[MRC-32] MARS/OSMO LP Rewards

Proposals MRC (Mars Request for Comment)
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Summary

The objective of this proposal is to request the use of funds from the community pool to reward liquidity providers on the MARS/OSMO pool on Osmosis. Specifically, this proposal aims to obtain a total of 1.5M MARS from the community pool to reward liquidity providers for the next 3 months.

The reason for the 3 month period is that Osmosis will be incorporating concentrated liquidity (CL) soon. After CL launches on Osmosis, MARS liquidity could be migrated to a new, more efficient CL pool. Thus, incentivizing MARS liquidity on an XYK pool for an extended period of time could translate into wasted rewards.

Motivation

When the MARS/OSMO pool launched, the Osmosis community agreed to reward liquidity providers in this pool with OSMO for an initial period of 3 months to help bootstrap activity in this pool. This initial period ended a few weeks ago and since then liquidity has been naturally dropping. In order to maintain adequate liquidity in this pool, additional rewards are likely needed. That’s what this proposal aims to achieve.

Implementation

This is a signaling proposal, not an executable proposal.

The Mars smart contracts on the Osmosis chain are currently controlled by the Builder Multisig address. If this proposal passes, the builders will utilize their multisig to make the necessary parameter change.

Copyright

Copyright and related rights waived via CC0.

Disclaimers/Disclosures

This proposal is being made by Delphi Labs Ltd., a British Virgin Islands limited company. Delphi Labs engages in incubation, investment, research and development relevant to multiple ecosystems and protocols, including the Mars Protocol. Delphi Labs and certain of its service providers and equity holders own MARS tokens and have financial interests related to this proposal. Additionally, Delphi Labs is one of several entities associated with one another under the “Delphi Digital” brand. Delphi Digital’s associated entities and/or equityholders or service providers of such entities may hold MARS and may have financial interests related to this proposal. All such entities, service providers, equity holders and other related persons may also have financial interests in complementary or competing projects or ecosystems, entities or tokens, including Osmosis/OSMO. These statements are intended to disclose relevant facts and to help identify potential conflicts of interest, and should not be misconstrued as a complete description of all relevant interests or conflicts of interests; nor should they be construed as a recommendation to purchase or acquire any token or security.

This proposal is also subject to and qualified by the Mars Disclaimers/Disclosures. Delphi Labs may lack access to all relevant facts or may have failed to give appropriate weighting to available facts. Delphi Labs is not making any representation, warranty or guarantee regarding the accuracy or completeness of the statements herein, and Delphi Labs shall have no liability in the event of losses or damages ensuing from approval or rejection or other handling of the proposal. Each user and voter should undertake their own research and make their own independent interpretation and analysis of all relevant facts and issues to arrive at their own personal determinations of how to vote on the proposal.

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Do we have an ideal amount of minimum liquidity in mind for what we want to keep on Osmosis? It is currently sitting at ~1mil, so do we need more liquidity than we’re currently at? Liquidity was decreasing before the rewards ran out, so just curious if it has maybe levelled off here, or if it were to decrease further if that would actually be detrimental. If so, then at what level would that begin to be an issue and for what reasons? As MARS is not available for borrow, large amounts of trade liquidity would not be as needed for liquidations for example… feel free to point out everything that I am overlooking! :saluting_face:

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Hey ser. Good questions. Couple comments:

  1. In my opinion liquidity doesn’t seem to be leveling off at ~1M and the drop in liquidity seems to have accelerated after the initial OSMO bootstrapping period ended.
  2. As you mention, liquidations are not an issue for MARS given it’s not accepted as collateral within the protocol. However, liquidity is necessary for a couple reasons: 1) To allow new users to join the community by acquiring MARS with reasonable slippage (and to allow current community members to exit as well); and 2) To allow for protocol fees to be swapped into MARS at reasonable slippage. What a reasonable slippage is can be debatable, but the current slippage (~3% for a $10,000 trade) seems high and in my opinion will likely continue to increase if we don’t proceed with additional rewards.
  3. The current proposal targets having at least ~$2M in liquidity by targeting a ~30% APR for depositors. This level of liquidity is in line with those of other high quality Cosmos projects such as Axelar and Akash.
  4. Lastly, it’s worth noting that this plan will only last for 3 months. After that period, CL will likely allow Mars to considerably reduce this expense.
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Thanks! By #1 I meant more so to get at the reasoning why we would need to “hold the line” at 1mil, but you answered that perfectly with #2 and #3. This makes more sense to me now why we wouldn’t want liquidity to drop below that amount. Much appreciated! :saluting_face: