While our current incentives reward liquidity providers based on their contributed volume, the goal of our protocol liquidity incentives is simply to attract the most potential liquidity at the least cost to our SWIV treasury.
This proposal furthers the DAO’s goal of optimizing our incentives by introducing two additional parameters to the rewards that liquidity providers receive:
- Time (Time between placement and fill)
- Price (distance from market price)
As a follow up to our previous proposal on the modulation and reduction of protocol liquidity incentives: https://gov.swivel.finance/t/sip-003-protocol-incentive-modulation/173
And our discussions surrounding the optimization and modulation of incentives: https://gov.swivel.finance/t/change-protocol-liquidity-incentives/22/5
Our current incentives reward our users using their raw volume contribution as a maker over a given daily period. This unfortunately means that while our protocol fees have been significant as users compete for rewards, they are not necessarily rewarding the right participants.
As a way to increase the consistent liquidity on our exchange, as well as ensure wash trading is not rewarded, I would like to introduce price and time as parameters that scale a users rewards.
Price: Scale rewards based on an order’s price and its distance from the “best” price on the market.
This ensures users cannot receive rewards when filling orders with outsized prices that otherwise would sit vacant.
Time: Scale rewards based on the amount of time that they have sat on the orderbook before being filled.
This ensures that a user cannot place and order and quickly fill it themselves while still receiving rewards.
We will be introducing an additional section to our documentation on liquidity incentives to ensure the current parameters are always transparent for our community: https://docs.swivel.finance/swivel-exchange/liquidity-incentives
This proposal will have a binary vote to either support, oppose, or to abstain the addition of time and price based scaling for our protocol liquidity incentives.
With the passing of this EIP, orders placed must remain on our orderbook for 30m for the maximum SWIV reward, and all orders filled must be within 5 orders of market price.
Fills within 5 orders of market price receive weighted rewards as they scale away from the market.
These two factors ensure that wash trading is no longer an issue for our incentive program, and community/grassroots liquidity providers can now participate and compete in our liquidity program.