[Temp Check] Unichain and Uniswap v4 Liquidity Incentives | proposals.app

posted 1 year ago

Hey all, wanted to comment on this from my account, having some thoughts outside the scope of this specific proposal. While I’m currently the Governance Lead at Gauntlet, I’ve also lived through many angles of L2 incentive programs as an author, analyst, and grant recipient (at Boost); I want to see if I can help contextualize some of the comparisons I’ve seen in discussions surrounding the incentives aspect of this proposal.

I’ve noticed a conflation between some of the more general incentive programs we’ve seen at the L2 level, focused primarily on protocol support and ecosystem growth, and what I believe is a particular and targeted campaign outlined above. The most significant community concerns I see are 1) long-term retention and 2) the incentive methodology.

To start, I want to state that Gauntlet agrees with many of the above points (@UreNotInD, @alicecorsini, @0xkeyrock.eth, etc.). I’ve also personally questioned the efficacy of many Uniswap growth incentives for new deployments and broad L2 programs, asking for more analytics and KPIs to help highlight what’s working (re: @stablelab dashboards). I think Gauntlet and the UF’s approach should help address several of these concerns.

The strategy here is built to drive long-term sustainable growth in V4 and Unichain. This clarity of focus comes from 1) the Foundation’s strategic focus and 2) Gauntlet’s robust (and tested) methodology.

1. Strategic Focus

One takeaway from previous L2 growth programs is that they relied on DeFi protocols as a proxy for TVL growth. It’s no secret that early programs (Optimism, Arbitrum) lacked strategic goals. To many’s observation, this resulted in some successes, and many failures. Many grants attracted mercenary capital and had significant principal-agent problems between grantees (protocols) and the grantor (networks).

Uniswap and Gauntlet have designed this program to actively combat those trends by focusing on two goals: migrating volume/liquidity from V3→V4 and growing strategic asset liquidity on Unichain.

V3→V4 Migration

There is a solid precedent for migration incentives resulting in long-term retention. Gauntlet has managed programs like this before (USDC migrations on Arbitrum). Even at our favorite punching bag, STIP, GMX demonstrated remarkable retention from its incentives program to move users from V1 perps to V2.

From a business perspective, the Foundation (and the DAO) should value accelerating the adoption of V4. Providing liquidity for novel hooks on V4 will both accelerate the deployment of new integrations and provide an opportunity to expand Uniswap’s moat. This offers valuable differentiation against DEX competitors during the period when Uniswap V4 benefits from its BUSL licensing.

Unichain Incentives

Unichain’s advantage is that it is a dedicated network for the entire Uniswap ecosystem. While Uniswap competes with native incumbents on most L2s (e.g., Camelot on Arbitrum, Aerodrome on Base, SyncSwap on zkSync), on Unichain, it can function as the exclusive AMM.

With an opportunity to leverage strategic incentives, the Uniswap DAO can foster a deeper liquidity environment by doubling down on Uniswap liquidity, focusing on AMM pairs that attract protocols, developers, and capital to build on top of that liquidity. This extends to lending markets, perpetual markets, and aggregators that can unlock new DeFi strategies and products. The goal is to make Uniswap V4 on Unichain the premier liquidity hub in crypto by drawing real users, volume, and sustainable use cases through targeted liquidity investments.

Once live, Superchain interoperability will extend this liquidity to other Superchain members like Ink, OP Mainnet, and Base.

2. The Incentive Methodology

The second observation many have pointed out is that most incentive programs have suffered from gameable liquidity mining incentives that result primarily in mercenary capital joining the ecosystem to “farm” rewards, only to leave when incentives end. This is a valid concern, and as many have pointed out, this activity has occurred on several DAO-led incentive programs to date.

Gauntlet has had the opportunity of working with Uniswap on a few select programs, and we believe that we have achieved a methodology that not only protects against sophisticated actors utilizing complex farming strategies (such as Just-in-time liquidity and wash-trading) but also introduces ruthless efficiency in dynamic optimization and constant monitoring of liquidity conditions onchain.

Lastly, Aera allows the DAO to autonomously retract the program if it does not meet the desired goals. Dashboards will include high-level KPIs and widgets to provide transparency on core pool growth and separate it from the noise of “rug pull” or other toxic activity. Gauntlet's data and analytics are designed to provide full transparency for our program's live monitoring and evaluation. If folks haven’t yet, I strongly recommend checking out our previous research and results from existing Uniswap campaigns on Arbitrum (1, 2).

Final Thoughts

I’d also like to challenge the assumption that deploying and incentivizing Uniswap on Unichain is misaligned with the DAO. I would hate to see the politics of Unichain’s launch, no matter one’s feelings, distract from this.

Currently, UNI holders do not receive sequencer or validator revenue from any network where V4 is deployed, so it’s inconsistent to oppose Unichain’s V4 instance simply because it lacks sequencer fees for the DAO. Further, it’s worth considering whether decisions should be made on behalf of UNI holders or the “DAO” treasury. Thanks to the Unichain Validation Network (UVN), Unichain is the only V4 instance that provides alignment with UNI holders at the chain level. I’m having trouble understanding how this deployment is not the most valuable instance of Uniswap V4 for UNI holders.

mjc716

posted 1 year ago

While I know the UF is acting in good faith, this proposal draws too heavily from a 2021-style playbook with questionable effectiveness.

I think this whole conversation around incentivization needs to be reframed, with proper consideration around how people are using DEXes in 2025.

While I know the UF is acting in good faith, this proposal draws too heavily from a 2021-style playbook with questionable effectiveness.

I think this whole conversation around incentivization needs to be reframed, with proper consideration around how people are using DEXes in 2025.

Additionally, this proposal seems to differ very little from one we might have seen in the previous regulatory environment. That might align with the Foundation's more conservative approach, but it's plainly out of sync with the broader space.

Okay, so what's the proposal? UniLaunch.

Unichain's canonical token and liquidity launcher. That's pretty much it.

Full token supply deployed as liquidity and permanently locked, with LPs fee claimable by deployer. Interface fees built in for deployment and trading interfaces.

This is the kind of onchain activity that sustainably draws the ETH<>USDC liquidity we're about to spend tens of millions of dollar to rent on a short term basis.

Willfully ignoring Pump, Clanker, et. al because they attract a lot of unsavory BS, is not going to change the fact that these are the protocols driving trading volume on DEXes these days.

Use a fraction of the budgeted incentives to bootstrap a few interfaces.

We all agree that immutable, un-configurable code is legally defensible, so why wouldn't this be?

Canonizing this protocol on Unichain will not only provide a sustainable income stream for future incentives and grants, it will also crowd out the potentially nefarious or extractive actors who will try to occupy this position in the future. I recognize there are legal and structural hesitations around being revenue-generating in any capacity, but the current proposal is wasteful and lacking in creativity. There's gotta be a way to do this.

The token launchpad is a staple of any chain and a key driver of volume. Incentivizing underutilized liquidity on short term rentals is the exact opposite method for how we should be approaching something like this in 2025. Not to say liquidity incentives shouldn't be part of the toolkit, but leading with them, at this kind of scale, is misguided.

0xVenky

posted 1 year ago

edited 1 year ago

Hey @devinwalsh , read the proposal and took part in the community call to understand more about the proposals. We appreciate the focus on setting KPIs on the campaigns as this will help in making sure that the emissions are meeting the TVL goals. We also like the fact that Uniswap is now preferring to move away from setting static long term campaigns (like the 6 month ones on Sonic) towards dynamic 2 week campaigns. This approach will help throttle emissions and quickly identify which pools perform best.

Quoted from devinwalsh

Custom, publicly-available dashboard to track campaign KPIs live with 24h data freshness.

Metrom can already process these KPI based distributions and we are seeing this real-time on a shadow incentive campaign that we are running on Sonic based on the original distribution. More details below:

|602x495

Shadow campaign specs

• We’re self funding the study with a 1:100 reward ratio, where Metrom rewards 1% of the same rewards defined in Merkl for the USDC.e-WETH pool. The rewards per day are 29.45 UNI and 1288 S on Merkl, while its 0.2945 UNI and 12.88 S on Metrom.

• The motivation is to demonstrate to the Uniswap DAO the efficiency gains achievable through KPI campaigns. As you can see from the screenshot above or the link below, the distributions are automatically proportional to the TVL.

Link to campaign in Metrom: https://app.metrom.xyz/en/campaigns/146/0x1ef4f825e2c4af8f2bd12219dba8a61944d5b71b3e608553d21350eb5cd6f1d9

We commit to publishing a comprehensive case study post-campaign that will showcase not only the efficiency gains (including UNI savings) but also a comparison of multiple KPI setups. This data-driven study will offer insights for further refinement and help align our approach with Uniswap’s strategic objectives.

The KPI based emissions are not confirmed to have retention or sticky liquidity, but it is a first step towards bringing efficiency to emissions, so that new such experiments could tried for combining TVL KPIs with volume and utilization.

sogipec

posted 1 year ago

Thanks for the proposal and the thoughtful comments! Pablo from Merkl here!

While the Gauntlet team is on the lead for this proposal, I just want to address some points raised on Merkl and provide explanations about what Merkl is more specifically and how it can work for such a program.

Thanks for the proposal and the thoughtful comments! Pablo from Merkl here!

There was a comment on the possibility for Merkl to be effective for all use cases and hooks possible for UniV4. Most likely, Merkl won't be as efficient for all existing hook types. But, Merkl is based on an offchain mechanism to compute reward distribution and so it can easily be adapted to factor in the logic associated to a given hook. Going further, Merkl is probably the only reward mechanism that can provide enough granularity to take into account the specificities of every hook and pool on UniswapV4. Let's say there is a hook with an arbitrary logic, this hook might not come with a dedicated incentive logic. Having to tweak the behavior of a given hook just to account for the fact that it should be able to distribute incentives might not be super efficient as well, or less efficient than handling the rewards logic independently offchain.
There were also some comments on the reliability of the incentives and whether non mercenary capital will remain. These are obviously valid concerns and I just want to point out that Merkl is an infrastructure provider specialized in the distribution of incentives. Our mission is to build the tools to let everyone build expressive and powerful reward programs with little to no development effort involved. While we can offer tools to make these programs more efficient through a higher retention, our #1 mission is to empower the Uniswap DAO (and any other DAO) with what they need to implement programs that will be efficient from their perspective. That being said, we do have some ideas on settings Uniswap could use to improve retention and efficiency of such programs. From our experience, the best is to structure these programs not as one off programs but as permanent solutions. I'm not saying millions in tokens rewards should be issued in perpetuity, just that more sustainable distribution mechanisms (leveraging protocol revenue - if fee switch is activated) could be put in place to direct incentives towards pools with a high ROI once initial network effects have been attained. In permanent systems, the most credible way to increase the ROI and retention overall is to have a form of slashing system or penalties for users/addresses moving to other protocols. It's of course easier said than done, but given the success of programs like Merit by Aave, I think it could be interesting to explore in this iteration or in a future iteration systems like this providing credible guarantees that you're better off long-term remaining in a protocol rather than farming elsewhere
On the idea to leveraging existing hook cohorts, i do agree that one of this program's primary objectives should be to incentivize hook developers and appropriately reward the most efficient hooks. As explained above, Merkl is hook agnostic, so we can be used to facilitate incentives on top of any hook type, without any requirement on their side (they can focus on building great hooks when Merkl can make sure that their LPs are well incentivized). We could for this maybe think of a feedback loop mechanism where hooks with a greater ROI get more rewards: everyone gets a chance and the program can be used for some form of discovery but if a hook works better governance can double down on this. This is for me a nice alignment of incentives, which if well calibrated will drive more applications to the Hook incubator.
When it comes to router incentives, I think it's a great thing to explore as well. The main metric to achieve for DEXes is volume and LP incentives are used as a proxy to achieve greater volume. Incentivizing volume directly sounds like a more direct way to grow liquidity. Several remarks on this:
- routing/trading incentives are easy to game (at least easier to game than usual liquidity incentives) where you need to put liquidity for some amount of time: if not well done it's easy to recycle capital to cannibalize all the incentives, and anti-sybil systems are also hard to implement for this (and not perfect)
- for these routing incentives, budgets are more efficiently handled in the underlying tokens of the pools rather than in UNI or in gov tokens in general. Aggregators lack the skills and expertise to manage an inventory in UNI tokens and as it stands can hardly optimize their routes because they can anticipate that they'll get UNI rewards retroactively.
- we're actively working with Merkl on a system that will allow for DEXes to pay for non toxic order flow (basically reduce fees on some pools)

On a side note, I think that the lowest hanging fruit for the efficiency of this program would be to have Uniswap Labs frontend integrate reward data in their frontend. Such campaigns are in the end marketing campaigns, and making the most of all available distribution channels is for me a must, especially given the budgets involved. I understand that Uniswap Labs is not the foundation and that there may be some legal considerations with displaying APRs, but there may be a way to display this in a way that limits Uniswap Labs liability.

t_norm

posted 1 year ago