Limit Epoch Calculations for small distributions

Proposal Discussion
1

This proposal aims to reduce Epoch time on Osmosis by approving changes to the distribution process for Classic pools. Incentives for Classic pools are distributed at epoch, contributing to longer calculation times for the Epoch block. This proposal approves setting a minimum distribution parameter of 0.01 OSMO for Classic pools to reduce the number of calculations validators perform at Epoch.

Background

Osmosis incentivizes liquidity provision through emission rewards distributed to liquidity providers in Classic and Supercharged pools. The current distribution mechanism allocates incentives via a different mechanism for each. Incentives for Supercharged pools are distributed block by block, while incentives for Classic pools are distributed at epoch.

Problem Statement

The current distribution mechanism for Classic pools increases the calculations carried out by each validator during the epoch block. This contributes to the length of the epoch block, which is currently around four minutes.

Classic pools that receive incentives obtain around 4% of the emitted incentives, yet the distribution process contributes to increased calculation time for the Osmosis Epoch. This inefficiency leads to higher processing time for validators and a longer period where standard transactions are not performed on Osmosis daily.

Proposed Solution

This proposal suggests implementing a minimum distribution entitlement for Classic pools to address the inefficiency in Epoch calculations while ensuring fair emission for Classic pool participants. Specifically, a minimum distribution entitlement of 0.01 OSMO equivalent would be set for Classic pools.

Positions receiving rewards smaller than this threshold would be excluded from incentive calculations, reducing the number of calculations performed by validators at Epoch and decreasing the time of the epoch block.

This threshold would apply to all incentives distributed based on the equivalent value in OSMO. If a pool does not exist for the asset being distributed, then no price is obtainable, and incentives would not be distributed.

Rewards that are not distributed are retained within the incentive gauge and distributed pro-rata among the remaining epochs of the gauge.

This change will impact lower liquidity positions in classic pools, with higher liquidity positions impacted as incentives move towards the higher volume and more efficient, Supercharged pools in pools that are part of Volume Splitting Groups. Incentive providers and smaller liquidity providers are encouraged to utilize the distribution mechanism in Supercharged pools.

This proposed change in the incentive distribution mechanism will be implemented in a future software upgrade.

Target On-Chain Date: 19th February 2024

2

Clear push on moving from the Classic Pools towards the Supercharged pools (which is totally understandable, since you can still take a full range position like you have in a Classic pool if you don’t want the hassle). Is the link between the pools still in place? Allowing people to switch from the Classic to the Supercharged pool easily?

How does this work? How can incentives be distributed if there is no pool? Do we have examples of that?

3

What’s the percentage of positions getting less than 0.01 Osmo a day? Just curious.

The proposal makes total sense

4

Links are still in place that were created for migration yes.

There are a few examples, most recently a token called BRNCH is/was being emitted. Since we don’t show the actual tokens anymore on the frontend, just a representation of the value, these tokens had 0 value as there was no BRNCH pool in existence so showed 0 APR.
This could be a valid distribution mechanism for long term holders, but would think that a pool would be set up to at least give people the option of disposal if they wish.

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5

I’m actually not sure, I don’t have any charts detailing holder records for bonded Classic positions any more.

To give an estimate of impact, I would treat this as impacting all classic incentive positions eventually due to VSG pulling more and more incentives to the lower fee/concentrated pools over time, increasing a cutoff that already ranges from $250-$1000 per position.

External incentives for positions under $100 (5% APR reward equivalent).

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