This is an idea that was posted in the rETH Liquidity Incentives channel that gained a bit of traction. Posting here for posterity – please comment with any ideas or thoughts. In our current incentive proposal (forthcoming) we are considering allocating a minority percentage of our liquidity incentives towards this type of co-incentive idea in order to measure the efficacy and other benefits of co-incentives.
Here’s an idea that Val and I were batting around: let’s look at every crypto project that is paying incentives for their token (x) against the ETH pair (x/ETH) and offer to provide a small incentive match to get them to migrate their incentives onto the rETH pair.
Theory: rETH is uniquely positioned to be a better ETH equivalent for incentivized LP positions, because it’s a) credibly neutral, b) has 0 counterparty risk / is fully insured, c) is net-positive for ETH.
This could arguably be the most capital-efficient form of incentivized liquidity, and would also help enshrine rETH as the better ETH-equivalent to use in DeFi positions such as LP.
Example: Maker is paying $Y in incentives on the MKR/ETH pair. We could offer to match their incentives at 10% if they’re willing to migrate to MKR/rETH.
They would benefit from:
- Higher LP yield because of the implicit staking yield from rETH (thus less $ to spend to reach a target APR)
- Slight bonus since we’d be co-incentivizing; say +10%-25%
- Social benefits for supporting ETH network health, client diversity, minority staking platforms, etc.
We would benefit from:
- Significantly discounted liquidity. Ex: at 10% match it would be 10x more capital-efficient for us
- Broad integration and liquidity across many pairs
- A foot in the door for future partnerships
It’s possible we may even be able to ramp-down our co-incentives over time since the value of rETH on incentivized liquidity pairs can stand on its own. But this proposal suggests at least some % matching in order to grow our own liquidity depth and prove this new use case.