This is just a very early idea, but I thought I'd get the conversation started.
So, first off, there's been some backlash about the UNI rewards going to those four specific pools, which, albeit very important, don't seem to fully represent the entire DeFi ecosystem.
Lots of liquidity is indeed being "drained" from smaller pools and new tokens, which could potentially hinder Uniswap's position as a DEX for new or smaller DeFi innovations. (See: https://gov.uniswap.org/t/stop-the-liquidity-drain/2610/15 )
My proposed solution? Well, I may not really know what the heck I'm talking about, but what if we rewarded UNI tokens based on trade volume? This would reward UNI to more or less every pool in proportion to that pool's importance in the greater ecosystem. The bigger pools (like ETH/USDT, etc) will still get a whole bunch, but so will other pools like YFI/ETH for instance.
Of course, some kind of vetting procedure should occur in order to prevent abuse. I.e: people shouldn't just be able to arbitrarily create their token pairs and mess with volume or something. Maybe we can set up a minimum liquidity threshhold or something. Anyway, what do I know? :rofl:
Alright, just wanted to get this potential discussion going. There are great minds here, let's put them to work!
Thanks, Zer0dot
This is just a very early idea, but I thought I'd get the conversation started.
So, first off, there's been some backlash about the UNI rewards going to those four specific pools, which, albeit very important, don't seem to fully represent the entire DeFi ecosystem.
Lots of liquidity is indeed being "drained" from smaller pools and new tokens, which could potentially hinder Uniswap's position as a DEX for new or smaller DeFi innovations. (See: https://gov.uniswap.org/t/stop-the-liquidity-drain/2610/15 )
My proposed solution? Well, I may not really know what the heck I'm talking about, but what if we rewarded UNI tokens based on trade volume? This would reward UNI to more or less every pool in proportion to that pool's importance in the greater ecosystem. The bigger pools (like ETH/USDT, etc) will still get a whole bunch, but so will other pools like YFI/ETH for instance.
Of course, some kind of vetting procedure should occur in order to prevent abuse. I.e: people shouldn't just be able to arbitrarily create their token pairs and mess with volume or something. Maybe we can set up a minimum liquidity threshhold or something. Anyway, what do I know? :rofl:
Alright, just wanted to get this potential discussion going. There are great minds here, let's put them to work!
Thanks, Zer0dot
I kind of agree with the point you make about super high risk pairs, but I disagree with this:
At this point one could just lock his/her money in ETH/USD or ETH/BTC liquidity pools for 4 years and be tranquil about his/her money’s safety and value.
I agree. I also think that in proportion we should incentivize more liquidity pools with low liquidity. It is an actual problem with UniSwap, because users pay 3 costs when making a trade:
I agree. I also think that in proportion we should incentivize more liquidity pools with low liquidity. It is an actual problem with UniSwap, because users pay 3 costs when making a trade:
Making a trade too small (like 200$) is not convenient for users because they would pay an high percentage of the trade for eth gas. But in liquidity pools with low liquidity it's not convenient even to do medium sized trade. For example in a liquidity pool with $1'000'000 making a $2000 trade would cost 0,4% only for the price slippage, which is quite high considering the fee for the liquidity provider is only 0,3%. And the situation is much worse in pools with lower liquidity. It would be better for everyone if liquidity provider were more incentivized thus lowering the cost for price slippage.
Of course, some kind of vetting procedure should occur in order to prevent abuse
I kind of agree with the point you make about super high risk pairs, but I disagree with this:
At this point one could just lock his/her money in ETH/USD or ETH/BTC liquidity pools for 4 years and be tranquil about his/her money’s safety and value.
I agree. I also think that in proportion we should incentivize more liquidity pools with low liquidity. It is an actual problem with UniSwap, because users pay 3 costs when making a trade:
I agree. I also think that in proportion we should incentivize more liquidity pools with low liquidity. It is an actual problem with UniSwap, because users pay 3 costs when making a trade:
Making a trade too small (like 200$) is not convenient for users because they would pay an high percentage of the trade for eth gas. But in liquidity pools with low liquidity it's not convenient even to do medium sized trade. For example in a liquidity pool with $1'000'000 making a $2000 trade would cost 0,4% only for the price slippage, which is quite high considering the fee for the liquidity provider is only 0,3%. And the situation is much worse in pools with lower liquidity. It would be better for everyone if liquidity provider were more incentivized thus lowering the cost for price slippage.
Of course, some kind of vetting procedure should occur in order to prevent abuse
There are two distinguishable questions we’re discussing:
Is it good or not to reward other pairs with UNI distribution?
Is it good or not to additionally reward pools based on the volume that is generated through them?
1. My answer to the first question is that it is not good to add any other non-store-of-value token to UNI distribution other than UNI.
There are two distinguishable questions we’re discussing:
Is it good or not to reward other pairs with UNI distribution?
Is it good or not to additionally reward pools based on the volume that is generated through them?
1. My answer to the first question is that it is not good to add any other non-store-of-value token to UNI distribution other than UNI.
The perspective I’m looking on it from is the perspective of fostering mass adoption of the protocol .
I find that there is a good question to ask yourself when you think about investments:
“Would you recommend a poor friend of yours to invest his/her life savings into this thing?”
I think there is a lot of responsibility in where we direct newcomers to . We need to be empathic.
Because if we direct them to wrong places where they lose money, we lose their trust .
On current pairs available for UNI farming the potential downside is as limited as it can be in crypto. And I can’t stress enough how important this is.
2. My answer to the second question is negative as well. Pools are already fairly rewarded for the volume they get. If they weren't, Uniswap wouldn't be top-1 DEX. And it is a super flexible mechanism, the system balances itself out quite perfectly in this case.
If we were to distribute all the tokens based on the volume, there would actually be no need in emission of UNI token, as it would duplicate the previous model where all the fees go to LPs in proportion to volume/liquidity.
I think it is correct to think of LPs in a way we think of miners in Bitcoin ecosystem. It is good to have them, it is good that they are profitable, but we don’t want to skew incentives completely towards them, as it would hurt everyone. There are a lot of POW coins that are just in perpetual downtrends because the only people who make money off of them are miners, who sell their coins off at the first opportunity.
I think what we want for Uniswap protocol to get mass adoption is easy and risk-free inclusion of new participants .
So I’d like to view the UNI distribution processes not from the point of view of how profitable they are for liquidity providers, I’d like to first and foremost address who do we invite to govern Uniswap ?
@JokerTheBond says that WBTC-ETH rewards are exaggerated, I believe they are not.
People who lock their funds in WBTC-ETH pair for the most part are people who believe in these coins more than they believe in Dollar. I believe inclusion of Bitcoin community into governance decisions of Uniswap is an unequivocally good thing for the future of the protocol. I don't Bitcoin community should be discriminated on the volume basis, especially given the fact that it's taking only 1/4 of the distribution, and yearly APYs for being an LP are quite negligible for this pair.
You make an absolutely good point here! I hadn't thought of that. What if we implement @JokerTheBond's solution and vet every eligible pair through a governance vote?
You make an absolutely good point here! I hadn't thought of that. What if we implement @JokerTheBond's solution and vet every eligible pair through a governance vote?
In doing so, liquidity providers are still incentivized to add liquidity to high volume pairs, reducing slippage and (possibly) spreading the liquidity in a way that supports the broader ecosystem. However, only the pools that are vetted and approved by governance are eligible.
It is worth noting that though it's great to lock your money for 4 years with good conscience, the main goal here is to promote the growth of Uniswap as an integral part of the greater DeFi ecosystem. I'm not sure incentivizing only the major currency pairs is the right way to go about this, could be wrong!
There are two distinguishable questions we’re discussing:
Is it good or not to reward other pairs with UNI distribution?
Is it good or not to additionally reward pools based on the volume that is generated through them?
1. My answer to the first question is that it is not good to add any other non-store-of-value token to UNI distribution other than UNI.
There are two distinguishable questions we’re discussing:
Is it good or not to reward other pairs with UNI distribution?
Is it good or not to additionally reward pools based on the volume that is generated through them?
1. My answer to the first question is that it is not good to add any other non-store-of-value token to UNI distribution other than UNI.
The perspective I’m looking on it from is the perspective of fostering mass adoption of the protocol .
I find that there is a good question to ask yourself when you think about investments:
“Would you recommend a poor friend of yours to invest his/her life savings into this thing?”
I think there is a lot of responsibility in where we direct newcomers to . We need to be empathic.
Because if we direct them to wrong places where they lose money, we lose their trust .
On current pairs available for UNI farming the potential downside is as limited as it can be in crypto. And I can’t stress enough how important this is.
2. My answer to the second question is negative as well. Pools are already fairly rewarded for the volume they get. If they weren't, Uniswap wouldn't be top-1 DEX. And it is a super flexible mechanism, the system balances itself out quite perfectly in this case.
If we were to distribute all the tokens based on the volume, there would actually be no need in emission of UNI token, as it would duplicate the previous model where all the fees go to LPs in proportion to volume/liquidity.
I think it is correct to think of LPs in a way we think of miners in Bitcoin ecosystem. It is good to have them, it is good that they are profitable, but we don’t want to skew incentives completely towards them, as it would hurt everyone. There are a lot of POW coins that are just in perpetual downtrends because the only people who make money off of them are miners, who sell their coins off at the first opportunity.
I think what we want for Uniswap protocol to get mass adoption is easy and risk-free inclusion of new participants .
So I’d like to view the UNI distribution processes not from the point of view of how profitable they are for liquidity providers, I’d like to first and foremost address who do we invite to govern Uniswap ?
@JokerTheBond says that WBTC-ETH rewards are exaggerated, I believe they are not.
People who lock their funds in WBTC-ETH pair for the most part are people who believe in these coins more than they believe in Dollar. I believe inclusion of Bitcoin community into governance decisions of Uniswap is an unequivocally good thing for the future of the protocol. I don't Bitcoin community should be discriminated on the volume basis, especially given the fact that it's taking only 1/4 of the distribution, and yearly APYs for being an LP are quite negligible for this pair.
You make an absolutely good point here! I hadn't thought of that. What if we implement @JokerTheBond's solution and vet every eligible pair through a governance vote?
You make an absolutely good point here! I hadn't thought of that. What if we implement @JokerTheBond's solution and vet every eligible pair through a governance vote?
In doing so, liquidity providers are still incentivized to add liquidity to high volume pairs, reducing slippage and (possibly) spreading the liquidity in a way that supports the broader ecosystem. However, only the pools that are vetted and approved by governance are eligible.
It is worth noting that though it's great to lock your money for 4 years with good conscience, the main goal here is to promote the growth of Uniswap as an integral part of the greater DeFi ecosystem. I'm not sure incentivizing only the major currency pairs is the right way to go about this, could be wrong!
I think this proposition is excessive and would hurt interests of UNI token buyers and holders .
At this point liquidity providers of lower liquidity / bigger volume pools are incentivized enough by the commissions they get from pooling. There is no point of adding further incentivization of this group at the expense of other groups.
I think this proposition is excessive and would hurt interests of UNI token buyers and holders .
At this point liquidity providers of lower liquidity / bigger volume pools are incentivized enough by the commissions they get from pooling. There is no point of adding further incentivization of this group at the expense of other groups.
Let’s think about how this proposal would look in practice on an example, using today’s numbers.
Today the 8th biggest volume pair on Uniswap in ETH-MEME: the volume is 46 mil while the liquidity is 2.6 mil. Being a liquidity provider for this pair means that:
Imo it is a balanced risk/reward proposition for LP. And what LP is doing here is called speculative mining .
So your proposition would effectively stimulate the group of speculative high-risk miners of assets that have questionable underlying value .
I do not think that it is healthy for long term protocol development to skew incentives towards this group.
Because that would stimulate people who want to earn more UNI tokens to buy speculative mining coins and potentially lose money on them.
At this point one could just lock his/her money in ETH/USD or ETH/BTC liquidity pools for 4 years and be tranquil about his/her money’s safety and value.
If we introduce volume based rewards this creates a totally different kind of game where the group of UNI buyers and holders (the people who want to accumulate more UNI over time) is incentivized to make high risk (high potential loss) decisions .
This way UNI incentives plan creates a situation where:
This is not a good situation to encourage from the perspective of a healthy network growth.
I think this proposition is excessive and would hurt interests of UNI token buyers and holders .
At this point liquidity providers of lower liquidity / bigger volume pools are incentivized enough by the commissions they get from pooling. There is no point of adding further incentivization of this group at the expense of other groups.
I think this proposition is excessive and would hurt interests of UNI token buyers and holders .
At this point liquidity providers of lower liquidity / bigger volume pools are incentivized enough by the commissions they get from pooling. There is no point of adding further incentivization of this group at the expense of other groups.
Let’s think about how this proposal would look in practice on an example, using today’s numbers.
Today the 8th biggest volume pair on Uniswap in ETH-MEME: the volume is 46 mil while the liquidity is 2.6 mil. Being a liquidity provider for this pair means that:
Imo it is a balanced risk/reward proposition for LP. And what LP is doing here is called speculative mining .
So your proposition would effectively stimulate the group of speculative high-risk miners of assets that have questionable underlying value .
I do not think that it is healthy for long term protocol development to skew incentives towards this group.
Because that would stimulate people who want to earn more UNI tokens to buy speculative mining coins and potentially lose money on them.
At this point one could just lock his/her money in ETH/USD or ETH/BTC liquidity pools for 4 years and be tranquil about his/her money’s safety and value.
If we introduce volume based rewards this creates a totally different kind of game where the group of UNI buyers and holders (the people who want to accumulate more UNI over time) is incentivized to make high risk (high potential loss) decisions .
This way UNI incentives plan creates a situation where:
This is not a good situation to encourage from the perspective of a healthy network growth.
