Proposal: LUNA Incentives for Osmosis Liquidity Pools

Governance & Proposals
22

Unsure if edits notify responders on here, but I have revised the pools to UST/LUNA and UST/OSMO only and added polls for the duration and amounts.
28 days gives a bit of overlap with the Osmosis onboarding just in case it takes a few days for LUNA to be listed and is probably the most efficient use.
120 days would cover up to a likely gravity bridge which would bring USDT/USDC to Osmosis. Although it could be argued that the first moved advantage of UST on IBC makes this unecessary.

From feedback, the original suggestion for LUNA pairs with others is not a useful use of community funds. Increased UST usage already brings value to LUNA and of course UST can always been swapped back to LUNA.

As per the Twitter thread I have also removed the ATOM pairs.
This was actually contentious on the Osmosis side too and we have several community members worried about incentivising too many alternative base pairs across the Osmosis DEX. We currently bias incentives towards OSMO pools but the matching program overwrites this bias.

2 Likes
23

Alternative question - how much liquidity is needed? I.e. where do we forsee use cases for this liquidity?

For example, bluna-luna pairs on terraswap is used by liquidators on anchor

Luna-ust on terraswap is used by people swapping staking rewards (mainly)

This will allow us to reason about how much rewards to apportion to achieve optimal levels of liq

1 Like
24

Also - how are/will osmo incentives be disbursed for these pairs? How are the incentives sizex / for what durations do they run?

25

ATOM/UST and ATOM/LUNA pairs would provide a great fiat onramp to Terra for US based Coinbase users. ATOM is easy to purchase and swap then for Luna. I propose a very small incentive using Luna as good will to the Cosmos community. The community fund can be used to bootstrap liquidity on Gravity Dev and Osmosis for those pairs. This will get trading started right away.

26

At a current price of ~$37, this amount seems to high:

$7,400,000 to feed liquidity to OSMO, how does this benefit the ecosystem? Where is this number justified or calculated? Need to see more thinking before being able to support.

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27

I was originally going to say that OSMO pairs would be for swapping existing rewards, however these currently total $1,725k a day and the ATOM/OSMO pool has double that in daily volume so there is a substantial amount of trading going on which I imagine would be replicated in LUNA or UST pools. The 1000 Incentive was aimed at the pools all being similar in size to the current ATOM/OSMO by the time the APR was similar to Anchorā€™s returns.

As for a use case for the liquidity I think there may be some crossover with the superfluidity of pools and shared security being worked on beyond just a DEX listing. Sunny would be able to expand on this more however as I am just a community member.

Currently the default OSMO incentives work by comparing the 7 day volume/Liquidity ratio of a pool to the total 7 day Volume/Liquidity ratio across the DEX.
Pools with higher volume compared to their liquidity have a greater weighting to attract incentives to in turn attract more liquidity and reduce the slippage on trades.
Pools containing OSMO currently have 3 times the weight of pools without and new listings need a proposal to include pairs in the incentives calculations.

New pairings have a spike in volume so the incentives are eased into place over 5 weeks.
Week 1: No Incentives, volume/Liquidity found
Week 2: 25% Incentives
Week 3: 50% Incentives
Week 4: 75% Incentives
Week 5+: 100% Incentives

Any matching is re-aligned in value weekly and forms the new Minimum incentive for the duration.

Assuming the volume of the pools remains high the OSMO incentives would soon outstrip the matching. For comparison, Cosmos would currently need to be providing 29,000 ATOM per day to overrule what the normal incentive program currently gives that pool.
Osmosis will always have an incentive program as part of its tokenomics, following a yearly thirdening of distribution to approach the maximum 1 billion supply.

1 Like
28

That was my quick edit this morning reducing the number of pools.
Actually 240,000 (120 Days * 1000 per Day * 2 Pools)

Logic behind the numbers is in relation to other pools on Osmosis, their TVL and respective rewards. This is a copy of the incentives model we use with a lot of the formulae overwritten but works for demonstration purposes: Luna Calculations - Google Sheets

2 Likes
30

Thank you for laying this out, Rami! I think some of our Lunatic brothers and sisters simply donā€™t see the beauty of how Osmosis works, yet. Some may not know how beneficial it has been to so many traders and liquidity providers (LPers) in such a short time.

EDIT:

And to all concerned parties here, letā€™s spitball. Thereā€™s a value to the AMM ā€œLaboratoryā€ part of Osmosis that weā€™d like to include if itā€™s not too much of a stretch. We like to experiment. This may perhaps be seen as more risky, compared to the slow and steady approach to governance here ā€“ which I fully respect.

What about adding a third pair of LUNA/OSMO to spark optimism in LPers? Or, and I know it may seem wild to some, but LUNA/OSMO/ATOM could create some real excitement along with healthy liquidity ā€“ split as it may be. It could be evenly weighted at 34/33/33. Or it could be weighted to favor LUNA, or whatever asset people want to be most exposed to. Heck, UST could also be added in a 25/25/25/25 split to diversify and balance volatility.

We can do it. And we may be able to attain a third matching reward from Cosmosā€™ community, thus bringing them into the fold even if itā€™s for a shorter timeframe. Receiving OSMO/LUNA/ATOM rewards for LPing would be a dream for many. How would a dream fulfilled hurt the locking up of more of any one of these tokens? Is it a bit risky? Yes. Is it unconventional? Perhaps. Could the rewards and actual value of learning from trying it outweigh the risks? ā€¦Yes? Please weigh in. Run with the idea, shut it down, see if itā€™s worthy of discussion or re-working.

31

These are helpful questions to frame the utility of the pairing and incentivizing. Iā€™m going to lay out some of what I think of as ground principles behind this suggestion.

First and foremost, the Osmosis AMM is designed to attract LPers and reward them for contributing the mission-critical liquidity that makes trading fluid, nearly slippage-free, and easy. Many of us believe in the vision that comes with deep liquidity. Itā€™s a world where we can leave many centralized exchanges behind, or confine them to a more marginal role of fiat on-ramp utility.

Yes, Terra liquidity and trading volume for both LUNA and UST far eclipse what Osmosis has been able to manage in the first 4 months after launch. But nearly half a billion in TVL is not bad. Avg. daily trading volume in October has been circa $15MM.

As for which is the alpha partner in this arrangement, thatā€™s one way of seeing it. But letā€™s look at context. If you look at Terra/LUNA several months in, token price was down 86% from launch, volume rarely broke $0.5MM, and of course it was year two of the great crypto winter. What the Terra team and community has built in their journey has undergone massive growth. Those of us invested in Osmosis intend to continue the growth weā€™ve seen so far. And we need strong, well-vetted, aligned ecosystems.

Iā€™m a recent LUNAtic and I love Anchor, UST, LUNA, Apollo, Mir and the wonderful ecosystem your team and community has been building. But us Osmonauts believe in ecosystems linking up and benefitting each other. That is a fundamental principal of the Zone and we believe itā€™s, in part, the key to the rapid success and growth of Osmosis.

Also, we believe in moving swiftly forth with good principles. Do Terrans want to be able to trade LUNA and UST for all sorts of cool tokens and decentralized apps in the Cosmos ecosystem? Do they want the holders who hold these tokens representing nearly half a billion $ in TVL to have the opportunity to trade to UST and LUNA on a whim?

Do they want to be able to help capture the ETH assets bridging over to Cosmos and Osmosis in the coming month from the Gravity Bridge? Do they want to get many millions more UST locked up in liquidity pools, requiring LUNA to be burnt in a healthy deflationary manner? Do they want to get into a position of mining liquidity paired with OSMO, which will have the first Superfluid Staking rewards on Earth? (That means you get rewards for LPing, say UST/OSMO, and in addition, you get rewards for simultaneously staking that LPā€™d OSMO)?

Yes? Then perhaps enshrining some precious terra assets into our rewards-heavy system is wise. Doing it our first year where everyone will get the best incentives of all time for the AMM is wise. In years two and three rewards will be cut by a third. So consider Iā€™d consider this a fortuitous offer worth pouncing on.

32

Hereā€™s some more contextā€¦ on why I believe this is the right path for LUNAtics, Osmonauts, and our LOSMOtic offspring.

In our first month on Osmosis, a number of us Osmonauts had brainstormed and postulated that we should mint our own stablecoin backed by vaulted reserves of other stablecoins like UST. We knew it would massively increase liquidity, just as UST did for the Terra Ecosystem. But instead, we decided that partnering with an ecosystem whoā€™s already kicking ass in that department was smarter. How valuable are complimentary partnerships? Something to explore, too.

Letā€™s join forces for the betterment of both of our ecosystems. This is the future. Matching incentives is simple. Itā€™s like two buddies buying a pizza. I put in $10. You put in $10. We both eat together. And guess what? Some other people are going to want in on this pizza.

Why team up? Iā€™m reminded of the story of Alfred Lin and Tony Hsieh. ā€œWhile at Harvard, Alfred met Tony Hsieh, future CEO of Zappos. Hsieh first recognized Linā€™s business acumen while running a student-owned pizza parlor at Harvard. Alfred, his best customer, was buying whole pizzas, splitting them into slices, and selling them for a profit. Dropped out of a Ph.D program at Stanford to join Tony Hsieh at LinkExchange as CFO. 18 months later LinkExchange was sold to Microsoft for $265 million.ā€

(Personally, I want Osmosis to have game-changing customer service like Zappos. This would end up helping to onboard people to our Zone, and yours.)

And for the record Iā€™m with Do on this tip https://twitter.com/stablekwon/status/1449949485363195909?s=20

Since we donā€™t have USDC yet, and since weā€™re in agreement on OSMO being the vol quote currency, I propose a LUNA/OSMO pool.

I also think and a smaller LUNA/ION pool would be worth the meme-power alone. People will become massively curious about the story and governance energy aligning behind IONā€¦

All that said, we do need to ensure the incentive design is well-thought out and strategically sound. I agree with Do that we should choose pairs wisely. And I donā€™t purport to be a wizard in that department. We need the best minds of both communities on this. Together, we can solve it.

2 Likes
33

Liquidity incentive is wise for attracting crypto investors outside terra/cosmos ecosystem.

Luna gravity force is so strong that it will not matter whether you have incentive in OSMO or not - because there is evidently natural demand.

But if we use incentive to go out of original ecosystemā€¦then we follow the path to new value creation.

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The proposed values are too large for an initial grant. Various points against this proposal have already been made by many members, but I think there is merit to supporting liquidity for specific pairs on Osmosis for a trial period.

Referring to previous proposals that had strong support for an initial bootstrapping incentive:

Given that this would be strategic partnership between the ecosystem, I would strongly encourage that the proposer submits a budget somewhere along the lines of plan outlined in the above links.

Additionally, I would definitely like to see matched incentives by the Osmosis community on every incentivized pair that the Terra community sees fit to provide rewards. With regards to the specific number of pairs incentivized, I think starting off with OSMO-UST, LUNA-UST, and USDC-UST as the initial three pairs for 8 weeks and than re-evaluating afterwards will be more than sufficient.

In the future, teams that would like to incentivize their pools on a DEX (separate from LP existing LP rewards) should provide a matched incentivization program which can be voted on by both communities.

2 Likes
35

The more feedback I read the more the 28 day period makes sense as a pilot program. This could then be extended if the Terra community saw a further benefit. This pilot would bootstrap liquidity and provide the maximum benefit to both Osmosis and Terra at the lowest cost.

Currently planning to stick to the 1000 LUNA incentive which brings it more in line with the LUNA quantity of previous proposals, however this is still a greater spend due to incentivising 2 pools compared to these proposals incentivising 1 and the price increase of LUNA over the last 3 months. I attempted to get some feedback through polls in the original post, however the dominance of 1500 LUNA and 120 Days does not correspond to the wider feedback on here and Twitter so I think it would be better to be conservative in the ask. Have editted the original post to match this.

USDC-UST pairs are not included this time as Osmosis will not have USDC listed until the Gravity Bridge is completed at some point in the next few months.

Any LUNA incentives should be matched by Osmosis. This may need a governance proposal on Osmosis to add the pools to the model but I do not think it would fail.

36

Why donā€™t we do a bit more?

  • Why donā€™t we target 20% APR on $10M on both pools, and these incentives to be split 50/50 on Osmosis and Terra.
  • 4 week pilot program
  • This would be $167k worth of LUNA (4638 LUNA)

This would be in line with what we did with Mercurial, and we can scale up to keep up with incoming demand as the pilot runs?

5 Likes
37

Two pools here being:

  • OSMO/UST
  • LUNA/UST
3 Likes
38

It does make sense to align the dollar value to historical pilot proposals. This gives a standard approach to incentivisation for DEXs without any bias.

My original proposal aim was to reach 20% at $135m pools based on the assumption that the addition of LUNA and UST to the IBC would attract new liquidity to Osmosis comparable to what ATOM added rather than reshuffle the existing liquidity. $10m is a decent size to provide functional liquidity for the moment but I do hope that we far exceed that.

I was also slightly concerned that the incentives compared to the existing EEUR stablecoin pools would be relatively small but UST is far more well known and their incentive may be in part to compensate for their obscurity.

Would there be a trusted wallet to use for the proposal from the Terra side that could transfer to Osmosis and load? Perhaps it may need to be done between the two dev teams. I am sure this proposal will get mentioned on tomorrowā€™s Twitter spaces which I am looking forward to!

1 Like
39

After IBC. Loop.markets will also have pools for ATOM OSMO.
So, how is it any different to pools at osmosis?

Or why so much community fund will be needed as incentives in other dex?

40

Hi, first post here - read the thread. Quite close to a voting decision, so donā€™t wish to totally go off at a tangent, but something struck me that Iā€™d like to mention. It could be put in place on future pools.

Now, I see some concern that so much money may be spent on what will be a short-term promotion, especially as LUNA is not a new coin looking for exposure.

It also struck me that there is a focus on promoting UST. I understand, but it strikes me as a crowded market pegged to a fiat currency that may no longer hold dominance. The one thing that really interests me is front-running the future and promoting the coming SDR!

Iā€™ve been thinking of creating an SDR peg, but now see it already exists - so letā€™s use it. It will require some education, but I think the rewards will be huge.

Now, using Osmosis, the choice is not either UST or SDR or LUNA, but one can promote all of them at once.

Osmosis allows the simple creation of 3-way pools, so something like LUNA/UST/SDR is very simple to do. There is now an EEUR coin as well, so UST/SDR/EEUR is a possibility. Anyway, the options are many and I really like 3-way pools as they are more efficient than having three 2-way pools.

Then the logic of the promotional spend can be rephrased to widening the use of the future - the IMFā€™s SDR is that future.

Thanks, hope wasnā€™t too long.

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41

I would like to see ANC over on OSMO too. Itā€™s a key pillar of the ecosystem that needs more demand behind it.

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Remi - engaged with you over DM here, but sounds like we are going to use the osmosis core team as the custodians for this proposal. Let me know if the plans here change.