Proposal #683

Create Volume Splitting Gauges for Pairings

Exec Legacy Content
passed
Expected result
Passed
Turnout / Quorum
88.13% / 20.00%

Voting period

Voting ended100.0%
Voting start 2023.11.19 at 12:04:54
Voting end 2023.11.24 at 12:04:54

Vote distribution

95.98%
175 355 275 osmo
Yes
0.01%
14 363 osmo
No
0.00%
367 osmo
Veto
4.01%
7 331 710 osmo
Abstain

Details

logo
Proposer
-
Total deposit
1 600 osmo
Submit time
2023.11.19 at 12:04:54
Deposit end time
2023.12.03 at 12:04:54

Description

This proposal would create new incentive gauges for groupings of pools with the same pairings but different swap fee parameters. \n## Background\nVolume Splitting Incentives gauges were introduced in V20 as a mechanism to divide incentives between pools in proportion to the trades they facilitate. These gauges have been used since to divide incentives between Supercharged pools and the migration-linked Classic pools. \n\nUnlike normal gauges, which only have one destination pool, Volume Splitting Incentive gauges cover a group of pools. Incentives are allocated to this grouping rather than the previous method of allocating to single pool gauges. \n\nThe proportion of incentives that go to each pool in the grouping is recalculated every epoch according to the volume that occurred in the pools over the previous day. This allows pools that are generating the most volume per unit of liquidity to increase incentives day on day without waiting for a new incentive proposal to pass. \n\nVolume can be expected to be higher per unit of liquidity in lower fee pools due to lower costs for traders as well as an increased number of times that profitable arbitrage opportunities occur. These gauges will encourage liquidity in high-traffic routes to move to lower-fee pools within the grouping. \n\nAs liquidity moves to these pools, the fee per trade is lowered, making Osmosis a more attractive exchange to perform trades on. It also changes the ratio of fee collection between what Liquidity Providers receive and what the protocol receives through the Taker fee. \n\nExample \nIn a default OSMO/ATOM pool with 0.2% Spread Factor and the default 0.1% Taker fee there is a total swap fee of 0.3%. The Liquidity Providers receive two-thirds of the fees accumulated by that pool, and the Protocol receives a third. \n\nIf liquidity migrates to a 0.05% Spread Factor pool, then the total swap fee will be lowered to 0.15%, with Liquidity providers receiving a third of the fees and the protocol receiving two-thirds. \n\nThe lower fee pool will have more volume from increased arbitrage opportunities as well as a lower overall fee, helping to attract more traders. This causes the fee generation per unit of liquidity on Osmosis to increase. \n\nDespite this, Liquidity Providers may receive fewer swap fees overall compared to a higher fee pool, so Osmosis Incentives will help cover this gap to encourage liquidity to move to lower fee pools that provide better returns for the protocol itself. \n\nIf trading in a pool is limited, as may be the case with most tail assets, there may be little incentive for liquidity providers to accept the lower ratio of fees, and so the volume and incentives will remain in the higher spread factor pool. In the event of a sudden increase in volume then the lower fee pool will adjust at the next epoch to attract more liquidity and make Osmosis a more attractive trading location for the asset pairing. \n\n## Proposed Groupings \n Link to Table \n\nForum Thread: https://forum.osmosis.zone/t/create-and-incentivise-volume-splitting-incentive-gauges/635

Votes

Voter
Answer