sETH Uniswap Pool Staking Incentives
Kain Warwick (@kaiynne)
Ease of access to synethtix.exchange is critical to the success of the platform, so this means new users must be able to convert ETH and other cryptocurrencies to Synths to begin trading on the exchange. Uniswap is the perfect on-ramp and off-ramp for synthetix.exchange as it is permisionless and open, but it requires liquidity providers (LPs) to deposit both ETH and tokens. Providing liquidity on Uniswap is not risk free, so in order to encourage a deep liqidity pool and provide confidence in the on-ramp and off-ramp to the synthetix.exchange we have been incentivising LP's through SNX staking rewards. This SIP intends to formalise this mechanism at the protocol level. We are four weeks into the sETH pool staking trial and there is almost 3k ETH of liquidity in the Uniswap pool. In addition to the depth of the pool the peg has been restored, providing confidence to both new and existing users of sX. By formalising this mechanism at the protocol level, liquidity providers should have even more incentive to participate as they can be confident that this incentive will exist long term so the effort of establishing liquidiity will be worthwhile.
This SIP formalises at the protocol level to divert a portion of SNX inflation into a pool to incentivise liquidity providers of the sETH/ETH pair in Uniswap.
The trial has been successful but in order for this mechanism to work long term it must be formalised into the protocol.
The implementation of this SIP will be phased in:
Phase One: trial period funded by the foundation, the trial period has now been extended to five weeks finishing on 2019-08-21 Phase Two: 5% inflation diverted to pool with all rewards unlocked (eight weeks 2019-08-21 to 2019-10-16) Phase Three (pending community approval): 5% additional inflation locked for 1 year as per the existing inflationary rewards mechanism (2019-10-16 ongoing)
The distribution rules are as follows:
- SNX tokens will be distributed by the percentage of liquidity tokens at the end of each period.
- You must be in the pool the entire week, no withdrawals are allowed.
- Only the opening LP token balance counts, you can add more liquidity but it will only be counted in following week.
- The snapshot will occur two hours after each fee period which closes @ Wednesday ~6pm AEST.
- There is a minimum of 1 liquidity token required per provider.
The distribution will be managed by an m/n multisig contract with signers selected from LP providers.
The source of truth for distribution will be the open source script released by user @justwanttoknowathing on Discord,
- Any signer runs the script by @justwanttoknowathing
- Any signer posts results on Discord
- All signers have 24 hours to review output
- All signers discord handle + signing address are public
- An LP that believes their rewards are incorrect can DM a signer to check their balance and vote incorrect
- A single signer submits the distribution tx to the multisig and posts the payload to Discord
- M/N signers sign the tx
- If more than two signers do not sign the tx the distribution will not proceed
- Failure to vote on a correct tx will result in removal and replacement of a signer(s)
h/t @nocturnalsheet for the core signing process above.
^Phase three requires some modifications to the fee pool contracts hence the delay and discussion required before implementing this change.
^There is still a kill-switch built into this mechnism whereby if the signers go rogue. The foundation (and eventually the community via decentralised proxies) can halt distribution of the inflationary rewards to this contract and deploy a new multisig with different signers.
By implementing this distrubution mechanism using a multisig, we prepare for the next phase of the project where the foundation can no longer modify distribution and other aspects of the system and begin to test aspects of decentralised goveranance.
Test cases for an implementation are mandatory for SIPs but can be included with the implementation.
We are proposing to use the Gnosis multisig for signing of these transactions. This multisig will be the owner of the "airdropper" contract that is currently manually distributing this incentive.
Copyright and related rights waived via CC0.