Thank you to all those who partook in this discussion.
Below are responses to some of the replies:
There will be a review conducted on the efficacy of the incentive programs that the DAO’s running. The process for this and who will conduct it is still tbd. Most of these programs are either in the middle of being administered or have yet to start. The Base incentives were deployed on April 25 and will conclude on July 25.
| Pools | Link |
|---|---|
| wETH/USDC 0.05% | 0xd0b53d9277642d899df5c87a3966a349a798f224 |
| cbETH/wETH 0.05% | 0x10648ba41b8565907cfa1496765fa4d95390aa0d |
| USDC/USDT 0.01% | 0xD56da2B74bA826f19015E6B7Dd9Dae1903E85DA1 |
| wETH/USDT 0.05% | 0xd92E0767473D1E3FF11Ac036f2b1DB90aD0aE55F |
You can see the TVL and volume fluctuations in the incentivized pools above. Generally, the market has been more choppy since we applied the incentives–that’s why the trend looks generally towards the downside. The hope is that during drawdowns the severity of TVL bleed and volume decline is less due to incentives and that incentives actually lead to sticky TVL.
The UADP is working closely with Gauntlet to implement and report on Uniswap’s LTIPP allotment, although all the analysis and pool selection will be done by Gauntlet. The Uniswap-led incentive packages give the Accountability Committee jurisdiction to select which pools to deploy incentives to–these pools are selected with relatively loose criteria. If the DAO wishes to match the LTIPP allotment, we will be increasing the amount of incentives that Gauntlet will have at their disposal. The Accountability Committee will not be controlling the specific allocation of these incentives. In other words, if the DAO votes in $500k UNI as a match, then we’d just bundle that in with the existing 1M ARB, and Gauntlet will put that to work.
How does the Accountability Committee’s deployment of incentives differ from Gauntlet? The AC aims to incentivize blue chip pools to simply establish sticky liquidity and capture volume on commonly traded pairs like USDC/USDT or wETH/USDC. Many of these pools are low in liquidity to begin with due to being on a more long-tail or newer EVM deployment. Arbitrum is of course not in this position. The duration of the campaigns and gauges selected for each pool also matter.
As @kfx mentioned, Merkl has three gauges:
Gauntlet tends to follow a 98/1/1 breakdown (with 98 going to fees and the other 2 equally given to the other parameters). For the incentive programs being managed by the Accountability Committee, slightly different gauges have been selected, with both 60/20/20 and 40/30/30 structures having been implemented. The duration of Gauntlet incentives are also 2 weeks. The AC, however, usually distributes on a 3-month basis. This means that Gauntlet is involved in active management, constantly looking at data points from each previous campaign, factoring in current market conditions, and consequently selecting the best pools to deploy incentives to.
In a 98/1/1 model, 98% of rewards are given based on the fees generated from trades in the liquidity pool, encouraging LPs to move their funds to pools with higher trading volumes to maximize their fee-based rewards. This behavior leads to intense competition among LPs for high-fee opportunities, which can result in rebalancing costs and impermanent loss. But the 98/1/1 setting encourages LPs to allocate liquidity to where it is most efficient around the current tick, making it effective at driving volume growth. A flywheel is created here as well since more liquidity leads to better execution and therefore higher volume, which in turn increases liquidity. So to @alicecorsini’s commnet, this setup already favors fee generation.
In contrast, a 40/30/30 setup allocates 40% of rewards based on fees and 30% each on the liquidity provided for assets A and B. This approach reduces the need for rebalancing, encouraging LPs to maintain their positions longer across the two tokens in a pool. This setup can be beneficial for drawing more passive, sticky TVL. A drawback to this setup is that lazier LPs are often drawn to this incentive model–they simply allocate across the pool’s full range and are not significantly improving price execution per unit of liquidity provided.
Also, the previous program that Gauntlet ran focused largely on capturing market share from competing DEXs on Arbitrum. Today, Uniswap has secured itself as the de facto DEX on the L2, so the goals can change slightly. As Gauntlet points out:
“For this program, our methodology begins with a heuristic targeting underrepresented pools on Arbitrum (e.g., disproportionately low volume vs. other chains), aiming to increase overall TVL on the chain, differing from our previous approach that focused on capturing market share from competing DEXs. Once the pools are identified and incentives initialized, we will transition to a model-driven approach for subsequent allocations. The 30 pools you see in the first batch of recs were ones we identified as underserved and having filtered out some tokens manually after additional DD.
Unlike the previous Arbitrum LM campaign, which relied on a simulation-based framework to identify pools with the greatest boosts to price execution under different liquidity scenarios, this program employs a predictive model that reallocates a fixed budget towards pools with the highest response to incentives, ensuring dynamic and efficient allocation. This method maximizes TVL growth by directing resources to pools with the most significant growth per dollar of incentives. We’ll also consider adding and removing pools as the program goes on if some pools are unresponsive to incentives - this is something we’ve observed in the past and quickly respond to maintain incentive spend efficiency.”
The Gauntlet team has completed their first analysis on pools, having selected 30 of them for the first two-week distribution of 150k ARB: https://arbiscan.io/tx/0x4ed72c0d11f7a12b83cc4f521999216b5ae723a02c1aa3ea69073e44f966887c
As for this comment, Gauntlet will optimally select which pools and their respective fee tiers to target. With the above batch, for example, ~5% of the incentives will be given to the PEPE-wETH 1% pool.