Please delegate your PNG to 0xaCb2965E188C49AE898487412325Ff47Cde13fC1 to propose this to be voted. You can withdraw your delegation any time you want
You can also vote for each specific proposal below in Snapshot
THE PROBLEM
Under the current reward system, the Liquidity Providers (LP’s) in AVAX pools get exact same rewards as in PNG Pools for each AVAX equivalent amount they provide. This creates a risk reward imbalance in favour of AVAX pools since AVAX is considered a more secure investment with its
- larger market cap
- lesser inflation
- lower risk of impermanent loss due to bigger liquidity pools.
As a result, most of the PNG rewards goes to AVAX LP’s, who then dump those to buy more AVAX. The sell pressure on the PNG results in decreased yield for all the LP’s including those in AVAX pools and limits the growth of liquidity pools.
THE CHALLENGE
PNG price must be supported by creating incentives to buy and hold on to PNG.
THE SOLUTION
I have listed several proposals below which will contribute to demand. These proposals can be voted separately
PROPOSAL 1- INCREASING THE REWARD FOR PNG POOLS
While incentivizing AVAX liquidity is important for attracting LP’s to Pangolin, the majority of the PNG rewards should support PNG pools and go to PNG LP’s who are more likely to hold on to their tokens to increase their liquidity instead of dumping them.
I propose to split the daily 175k PNG rewards to two fixed buckets regardless of the total liquidity in them:
- PNG Pools: 62.5% of the rewards
- AVAX Pools: 37.5% of the rewards
With the increased PNG price, 37.5% of incentives is enough to keep AVAX LP’s in Pangolin
I believe this is better than having a reward ratio for each AVAX equivalent liquidity between AVAX and PNG Pools in which case PNG rewards would start to fall along with the PNG price.
Sparing 62.5% of the PNG rewards only for PNG pools will positively effect the PNG value and result in increased liquidity in PNG Pools.
PROPOSAL 2 - SPLITTING REWARD BUCKETS INTO SMALLER PEICES FOR EACH PAIR
Provided that Proposal 1 is accepted and PNG and AVAX pools are split, the reward for each pair in the respective bucket should be determined hourly.
Currently it is based purely on the amount of liquidity in that pool. I propose that the liquidity pool factors should be adjusted taking the IL within the calculation period into account such that the more IL in that specific pool, the more rewards it should get. This will work as a quasi insurance for the LPs. Despite its effect may be small compared to the accrued IL at the beginning, the beauty of this proposal is that it will provide additional rewards even when the price recovers in a different time slot, since IL will calculated separately for each time slot. So the high volatility will not be something to be afraid of but an opportunity for LPs to earn extra rewards.
Also, the pairs with more tx volume require a bigger liquidity pool. I propose to take the transaction volume also into account when determining the rewards for each liquidity pool.
The IL adjusted liquidity weight should be 60% and the tx volume weight should be 40%.
Below is a numeric example:
| Liquidity (PLG) @ begining | IL during calculatio period | IL adjusted liquidity weight reward factor (60%) | tx volume (mUSD) -40% | Overall bucket weight | Daily PNG reward | |
|---|---|---|---|---|---|---|
| A | B | C = A* (1+B) | D | E = 0.6 x C/∑C + 0.4 x D/ ∑D | ||
| PNG ETH | 1000 | 20% | 1,200.00 | 2.00 | 16% | 15,844 |
| PNG BTC | 2000 | 10% | 2,200.00 | 3.00 | 27% | 26,623 |
| PNG AVAX | 5000 | 0% | 5,000.00 | 6.00 | 58% | 57,532 |
| TOTAL | 8000 | 8,400.00 | 11.00 | 100% | 100,000 |
Specific note on AVAX PNG Pools: I suggest it gets rewards from both PNG and AVAX buckets.
PROPOSAL 3 - LIMITING THE NUMBER OF PNG POOLS
Proposal 3 does not depend on other proposals and can be voted separately.
PNG Pools should be limited to WBTC, ETH, USDT and DAI at the beginning to help creating decent pool sizes. Once the liquidity amount exceeds a certain level, other PNG pairs can always be voted to be added.
PROPOSAL 4 - VALUING THE TIME SPENT IN LIQUIDITY POOLS
Proposal 4 does not depend on other proposals and can be voted separately.
Incentivizing LP’s to stay in the liquidity pools as long as possible is also key for securing enough liquidity and preventing PNG dumps. Hence in each pool, the reward factor of each LP should be increased by 2% for each day spent in the liquidity pool.
Below is a numeric example for further clarity:
Lets assume that PNG-ETH Pool distributes 100PNG per day.
There are 3 LP’s in this pool who have provided 1000 PNG over last 25 days.
Each day spent in the pool is valued with an additional 2% reward factor.
It is also important to have a cap on the reward factor to balance the effect. I propose to cap it at 1.5 which can be reached in 25 days.
In this scenario, the reward per LP is follows:
| PNG liquidity provided | Duration in the pool | Reward factor | Total Reward Factor | Reward weight | PNG Rewards | |
|---|---|---|---|---|---|---|
| A | B | C = MIN(1.5, (1+2% x B)) | D = A x C | E = D / Total D | E x Total Pool Rewards | |
| LP1 | 200 | 25 days | 1+2%*25=1.50 | 300 | 25.64% | 25.64 |
| LP2 | 300 | 10 days | 1+2%*10=1.20 | 360 | 30.77% | 30.77 |
| LP3 | 500 | 1 day | 1+2%*1=1.02 | 510 | 43.59% | 43.59 |
| TOTAL | 1000 | 1170 | 100.00% | 100 |
Every time an LP adds liquidity a new row will be added in the table as it would have a different time stamp. When withdrawing the liquidity, the last injected amount should go out first, or in other words first in last out (FILO)
PROPOSAL 5 - PANGOLIN LOTTERY
Proposal 5 does not depend on other proposals and can be voted separately.
1% of the pool rewards will be used as lottery reward and randomly awarded to one of the PNG LP’s weekly, who has provided more than 50 PNG worth of liquidity over the last 7 days.
Indeed lottery is a very common promotion tactic for creating demand. Think about ice creams giving Porsches or iPhones. Many people have a tendency for gambling/surprise elements. Even Facebook uses that sentiment and refreshes the feeds randomly each time you update the page.
A weekly lottery around 10k PNG given to PNG LP’s who stay in the pools for longer than 7 days will add to the “creating demand” story of PNG.
ON PNG STAKING
I have also come across several proposals to introduce PNG staking as in AVAX staking, however I do NOT support that idea.
Despite staking is very important for POS systems like AVAX in order to approve txs, it does not have much use for DEX operations. Pangolin’s interest lies in incentivizing liquidity pools not in staking. On the contrary, if there is too much incentive in staking, Pangolin cannot work due to lack of liquidity. Therefore, saving some of the 175k PNG to stakers and reducing the LP rewards should be avoided.
