While I am generally supportive of liquidity incentives, I would suggest that we be mindful of:
- Macro crypto demand
- Staked ETH inflows
- rETH demand vs. overall LSD demand
If you look at overall staked ETH inflows as well as LSD deposits (including Lido), they have slowed significantly. With so much global uncertainty, the appetite for high-risk, illiquid assets is naturally low.
Taking that into consideration, would it be more productive to ramp incentives over time to better mirror market conditions? This would give us the opportunity to collect data on the degree to which every incentive dollar impacts liquidity flows within the LSD ecosystem. While this may be onerous from a management perspective, it would allow us to be more strategic and hold off on injecting too much liquidity into the system / overpaying for liquidity.
Taking a look at Lido’s rewards program gives us some interesting insights (all token prices taken on the date of the month’s budget proposal). I know that these prices aren’t reflective of the average price of LDO over a month period (the April price was literally the recent LDO price peak), but it does show that rewards programs can peak and trough quickly and be very costly to the protocol.
February: 5.5m LDO ($9,130,000 @ $1.66/LDO
March: 5.25m LDO ($10,185,000 @ $1.94/LDO)
April: 4.5m LDO ($21,870,000 @ 4.86/LDO)
May: 4.3m LDO ($11,825,000 @ $2.75/LDO)
June: 4.6m LDO ($4,875540 @ $1.0599/LDO)
July: 4.2m LDO ($1,905,120 @ $0.4536/LDO)
I guess what I’m suggesting is that we have a targeted ramping of incentives that is USD denominated vs. a flat number of tokens to better manage our treasury and hopefully reduce unnecessary inflation.