Modification of TIA incentive allocation

Proposal Discussion Liquidity Incentives
1

This proposal requests that the previous incentive spends on TIA be modified to remove the minimum incentive spend restriction as well as expand the spend to further pools.

Background

Proposals 665 and 673 included minimum and maximum spends of the allocated OSMO for TIA incentives.

This was set to a minimum of 3000 OSMO/day for the TIA/USDC pool and 1500 OSMO/day for the TIA/OSMO pools, with a maximum of 6000 OSMO/day.

These minimums were intended to ensure that sufficient liquidity arrived during the bootstrapping phase of the TIA market by providing a fee subsidy for potentially high impermanent loss during the price discovery phase.

We are currently on Week 5 of incentives, around halfway through the incentivization period, and spending has been at the minimum level for each week beyond the initial week. Based on the 3x TIA Staking APR targets for the USDC pool and 1.5x TIA Staking APR for the OSMO pool, the minimum settings have caused overpayments of around three times the target with minimal impact on attracting further liquidity.

The original intention of setting minimums, maximums, and an algorithmic incentive allocation was to allow incentives to taper compared to swap fees as liquidity increased. However, this seems to have been set too high as TIA has consistently been one of the most traded assets on Osmosis, even with the lower liquidity levels seen so far.

Proposal

This proposal would modify the incentives allowed to be spent by the multisig as follows:

  • Removal of Minimum incentive spend criteria for the existing spends.

    • Estimated to reduce spending by ~2000 OSMO/day.

  • Addition of allowable spends of 1x TIA Staking APR on LST pairings of TIA (e.g. milkTIA/TIA).

    • Minimum spend of 250 OSMO/day for the first week with no ongoing minimum.
    • Maximum of 1000 OSMO/day.
    • Estimated to increase spending by ~250-500 OSMO/day.

  • Addition of allowable spends of 3x TIA Staking APR on other Stable pairings (e.g. TIA/USDT or differing spreads of TIA/USDC).

    • Establish a more sustainable swap fee market of 0.2% spread factor post-incentives
    • Establish alternative stablecoin pairings for an large market on Osmosis
    • Minimum spend of 500 OSMO/day for the first week with no ongoing minimum.
    • Sharing the 6000 OSMO/day maximum cap with existing stable pools.
    • Estimated to increase spending by ~1500 OSMO/day.

This should result in a minimal net change to the level of incentives spent on TIA whilst diversifying the TIA liquidity landscape on Osmosis.

Target on-chain date: 28th November 2023

1 Like
2

I was already against proposal #665 as I’ve indicated that these programs are wildly ineffective this way. And sadly it plays out as expected, just like for example the program we had on USDT.

So can we also please learn for next time that we simply do not repeat these mistakes again?

3

So we have over incentivised on USDT and TIA liquidity? How did the DYDX incentives perform? I would be interested in adapting the model going forward if it has consistently proved to be inefficient

But what would an alternative look like?

4

I don’t know the balance incentives vs liquidity…
But the TVL on both pools is not that spectacular for a major chain like dYdX, totalling just over $100k:

An alternative should not be that we create a high APR on a pool, but we should somehow find a way to reward people who are actually bringing in the liquidity from outside Osmosis. We don’t need people moving funds around within the DEX, but we need new liquidity, new users.
And that goes hand in hand with marketing ourselves actively in those ecosystems where we want to attract new users, only that way we can grow the pie instead of just changing the flavour.