CIP-4: COW liquidity incentive program

CIP: 4
title: COW liquidity incentive program
author: @netrunner.eth, @middleway.eth
status: Active
created: 2022-02-17
requires:
    1. CIP-draft: Enable Swapping of vCOW to COW

Update 31/03/2022

Vote passed with 37M votes in favour (1.7M against) and has been executed. Details available on cow.eth Snapshot here

Update 21/03/2022

This proposal has been moved to the voting phase. Voting is available on cow.eth snapshot here

Simple Summary

The purpose of this CIP is to gather support within the community to allow the treasury to release COW tokens as reward to Liquidity Providers, in order to foster a healthy ecosystem for holders and the DAO.

Motivation

This proposal will establish liquidity for the COW token by encouraging Liquidity Providers (LP) to provide the necessary liquidity required to grow and foster a healthy ecosystem.
However, in order to encourage LPs, incentives must be aligned as they will be taking on risk.
Goals:

  • Initiate liquidity of ~$10m
  • Ideally a 100k trade should incur no more than 1-2% slippage
  • Reward users who are willing to provide liquidity and take the impermanent-loss risk
  • Limit rewards to not attract speculators but mainly long term believers in COW.
  • Reasonable COW spending to not create too much sell pressure (from potential farmers)

Specification

CowDAO will use 960k COW tokens to establish a liquidity reward program for 12 weeks.
The program is proposed to incentivize few liquidity pools:
Mainnet

  1. Balancer pool: 50%COW/50%ETH
  2. Balancer pool: 50%COW/50%GNO
  • Balancer DAO: 12 weeks of 200-BAL-per-week for each pool.
  • CowDAO: 12 weeks of 30k-COW-per-week for each pool (please see below the edit note)
  • If the combined liquidity will reach >$5M, BAL rewards will be increased by Balancer DAO.

Gnosis Chain

  • Swapr pool: 50%COW/50%ETH
  • CowDAO: 12 weeks of 20k-COW-per-week.
  • DXdao: 350k SWPR & 65 GNO over 12 weeks

Implementation

  • Balancer will be implementing the dual rewards for LPs similar to the wstETH pool for 12 weeks following the execution of this proposal.
  • DXdao will implement a reward strategy that will include base triple rewards and an extra performance reward in Carrot tokens. In order to achieve optimized liquidity, a 4-week campaign with ~40% of capital and a follow up 8-week campaign with 60% of capital is proposed. This pool can be used as an example for how it would roughly look.
  • Any remaining COW tokens that (for any reason) were not used for its intended purpose of rewarding COW liquidity, will be returned to CowDAO after 12 weeks.

The program is intended target an estimated 15%-20% APY on capital locked (but of course depends ultimately on utilization of the pools) . Rewards will be assessed and potentially extended and / or changed by CowDAO and other parties during and after 12 weeks.

Note: As a next step to this proposal, and after a price is established for the COW token, CowDAO might want to consider deploying liquidity from its own treasury. This represents an opportunity for the DAO to show commitment by taking the same impermanent-loss risk it asks its community to take.
Additionally, this will ensure a minimum amount of liquidity and could be a good strategy for deploying the treasury to generate extra yield.

Execution

It is proposed to be executed by transfers of COW tokens out of CowDAO mainnet Safe:

  1. 720k COW to 0xc38c5f97B34E175FFd35407fc91a937300E33860 - Balancer DAO team safe on mainnet
  2. 240k COW to 0x9467dcFD4519287e3878C018c02f5670465a9003 - Multisig that has been used by DXdao for launching Carrot and SWPR campaigns when not through the DAO

This proposal is dependent on the successful execution of CIP-draft: Enable Swapping of vCOW to COW. It is proposed to execute both proposals together in order to have liquidity incentive program in place when COW becomes transferable.

Safe Transaction Data

Includes three interactions:

  • Send 720k COW to Balancer safe on mainnet
  • Approve 240k COW for bridging
  • Bridge and send 240k COW to DXdao sefe
[
  [
    {
      "to": "0xDEf1CA1fb7FBcDC777520aa7f396b4E015F497aB",
      "data": "0xa9059cbb000000000000000000000000c38c5f97b34e175ffd35407fc91a937300e338600000000000000000000000000000000000000000000098774738bc8222000000",
      "value": "0",
      "operation": 0
    },
    {
      "to": "0xDEf1CA1fb7FBcDC777520aa7f396b4E015F497aB",
      "value": "0",
      "data": "0x095ea7b300000000000000000000000088ad09518695c6c3712ac10a214be5109a6556710000000000000000000000000000000000000000000032d26d12e980b6000000",
      "operation": 0
    },
    {
      "to": "0x88ad09518695c6c3712AC10a214bE5109a655671",
      "value": "0",
      "data": "0xad58bdd1000000000000000000000000def1ca1fb7fbcdc777520aa7f396b4e015f497ab0000000000000000000000009467dcfd4519287e3878c018c02f5670465a90030000000000000000000000000000000000000000000032d26d12e980b6000000",
      "operation": 0
    }
  ]
]

Rationale

  • Liquidity is essential for any token. This program will encourage community members to provide liquidity for the COW token.
  • Decent liquidity will enable new participants to buy COW with minimal friction.
  • Dampen COW token volatility

Snapshot

Phase 2 proposal: TBD

Edit (09.03.2022): The proposal has been updated to reflect additional details to consider.
Edit (16.03.2022): Revision of details. Proposing two mainnet pools and adding details on Swapr campaign.
Edit (18.03.2022): The rewards for COW mainnet Balancer pools were reduced from 80k to 60k-per-week. The reason is to allow the community the flexibility to use the remaining 20k-per-week for boosting BAL rewards for those pools. A follow up proposal is planned on this topic.

29 Likes

Although I think it’s too early to allow unlocking of the vCOW tokens, I don’t think the protocol should spend funds from the DAO treasury to incentivize liquidity. A tokemak reactor will be more efficient in terms of emissions.

This is a blogpost that explains some options to incentivize our liquidity:

6 Likes

I’m for it. The token will be tradable & as soon as it is it will find liquidity. Incentivizing is a way to have some influence over price discovery while rewarding believers

2 Likes

I’m in support of that, rewarding them will contribute to the growth of the project

2 Likes

I would support this if we were to offer incentives to both Mainnet and Gnosis chains :slight_smile:

I would go as far as saying offer better incentives on Gnosis to simply incentivize adoption of that chain in general.

At the very least offering equal incentives :slight_smile:

4 Likes

Whilst I agree that Gnosis/xDai Chain is awesome, at the moment the majority of liquidity is being moved though Ethereum. So it makes sense for LP to deploy there. :innocent:

6 Likes

This feels unnecessary still, and not something the DAO should be using its time or focus on. Instead attention should first be directed towards the tokenomics before we worry about selling a token without any.

4 Likes

Hi @squidz. Basic tokenomics were shared in GIP-13. Please see: GIP-13 (Phase 2): CowDAO and COW Token - GIPs - Gnosis

Further tokenomics details proposed by the community are coming I’m sure :cow:

3rd party LP aggregator might be a better choice. Yet, what if it was possible for Cowswap to be able to share the swap profit with the LPers instead of native token incentivization?

I’m for it. let’s do it.

I totally support this proposal. CoW protocol and CowSwap are becoming popular and could become important drivers for adoption of our beloved Gnosis Chain.

LP incentives could hit two targets with one shot. Noty only would give further value to the cow token, but also could popularize our xDai stable coin. A dual farm might be a way forward

1 Like

I fully support this proposal but i’ll suggest encouraging users to trade on Gnosis chain so deploying the LP there & rewards would be great :innocent:

1 Like

Before this we need to think on why people need COW? Why do we need liquidity? It’s not clear yet. I mean sure I can see one good reason: Selling the airdrop but I’m not really in that group. Simply put I don’t even care if there’s zero liquidity or if we can’t trade our tokens unless people need the token for something (besides voting, we can do that using vCOW).

Also, any token distribution from treasury should be done in order to provide value. More traders using CowSwap provides value because it’s how Cowswap works. Providing liquidity doesn’t provide value per si. We figure out what to do with COW, then we can figure out how to solve any liquidity crisis (if needed, because we may not even need LP incentives).

6 Likes

An interesting avenue would be to direct a portion/full amount(perhaps another proposal to vote on the weight) of said $COW emissions via Olympus Pro, increase POL for CowDao.

Of the opinion that an awareness campaign and potentially placement on the Cowswap UI should be considered…

I’d say that it’s definitely a good idea to incentivize liquidity, but the amounts suggested as distribution over just the first few months is a substantial portion of the total supply. At this rate, the treasury wouldn’t be able to sustain this kind of incentive program beyond a few years. Maybe an adjustment of the numbers would make this proposal more likely to be sustainable and pass.

1 Like

Hi @bh2smith. The Proposed distribution program was suggested to kick-start the LP program. It is not intended to run for years.

  • The proposal calls for $COW to be distributed to LP pro-rata for 3 MONTHS at a rate of 3 million $COW per month; and
  • for the following 3 MONTHS, distribute $COW to LP at a rate of 1 million $COW per month.
  • Prior to the end of the 6 MONTHS, a NEW proposal should be tabled by this community using data collected from the proposed LP program to inform its next phase.

This was suggested because the LP program may not be required any longer or may require a change in parameters.

Yea I get the intention, but I would prefer to have something that can be long term sustainable and not dumping a bunch of token on people in the first three months. Rather something reasonable and consistent that can work for the long term. It annoys me when projects “blow their load” in the first few months and then have nothing left to offer so everyone dumps what remains tokens then have left and forgets about it. It would be nice if cow protocol did not fall into this category.

If you want stats on this kind of overly incentivized program, you can go look at the 1inch farms for pairs like OPIUM<>1INCH. Or we could consider looking at the balancer GNO<>WETH pool that has a constant, consistent, reliable, long term distribution rate.

Personally, I am not interested in moving my funds around every few months to follow some incentive trail. I would rather find a nice place for my funds to call home. Perhaps not everyone feels the same, but I think the proposed amounts are aimed at drawing the attention of those with limited attention spans.

To specifically address your comment, I am saying that it already requires a change of parameters, because these amounts (even if for three months) are too high and too “attractive” to be long term reliable. They draw they attention or people who will dump and abandon the project immediately after this very short lived program. I don’t think we need to wait 3 months for these kinds stats because they already exist for several other dead projects.

Let’s imagine for a moment, that this proposal goes through as suggested. A few months later we look back at the stats and find that it was a raging success. Unfortunately this program can’t continue because it not sustainable. So it doesn’t matter what the stats imply, this short sighted program was a bust.

7 Likes

Could Olympus Pro be an option?

[quote=“netrunner, post:16, topic:295”]

  • COW 按每月 300 万 $COW 的速度按比例分配给 LP,为期 3 个月;和
  • 在接下来的 3 个月内,以每月 100 万美元的速度向 LP 分配 $COW。
  • 在 6 个月结束之前,该社区应使用从拟议的 LP 计划中收集的数据提交一份新提案,以告知其下一阶段。
    流动性激励会带来新用户并激励社区,但前提是要做好代币经济的设计

I think it could be a useful tool to incentivize liquidity on certain pairs that desperately need it, but IMO, it should be used sparingly and not as a broad promotional tool.

1 Like