are chasing incentives and doing things that would never happen “organically” and these incentives are having ripple effects which hurt other RAI ecosystem participants. This is the exact opposite of what I signed up for when I bought bags of ungovernance tokens.
The RAI/DAI minter incentive is literally a price control with a centralized entity telling the market where to allocate capital. 
- Should the FLX incentives for RAI/DAI Uniswap v3 be lowered?
I voted for lower by 50 FLX. The current mint + LP RAI/DAI incentive is broken.
Here is the liquidity profile for a normal market (Coinbase Pro RAI/USD pair):
Notice how there is less liquidity at the market price, and more on either side. Market makers are rational profit-seeking actors and want to buy RAI from liquidity takers for less, and sell it to them for more.
Your liquidity is not liquidity.
Now here’s what it looks like for uniswap V3 RAI/DAI:
(I drew the bottom part because I couldn’t find a good way to get depth charts for uniswap v3.)
I’m a massive uniswap v3 shill when used elsewhere, but this incentive just isn’t working. k1ngf1sh did a great job describing it on the Discord.
The RAI price is very far off from the redemption price. There is very little inventory available to buy.
There are two causes: one is fairly organic. People had to deleverage because ETH price was going down, which meant they had to buy RAI off the market to put in their safes. At the same time, there is less demand for leverage because people are derisking so less people are shorting RAI.
The other cause is the RAI/DAI v3 minter incentive. The way it’s designed, it subsidizes rather inefficient “market makers”. These “market makers” aren’t making their profit from buying low and selling high. They want to avoid RAI exposure because RAI’s redemption rate means one can expect sell pressure. Therefore, right now, they’re buying just the bare minimum amount of RAI (to stay within range of the market price for liquidity mining) and then a long tail of DAI down to the redemption price. The absurd APR that they’re receiving right now – far higher than any other ETH staking APR that I know of, offsets the risk from the whopping -25% redemption rate. (And you know almost all of that FLX is being dumped – I manually looked through the top few recipients of the FLX incentive but can provide some scripts that need a few more hours of work to show this quantitatively.)
That’s not useful liquidity for market participants who want to close their safe or deleverage (it is a nice subsidy to DXdao, who is exiting their RAI position later this week at a nice profit). The incentive is blatantly “picking winners and losers”.
Anyways, I’m all for distributing FLX to protocol users but right now we’re so far away from anything resembling normal protocol use. The FLX subsidy to RAI/DAI V3 minters is larger than all the other subsidies combined (excluding FLX/ETH which is a special case). While it was well-intentioned, the restrictions are absurd. It’s attracting farmers instead of “efficient capital allocators”.
I’m for nuking V3 minting incentive as long as it’s this poorly designed. I would support something moving towards this: GitHub - guil-lambert/v3-staker-fixed-range: Canonical liquidity mining contract for Uniswap V3 or incentives based on the amount of fees collected but we need to be careful not to incentivize wash trading. But the current incentive structure is literally telling people where to get their RAI from (minting) and the full range of prices to put it over. The incentive is so large (25-100% APR) that market makers who may show up in a more natural market can’t profitably compete with the liquidity miners. e.g. if Alice wanted to LP v3 RAI/DAI but didn’t want ETH exposure, she wouldn’t be profitable due to extreme competition from subsidized liquidity miners.
- If Uniswap v3 incentives are lowered, should Uniswap v2 RAI/ETH incentives increase?
I voted yes. Don’t particularly care though. It’s not a huge provider of liquidity because uni-v2 is not great but if we can make RAI/ETH V2 LP more profitable than USDC/ETH V2 LP then that is cool and good.
- Should there be a pure mint incentive for RAI?
I prefer subsidies that incentivize RAI usage with as few strings attached. For this reason, I support pure mint incentives.
As I stated here, I’d also like to see a small subsidy to minting in FLX. Like 2-4% APR for value of minted RAI.
I don’t think this subsidy would be enough to incentivize people to mint+do nothing with their RAI. At 200% collateral factor, the risk of minting + sitting for a few % APR just isn’t worth it when you could put your ETH in stETH (or leveraged stETH) instead. However, it might tip the balance when people are deciding whether to mint RAI as opposed to DAI.
I’d also like to see more short term incentives aimed at getting integrated to other projects and boosting composability.
In the future, we should decide exactly what an incentive is supposed to incentivize/compete with, and tweak it to stay competitive with other DeFi protocols.