Liquidity Co-incentive Proposal

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.

9 Likes

Signaling full support, I love this idea

1 Like

Cool idea, I like it.

1 Like

Would the rate of inflation be increased to pay this incentive, would it be redirected from some other incentives, or maybe there’s some other possibility for funding this (like redirecting protocol fees)? Seems like a solid attempt to ramp up rETH’s defi integrations though.

This would be funded from a (very small) allocation of the approved liquidity incentive budget. Certainly no inflation increase or additional fee extraction.

Love the idea, partnerships beget partnerships. Going to ping ROOK DAO see if they have any interest or can pitch anything beneficial.

3 Likes

Please do! We can likely offer a reasonably generous co-incentivization in order to get this program off the ground.

Signaling my full support for this proposal. I believe this is one of the best ways to start partnerships.