hip: 66
title: Re-enable LP Rewards for UBI using xToken Terminal on UniswapV3
author: ablank
status: Phase 2
created: 2022-11-08
conflicts with: None
languages: EN
Simple Summary
This proposal outlines a re-introduction of incentives for $UBI liquidity providers. We are suggesting a migration of incentives from Uniswap V2 to V3. Uniswap V3 is the highest volume and most capital efficient DEX, outperforming comparable Uniswap V2 positions by an average of 54% (When Uniswap v3 returns more fees for passive LPs).
Abstract
The $UBI liquidity mining (LM) rewards ended on Uniswap V2 for the UBI-DAI and UBI-ETH pools in March 2022, with the next rewards period for $UBI still undetermined. For the next rewards program, we are putting forward our capital markets platform, xToken Terminal, as the service provider for $UBI liquidity incentives. For this proposal, we’ve taken into account earlier and current governance discussions in the PoH community, as well as the effectiveness of past programs. For those unfamiliar with the platform, xToken Terminal allows projects to deploy a highly configurable Uni V3 LM program in a matter of minutes, no dev work or technical expertise required for the DAO or LPs.
Motivation
Since PoH DAO liquidity providers are already familiar with Uniswap V2, moving liquidity onto Uniswap V3 for the next round of incentives is a natural progression to attract deeper liquidity onto the protocol in the next rewards cycle. Terminal is permissionless and rigorously tested, providing an out-of-the-box solution that saves projects time and money to deploy. Additionally, Terminal provides a V2-like experience, abstracting many of the complexities of Uniswap V3 - LM can be deployed on Ethereum, Polygon, Optimism and Arbitrum, allowing the DAO to select the network that best fits current needs.
Specification
A network and token pair will be selected within the Terminal (three suggestions for pairs are detailed below in the Rationale). The pool creator can then select which fee tier to apply to this pool.
$UBI incentives will be paid out to liquidity providers, distributed linearly over a 26 or 52 week period. We’d like to suggest one of the following full-range UBI<>ETH, UBI<>DAI or UBI<>PNK pools either on mainnet, Polygon, Arbitrum, or Optimism. Rewards can also be distributed evenly across two or three liquidity pairs, depending on which is preferable to the community. Once the pool sponsor initializes the LM program via Terminal, LPs are able to deposit liquidity and begin earning incentives. Earned incentives will be correlated to LPs percentage of the total liquidity within the pool. LPs are able to claim accrued incentives at any time from the Terminal pool page. Incentives are distributed to LP balances every x minutes. For these $UBI incentives, we believe this next rewards cycle would benefit from a re-evaluation half-way through the LM program (i.e. after the first 26 weeks). This allows for more engaged community oversight on the effectiveness of the program (Terminal allows sponsors to renew rewards on a pool in a few clicks). We are recommending 1 million $UBI paid out over the first 26 weeks, with the community voting on which percentages of these rewards should be deployed on which network(s) and across which pool(s)
Rationale
First, while the previous LM program was exclusively on Ethereum mainnet, there may be community interest in rewarding liquidity providers on an L2, as brought up in a recent discussion around incentives for LPs. Although the Proof of Humanity registry, upon which the UBI DAO is built, is most active on Ethereum, UBI DAO and Proof of Humanity have the opportunity to engage $UBI LPs who have been priced out of L1.
Second, the community has been suggesting the next round of $UBI incentives be deployed with the launch of PoH v2. Testing for deployment was announced earlier this summer! With these points in mind, the upcoming cycle of rewards for $UBI liquidity mining (LM) may be right around the corner. Terminal makes it easy to deploy quickly when the DAO is ready to go.
Third, the community has already expressed interest in migrating liquidity from Uniswap V2 to V3. We believe that the reintroduction of incentives will further HIP 59’s objectives of stabilizing the price of $UBI and bringing greater capital efficiency to LPs.
Some decision points of note:
Network: Ethereum mainnet or an L2 of choice
- UBI DAO may want to explore incentives on an L2/sidechain (Polygon, Arbitrum, or Optimism) for lower transaction fees and a broader liquidity presence. Many LPs and investors are priced out of mainnet and/or would prefer exposure to a network with cheaper transaction costs.
Asset pair: UBI<>ETH or UBI<>DAI or UBI<>PNK
- We recommend pairing UBI with ETH or DAI, either on Ethereum or an L2, in line with the previous liquidity pools. PNK may also make an interesting pairing to bring UBI and PNK holders from the Kleros community together. While the $PNK token airdrop to Proof of Humanity users never made it into a Snapshot vote, the community may want to explore this option going forward.
Liquidity concentration: Full range
- Although concentrated liquidity is one of the most appealing features of Uniswap V3, narrow ranges are typically reserved for stablecoins or assets that trade in tightly synchronous ranges (i.e. liquid staking pairs). We recommend incentivizing a full range in this volatile market.
Rewards: 2M $UBI total over a 52-week period
- Mirroring the first round of LP incentives offered for $UBI, we suggest the same program length and token rewards for the second round of LM on Uniswap V3.
Discussion Points
$UBI incentives can be paid out to liquidity providers, distributed linearly over a 26 or 52 week period. We’d like to suggest one of the following full-range UBI<>ETH, UBI<>DAI or UBI<>PNK pools either on mainnet, Polygon, Arbitrum, or Optimism. Rewards can also be distributed evenly across two or three liquidity pairs, depending on which is preferable to the community.
Once the pool sponsor initializes the LM program via Terminal, LPs are able to deposit liquidity and begin earning incentives. Earned incentives will be correlated to LPs percentage of the total liquidity within the pool. LPs are able to claim accrued incentives at any time from the Terminal pool page. Incentives are continuously distributed to LP balances.
For these $UBI incentives, we believe the upcoming rewards would benefit from a re-evaluation half-way through their LM program (i.e. after the first 26 weeks). This allows for more engaged community oversight on the effectiveness of the program (Terminal allows sponsors to renew rewards on a pool). We are recommending 1 million $UBI paid out over the first 26 weeks, with the community voting on which percentages of these rewards should be deployed on which networks across which pools.
With that, we invite comments from the community!
On Security
Those who are familiar with the previous version of our project know that at our peak we managed over $100m in assets, specializing in native staking strategies and later getting into liquidity strategies. In fact, for several months after Uniswap V3 launch, we were the largest provider of Uni V3 managed liquidity (peaking at $25m). Those who are familiar with our project also know that we had security incidents in spring/summer 2021, related to our deprecated asset management product line. Since then, we’ve bolstered our security practices and have developed a rigorous and intentional process. Additionally, the Terminal liquidity mining contracts have been audited by ABDK, have been the subject of an Immunefi bounty program for several months and have undergone several months of internal review.
If you’d like to learn more, please check out our Mining documentation. Or ask us any questions on Discord.