Further Reduction of Liquidity Emissions
passed
Expected result
Passed
Turnout / Quorum
72.61% / 20.00%
Voting period
Voting ended100.0%
Voting start 2022.11.14 at 17:05:22
Voting end 2022.11.19 at 17:05:22
Vote distribution
89.48%
134 688 133 osmo
Yes
0.89%
1 340 911 osmo
No
0.20%
300 816 osmo
Veto
9.43%
14 193 643 osmo
Abstain
Details
Proposer
-
Total deposit
1 600 osmo
Submit time
2022.11.14 at 17:03:03
Deposit end time
2022.11.28 at 17:03:03
Description
- Voting Yes for this proposal indicates approval that a further 21% of Osmosis inflation allocated to Liquidity Incentives should be redirected to the community pool to lower direct Osmosis inflation until governance returns it.\n\n* Voting No for this proposal indicates that 29% shall continue to be the proportion of Osmosis inflation allocated to Liquidity Incentives that are redirected to the community pool.\n\n## Background\nOsmosis emits a fixed amount of OSMO per day as inflation, which decreases with each thirdening event. \n45% of this inflation is allocated to Liquidity Incentives and 71% of that is distributed between liquidity providers according to the incentives system resulting in a current emission of 174,978 OSMO per day to pay for liquidity.\nThe remaining 29% is redirected to the community pool to be used for future liquidity incentives when emissions have decreased and the broader market supports higher inflationary APR as a method of attracting new liquidity providers.\n\n## State of Token Liquidity Growth\nOsmosis has seen a steady growth of token liquidity over the last 6 months, particularly in the OSMO/Major and OSMO/Stable pools that receive the majority of liquidity incentive allocations.\n\nAs was observed in Proposal 268, liquidity pools tend to grow when the incentives provided are greater than that of independently staking the two halves of the pool, plus a small additional yield that compensates for Impermanent Loss.\nNotable examples of this include:\n* Evmos where the liquidity drastically increased after external incentives (22nd July) helped compensate for the higher Evmos Staking APR\n* Juno where liquidity stagnated until 24th October when the Juno Halvening made Liquidity Provision a better choice again\n\nFor completeness, other major pools over the last six months include:\n* WBTC\n* WETH\n* CRO\n* DOT\nThese all have steadily increased whilst being allocated high incentives.\n\nStables seem to act differently, potentially as during the current bear market they may be seen to have poor potential. Liquidity has been relatively stable despite even higher APRs than more volatile assets.\n* USDC\n* DAI\n* EEUR\n\nCurrently, the state of the top 95% of OSMO paired Liquidity pools based on the reward for Liquidity provision vs the Staking reward (or Osmosis Staking if no alternative) is as below:\n Liquidity Reward vs Staking Equivalent\n\n## Proposed Reduction\nThis proposal asks that a further 21% of Liquidity Incentives be redirected to the Community Pool at a rate of 7% a week, a change of 29% to 50%. This is an effective 30% reduction in current liquidity emissions.\n\nWhile Osmosis' contribution to a pool's APR from Liquidity Incentives is reduced, APR gained from Swap Fees, External Incentives and Superfluid Staking will be unaffected. This results in smaller APR changes in pools with already lower APR as follows:\n APR Changes\nJackal, stOSMO and Tori are cut off but have no changes as they are unincentivised by Osmosis at the time of writing.\n\nThis results in the following change to the Liquidity vs Staking chart, showing where pools are currently trending towards and where they would be trending towards after this reduction completes:\n Current Trending vs Trending after Reduction\n\nThis shows that even with this reduction, LP rewards will remain superior to alternative token uses whilst reducing the amount that Osmosis pays each day to continue to maintain and grow token liquidity.\n\nIn order to ensure this reduction goes smoothly, an informal group will be formed to oversee each step change. This group consists of\n* Chaos Labs (Incentives Optimisation Infrastructure)\n* Flipside Flan (Flipside)\n* Hathor Nodes (Validator & Incentives Optimisation Researcher)\n* Johnny Wyles (Osmosis Labs)\n* RedRabbit (Osmosis Community)\n\nBy a majority consensus, governance entrusts the five (5) member working group to use their best judgement to delay or halt the implementation of the second and or third 7% weekly redirection in order to ensure that this reduction in incentives does not negatively impact token liquidity. The working group DOES NOT have the ability to revert any redirections that have occurred or change the amount that is to be redirected so that it does not equal the 7% defined in this proposal. The working group will communicate to governance on Commonwealth on a weekly basis whether to expect the second and or third weekly redirection to be postponed due to any yet unforeseen extenuating circumstances.\n\nCommonwealth Thread: https://commonwealth.im/osmosis/discussion/7501-further-reduction-of-lp-emissions
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