Thanks for highlighting the need for these answers in the original post. Our goal is to design the system to optimize the activity and incentivize long term liquidity and active users not to promote artificial usage of the protocol. So we are open to any suggestions on how we can improve and align the incentives. Let me know if the below addresses the points you raised.
Why users will stick around after incentives end?
- Seed liquidity to kickstart platform.
The liquidity incentives are used for initial liquidity to bootstrap platform usage. Liquidity would remain on the platform after initial OP liquidity incentives are removed because liquidity providers will earn a return on lent capital from people borrowing and trading on the platform. The OP incentives are used in order to solve the Chicken/Egg problem of traders not borrowing because there is no liquidity, and Lenders not adding liquidity because there are no traders. Once initial liquidity is established and platform usage builds up over time, then the liquidity incentives are no longer needed to retain lender or traders.
- Sticky Liquidity
In addition, the liquidity incentives will be structured in such a way as to incentivize sticky liquidity with a few strategies:
- Linking Demand with Usage
Linking demand for liquidity with usage. Increasing incentives as needed to meet trading/borrowing demands. For example, lenders receive a subsidized APY when lending out assets to borrowers. The funds will vest and taper gradually over time so lenders do not have incentive to stop providing liquidity as soon as incentives end. Incentivized pools will be those that require that liquidity. If a pool already has sufficient liquidity to meet trading demand, then rewards won’t be applied to the pool.
Traders would receive a fee rebate based on trading activity/volume. We also plan to hold biweekly trading competitions to reward top traders based on a variety of criteria (volume, size, leverage, etc.)
For borrowers we may not need to incentivize them. To prevent the abuse you mentioned we could place limits on borrow duration to qualify for rebate on borrowing interest.
Liquidity incentives would vest over a period of time rather than being immediately liquid. This would also incentivize sticky liquidity together with the initiatives described above. As incentives could be introduced that would tie vesting of rewards with continued liquidity providing.
Why not Match incentives.
Similarly to Optimism, Ooki is also a DAO led organization and the team cannot decide unilaterally to match OP incentives with OOKI as it would need OOKI DAO approval. If the DAO approved matching the OP investment grant then it would certainly be something that would be possible. However, for the Ooki community to approve matching without knowing whether an OP grant is approved or how much would be approved the proposal would not have clarity on how much was being approved and could not be approved by the multisig without this information.
Please let us know if you have any questions, or if you have feedback.