Eliminate Rewards for sETH-sWBTC Pool

This pool doesn’t make any sense. If a trader wanted to swap between sETH and sWBTC, they could go via sETH-sSCRT → sSCRT-sWBTC. Both of these sSCRT-paired pools have comparable or greater liquidity compared to the direct pairing so this change wouldn’t make traders suffer a higher price impact on swaps. It would presumably lead to a drop in TVL but I reiterate my argument from previous proposals: We should incentivize only genuinely useful liquidity.

For me, the basic idea is something like this: We have, let’s say, N assets that we want to facilitate swaps between. The naive (inefficient) way would be to have N*(N-1)~N^2 pools consisting of every possible pairing and then any trader can make any conceivable trade. This however requires that the rewards (fueled only by gov token issuance) are spread across quadratically-many pools. The efficient way is to choose a central token (say, SEFI) and incentivize pairings with this central token only. This yields (N-1) pools rather than ~N^2, allowing higher rewards on each pool and thus deeper liquidity for trades. Consider a graph where the nodes are assets and the edges represent incentivized pools with pairing specified by the nodes being connected. Basically, there is no reason to ever have a cycle in this graph.

In the case of SecretSwap, we began by incentivizing the sSCRT pools (that is, we began by using sSCRT as the “central” token for incentivized LP pairings) and this remains the choice for the pairings with legacy / boomer assets (btc, eth, usdt) as well as Alter and Shade (presumably this is justified since they are new native snip20s that are or plan to partner with SecretSwap – full disclosure, I know nothing of the details/status of these partnerships). We then incentivized several SEFI pairings, notably the IBC tokens. The sSCRT-SEFI pairing bridges these two worlds and is essential for guaranteeing SEFI liquidity (especially since we don’t incentivize SEFI pairings with the boomer crypto currently – which, to be clear, I’m not advocating currently).

Due to the importance of the sSCRT-SEFI pool, I’d currently suggest this pool as the target for the rewards that would come from the sETH-sWBTC pool. I am open to other suggestions here though. If the concern really is for sETH of sWBTC liquidity, we could always direct rewards towards the sSCRT pairings for those assets.

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Great post. I support this if you choose to bring to governance. sETH-sWBTC is a lazy LP pool. Let’s move these rewards to sSCRT-SEFI as soon as possible.

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Such shortcut pairs usually occur because some liquidity providers do not want to take the impermanent loss risk of relatively less reputable token/coin (here, SCRT).

For this proposal i will state the same:

the SEFI-sSCRT pool is already relatively deep. It will be more valuable to onboard liquidity for new or low liquidity assets. Consider IBC assets (possibly for JUNO, AKT, HUAHUA even as the relayer channels open up on the front end), UST or other ETH/BSC assets which have no liquidity anymore (bring back Link potentially).

To lower the rewards, ok, to eliminate I disagree.
We do have to offer a premium for those risking assets on SCRT/SEFI pools, yes, but we can offer a very small rewards for those providing liquidity on less-risky tokens too.

Apologies for the lack of action on this; I’ve had some family matters to attend to recently that haven’t left me any time for other pursuits.

To @abduraman : Yes, I’m aware of why such a pool is attractive from the perspective of a liquidity provider. What I’m saying is that the pool doesn’t help secretswap in any way because (i) traders can go between sETH and sWBTC using the sETH-sSCRT and sWBTC-sSCRT pairings, (ii) the actual volume on the sETH-sWBTC pair is an order of magnitude lower than on the sSCRT pairings mentioned in (i).

To @ertemann : I see your point here about the sSCRT-SEFI pool but I don’t think that upping the IBC rewards is a good idea because we can’t really compete with Osmosis (at least before DRO migration, which is all this proposal would be for if we’re being honest). I’ll plan to go ahead and submit this soon though and I guess the only good alternative I can think of is to split the rewards between the sSCRT pairings of sETH and sWBTC. Does the new information we have about the DRO migration change your mind at all about upping the SEFI-sSCRT rewards? I do somewhat fear a race from LP to SIP…

@Tanajura : Thank you for your comment but I’m not sure you’ve totally understood my argument against this specific pool. What is the virtue to maintaining any rewards for this pool? It seems to benefit only LPs and not really benefit SecretSwap at all. Please see my other comments in this thread for more information.

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