[Proposal] Liquidity Incentivisation Program

Note: wasn’t sure where to put this as it’s not really a grant proposal but a proposal to extend/adapt it

Problem

We need to drastically increase the trading volume as a percentage of our liquidity that is locked up. The only way for us to wean off BAL rewards in the long haul is to increase this percentage. Currently we have no problems attracting liquidity (albeit it’s a super expensive mechanism) but hard time pulling levers for trading volumes

Proposed Solution

Similar to how CEXes have market making programs we should do the same with verified providers. For verified providers we will pass them a rebate on the fees traded. This has worked extremely well with a 0.025% maker rebate in traditional CEX exchanges attracting large volumes of order flow (see Bitmex as a great example).

I would propose that we run this as an experiment for a set duration with a set cap. It could be a 2 month trial with say a 150k USD equivalent pool cap. At the end of this trial duration we can then see if the volume continues and evaluate to see how it works.

I believe we should have verified providers to start with as we want to avoid abuse of the system in the early days. We should be trying to attract trading from partners that aggregate trading rather than trying to find whales. Some examples of providers could be:

  • Aggregators like 1inch, matcha
  • Platforms like zerion, zapper

Edits for clarification

Just posting some clarification here from a chat in governance:

So if I over generalise there are 3 kinds of products that can build on top of us right now (that we can probably think of):

  1. Smart routing (1inch, paraswap etc)
  2. Wallet info (debank, zerion etc)
  3. Things we haven’t thought about

I agree that rebates to group #1 will bring trading volume but only up until the point where rewards stay. It is short term. I still believe it would be interesting to incentivise as it may give exposure that may lead to trading afterwards. I also agree that there needs to be updates done to UX + UI first - this could be timed.

What I’m actually more interested in is group 2 and 3. Group 2 is a no brainer - for example Zerion does a swap but the user actually doesn’t care about the underlying. They trust the product enough and don’t have the sensitivity of price movements or simply don’t care enough. This is very evident in the way they have implemented this.

But what is super super interesting is group 3. There are bound to be products that will be built that will garner large MAUs that could potentially sit on top of balancer and introduce more trading volume.

Lastly what I’m saying is that from a timing perspective if we target groups 1 or 2 it gives us use cases such that people in the 3rd group can actually start building and integration. And in an ideal world by then we’ll have fixed UI/UX issues but that’s another whole point in itself

2 Likes

Hi Tongnk,

We are working on our external interest generating module, which will bring a huge trading volume. How can we apply for this program and possibly integrate some kind of identifier into our smart contracts? But it’s better to have long term incentives than a short term one because we won’t be changing our modules.

Best regards,
HodlTree Team

This is just a proposal, no actual program right now.

What would you think about a system that rewards BAL to traders/end users? We could optimize for volume or for number of trades. I think about it like loyalty points that are awarded when you purchase something. There could potentially be tiers of rewards based on a variety of factors. On chain data could be pulled to see if someone was actually loyal or not that month. Lots of things are possible.

Another angle: rewarding BAL to a trader might also make them not worry about gas fees so much.

I don’t think this works long term though. Especially given that majority of traders are arbs - we’d be effectively subsidising their arbitrage activities even more.

X trades per week or month could qualify for a reward. The data is all available on chain and it could be gamified not to reward the large arb traders if that was desired. However, I’m not sure if it matters as they are still paying customers.

I still don’t believe this is a good usage of funds and I’m sure most people in the discord have agreed with that. We don’t necessarily want to be maintaining a UI and attracting trading in that way - we want to attract builders who have their own communities and want to build on top of Balancer.

Otherwise the method you are suggesting is literally giving away free money to large whale arbers who would be doing the arb anyways. It’s not attracting new customers at all.

Dont see the point of this honestly.

Curious on thoughts why? My view is that good integrations are worth paying for and will yield us very strong long term results