SDIP #5: Introduce capped dynamic SDT reward adjustments for AMM Liquidity

Important:

  1. The DAO will have until ~6 PM UTC 17/07/2021 (3 days) to contribute changes to this proposal.
  2. Voters need to hold either SDT or xSDT in their wallet before the snapshot for this vote is triggered. The specific block will be released closer to the time of the vote. (There are no penalties for withdrawing from the palace).
  3. On-chain voting for the implementation of this proposal will occur on our signal here. The vote will run from 12 PM UTC 19/07/2021 until 12 PM UTC 20/07/2021.
  4. If passed, the proposed changes in SDIP #5 do not apply to the PPS. The PPS LP will continue to receive 0.8 SDT/block for the foreseeable future.

Summary:

Following the success of the dynamic distribution of SDT rewards for strategies, the DAO is putting forward a proposal to expand this dynamic model to also cover AMM liquidity providers on Uniswap, Sushiswap and Comethswap.

SDT incentives are an important component of Stake DAO to help incentivise key contributions from the Stake DAO community. In the case of AMM liquidity providers (on Uniswap, Sushiswap and Comethswap), community members are incentivised to supply ETH & SDT liquidity, and this liquidity allows anyone to easily purchase SDT without relying on centralised exchanges or private market makers. This is clearly a valuable service that deserves to be incentivised while Stake DAO grows in popularity.

Decentralised Finance is a dynamic environment, and to build for the long term, the DAO must be able to make small modifications to ensure these incentives are always competitive to reach their goals. Since the attractiveness of those incentives is also impacted by several dynamic factors (liquidity in each pool, value of the incentive, the yield of other DeFi incentives, et cetera) ; it is challenging to define incentives upfront and maintain these during extended periods. The risk is of course to give too low rewards (not enough liquidity), or too high rewards (too much inflation), which has an impact on SDT.

While it is clear that these rates need to be dynamic, it is also important for the community that these rates are somewhat predictable. Consequently; the proposal is for the DAO to have the right to increase or decrease SDT incentives allocated to AMM liquidity providers by up to 10% during the weekly reviews.

It is important to note that some weeks no adjustment may be required. Similar to dynamic rewards for Strategies and SaaS suggested adjustments will be proposed on gov.stakedao.org on Tuesday’s with implementation on Thursday’s (if no adjustment required).

By only altering the incentives by a maximum of 10% per week, it also helps to find the sweet spot for the DAO to adequately incentivise liquidity. These liquidity incentives are not unique to Stake DAO, and other DeFi projects are doing something similar. For example:

  • Stake DAO: 120%
  • Convex: 82%
  • AAVE: 16%
  • Sushi: 20%
  • Curve: 10% (from Sushiswap)
  • Synthetix: 25% (from Sushiswap)
  • yEarn: 11% (from Sushiswap)
  • Archer: 14% (from Sushiswap)

It is clear here that Stake DAO incentives are significantly higher than large DeFi projects, but closer than comparable projects like Convex. Consequently, the expectation is not to alter the rewards significantly, but to be able to react to market changes.


Motivation:

The DAO must be able to react to market conditions and modify the incentives to ensure the rates are always competitive.


For:

  • Allows the DAO to modify gradually the rewards to ensure the competitiveness of Stake DAO incentives.

Against:

  • Against giving the DAO this right, and requests that the DAO votes on suggested changes each time.
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