dYdX Incentive Spend

Proposal Discussion Liquidity Incentives
1

This proposal requests a bootstrapping incentive spend for the launch of dYdX token liquidity on Osmosis.

About dYdX

dYdX is an established perpetuals exchange running v3 of the open-source dYdX software at dydx.exchange.

dYdX voted to migrate to a new, IBC-enabled appchain running the v4 dYdX software earlier this year. This includes the launch of a staking token to govern voting power on the dYdX chain.

The current dYdX token on Ethereum, now known as ethDYDX, can be locked in a smart contract in return for both a corresponding DYDX token on the new chain governing v4 of the software as well a wethDYDX token on Ethereum, which will continue to govern v3 of the software.

Incentive spend

This proposal requests a community pool spend to incentivize liquidity on Osmosis for the DYDX token from the dYdX chain.

The pool will be 0.05% spread factor Supercharged pool paired with USDC.

As of Proposal 638, Osmosis no longer allocates ongoing internal incentives to most pools.

By spending specific quantities of incentives with a fixed end date, initial liquidity can be crowdsourced for a pool to launch new markets on Osmosis. After the market has been established, these external incentives will end, and the market will reach a sustained level of liquidity through trading fees alone.

Why is dYdX liquidity important to Osmosis?

As an established project on Ethereum, dYdX currently has around 4,000 active traders despite current market conditions. Osmosis becoming the main place to trade the governance token may attract new users who were typically Ethereum natives but have recently installed Cosmos-compatible wallets to interact with the new version of dYdX.

As the liquidity hub for the Cosmos, Osmosis will form the primary spot market for dYdX’s perpetual markets. Increased activity and adoption of dYdX v4 over v3, therefore, will attract further volume to Osmosis, and so it is in Osmosis’ interests to incentivize migration by enabling an active dYdX market.

dYdX is also the first prominent app to choose to migrate to a dedicated appchain, demonstrating Cosmos’ vision of a multi-chain future connected by IBC. Supporting established apps to move to an appchain grows the usage of the Cosmos as a whole. Osmosis can assist here by increasing liquidity depth outside the original monolithic chain during launches.

Requested Spend

This proposal requests 200,050 OSMO to be spent as follows:

  • 200,000 OSMO to the DYDX / USDC pool over 50 days to source liquidity for DYDX in the Cosmos. (Approx $1000 per day)
  • 50 OSMO for the gauge creation fee.

Fifty days should give sufficient time for the liquidity market to establish. The recent USDT launch took around 30 days for incentives to develop reliable volume, so incentives should be around longer than this to ensure the market is well established.

The quantity of OSMO has been chosen as a spend equivalent to ten days of the redirected incentives removed in Proposal 638. This aims to ensure that the incentives are substantial to attract liquidity primarily to Osmosis while not raising inflation significantly compared to that proposal’s reduction.

Funding management

This proposal spends the requested OSMO into a multisig on DAODAO to be loaded to the specified pool by the members.

All incentives will be loaded to the relevant gauge as soon as the pool is freely available for trading on Osmosis.

Members of the multisig are:

  • To be established

Target on-chain date: 19th October 2023

2 Likes
2

Super happy to see this proposal! I was thinking of making a prop like this myself, because of how important the new DYDX token will be in the Cosmos.

I feel like this is a good about of OSMO to spend, and I like that it’s just temporary to bootstrap liquidity. Fully support.

Looking forward to a similar proposal for TIA, and possibly NAM.

1 Like
3

I think this should be associated with a corresponding decrease in incentives from the rest of incentives.

4

Happy to see this proposal.

With the removal of incentives for the majority of pools and tokens it makes more sense than ever for Osmosis to focus incentivisation for new tokens listing on Osmosis as a means to collaboratively bootstrap liquidity with projects.

Ideally all projects would bootstrap liquidity in partnership with Osmosis, through the incentive matching program, but for strategically important tokens (such as the DYDX token) it could make sense for Osmosis to fund liquidity bootstrapping from OSMO in the community pool.

Its great that there is a time restriction for the duration of incentives (50 days seems pretty reasonable) and makes Osmosis a likely destination for DYDX trading and liquidity

wethDYDX makes sense from the perspective of incentivising sufficient liquidity for a stableswap (transmuter) pool between DYDX and wethDYDX? Otherwise what is the reason for including wethDYDX as a token to be incentivised? @JohnnyWyles

1 Like
5

I think we can perhaps frame incentives such as in this proposal as a strategic approach to time limited incentives for new token listings on Osmosis and a shift towards an incentive model which focuses on new token listings and markets for Osmosis.

New markets / New tokens choosing to launch on Osmosis because of either external incentive matching, or pool bootstrapping incentives is a good business model for Osmosis.

The commitment to incentivising new tokens pairs in collaboration with external teams and internally for strategically important tokens could result in Osmosis being seen as a liquidity launchpad by teams and makes it #1 choice for bootstrapping liquidity.

From the Osmosis side, incentives are seen as temporary (not a constant loss incurred by the protocol from incentives) and this model/spend attracts new markets, new users and new projects to Osmosis which all are beneficial. New markets attracting new users who trade and LP in other markets after being onboarded through initial incentivisation should be effective as long as there is a ‘‘stickiness’’ to Osmosis when new traders/LPs join

Each newly incentivised token that is listed can be seen as a ‘‘loss leader’’ - pool incentives operated at a loss to bootstrap new markets on Osmosis and capture a slice of the user base (traders, token holders, LPs) the project brings with their listing. As long as these loss leaders bring in users/capital with some level of retention and users moving over to other activities on Osmosis then the loss leader is doing it’s job perfectly and the capital is well spent?

I understand this is slightly beyond the scope of this proposals discussion, but this is the framing I use when approaching incentives on Osmosis

1 Like
6

wethDYDX and DYDX should end up with different valuations as one will exclusively govern v3 dYdX and one will exclusively govern v4 dYdX on the new chain so they wouldn’t work as a stableswap.

DYDX should be the main market in the Cosmos since it will be an IBC native token and wethDYDX needs transferring across a bridge from Ethereum. However, we might see the wethDYDX token start trading on DyDx v4 too, since the owners will likely overlap heavily even with disposals of one half of the redemption.

If it does make its way off Ethereum then we should be aiming for this market too - but it is far less likely and so has a far smaller spend, just to trigger some initial trading liquidity.

1 Like
7

Thanks for clarifying. Also saw that the spend to incentivise wethDYDX is minimal ($25 per day incentive)

8

Excited to see this proposal!

It does seem valuable for Osmosis to bootstrap DYDX liquidity as DYDX will quickly become one of the highest value tokens in the cosmos ecosystem

All looks generally great to me, my main feedback is that it does not seem necessary to incentivize the wethDYDX pool. My personal opinion is that wethDYDX will not be traded that widely. If that’s not the case you could choose to revisit

5 Likes
9

I see no reason to incentivize wethDYDX to be honest. That token will inevitably die off after v3 is shut down, trading incentives are already scheduled to be removed starting next month.

More information about the tokens here:

4 Likes
10

Echoing @antonio & @luisqa - listing and incentivizing wethDYDX will only bring confusion as the token is already one-way-bridged and offers, for a limited time only, governance rights on Version 3/ Ethereum based DYDX.

4 Likes
11

Feedback implemented - wethDYDX removed from this proposal to minimize confusion around the launch.

5 Likes
12

Another question I have on this one; what are the learnings from our bootstrapping of USDT (Kava)?

There we did a massive spend, but did it result in what we intended?
If not, then we should also not do this proposal.

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I think in the USDT case there are few incentives to hold it or use it still. DYDX is not only the governance token for the chain, but it also receives trading fees from the protocol, the limited time of the incentives will also limit any overspend of osmo.

14

I am more curious whether it actually attracts new liquidity.

As stated on the USDT-case as well, I don’t care about yield-chasers. We need fresh liquidity, not just mercenary liquidity which we lose on other pools.

15

I think this is completely different case. ETH folks are now bridging their dYdX bags that have acted only as a governance token. (safety pool yield was shut down maybe last year so no staking there) At least that’s the case for me as we all know doing defi moves on mainnet can be expensively stupid so my dYdX bag has been sitting idle for a long time.

I would think all eth people bringing their bags to V4 ecosystem that it’s fresh liquidity. How much of that comes to Osmosis, we shall see, but I guess having incentives doesn’t hurt

16

Thanks Johnny for the proposal! As a delegate on dYdX DAO, we are very excited to see the proposal for Osmosis to support the success of dYdX Chain! We believe the success of a chain in the Cosmos ecosystem is leading to the success of the ecosystem itself.

Echoing @antonio and @John_Galt , all the amount OSMO to spend and duration of the campaign and the rationale behind them backed by the previous experiments look reasonable and good to go. Removing wethDYDX listing and incentivizing is definitely the right choice as well.

We are fully in support of the proposal and its execution. Looking forward to the release of the program!

17

Support this. Opening way to new and potential markets are crucial for Osmosis growth.

18

I really need to see this happening.

Because we said the same with DOT, and other bridged assets. And it never happened.

19

LC, maybe there is a misunderstanding, this isnt for bridged assets so its a complete different situation imo. It’s for native cosmos chains that will have no other place to trade initially.

1 Like
20

I know, but the essence stays exactly the same; will it attract new liquidity?
Or will it just shift from one pool to another? Because that is what happened with the other examples.

Until we have found a method to attract new liquidity I am against this kind of spends, since they simply do not make sense. We cut incentives to LPs, but scale up with this kind of incentives, which do exactly the same thing.