Liquidity Incentives: Short Term & Long Term Games

You can read the discussion here: https://forum.neutron.org/t/draft-proposal-kickstart-a-targeted-liquidity-mining-program-on-neutron/173

The Following is my response to the discussion in trying to move the liquidity incentive strategy more long term model.

Long running Liquidity incentives in the past have been gameable.

The keys to a sustainable program are variability, time preference and maturity.

The Onramp structure laid out in the post is aligns to this. But a saavy mercenary farmer can simply follow the flow from incentive to incentive.

Flowing emissions turns NTRN into a farming token. Value of tokens flow to tokens with more perceived optionality. By incentivizing “blue chip” asset, with NTRN value will flow from NTRN to the wstETH. This assumes the pool is wstETH-NTRN. The other pool highlighted of stATOM-ATOM seems more sustainable. Incentivizing stATOM pool could generate enough fees to be sustainable. wstETH-ETH could also generate fees in a similar fashion.

The current plan has 1.625MM in liquidity rewards. For NTRN price to remain constant ~816000 ATOMs would need to buy NTRN. A purchase of this today creates over 20% price impact on the large NTRN pool:

A better implementation is to slow down LP positions. Turn LPs into long term passive investors. The 2 models that are show to be effective are Locking and Deferred rewards.

The 2 models that are show to be effective are Locking and Deferred rewards.

Locking mechanisms

A locking mechanism like voterEscrow or the ve model creates a way to bury NTRN token. The veModel buries available float while adding utility. Utility and gauge that would determine next incentives epoch. This has success in protocols like Curve, Velodrome & most recently Aerodrome. The key to sustainability is programatic incentive matching in the form of bribes. The bribe market creates a second order effect for pools as a marketing expense. Having other protocols compete for the utility of emissions, sustains the flywheel. More can be read here: https://medium.com/@BryanColligan/curve-appeal-for-todays-new-crop-of-protocols-curve-fi-is-the-most-powerful-growth-hack-yet-2693a97dcfd9

Deferred mechanism

A newer deferred mechanism or maturity based approach has recently been deployed is the reliquary model. Relic incentivizes holding the position longer through a maturity model. This helps turn mercenary capital into sticky capital. The basic premiss is to increase reward distribution as the position matures. The second order effect that is created is an fNFT marketplace for the mature positions. fNFTs become more valuable overtime on a secondary market. more can be read about the model here: https://medium.com/byte-masons/defis-new-yield-primitive-52ec6ecfe2af

https://medium.com/beethoven-x/reliquary-everything-everywhere-all-at-once-666d86a20033

Conclusion

The liquidity incentives will kick start the economy, however there are now more sustainable models to consider. If you want to consider liquidity incentives a marketing expense then consider limiting total amount of incentives with an eye on a maturity model for long term positions.

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