[RFC] - Gamma Strategies - Distribute at least 1/3 of $ARB airdrop as liquidity incentives

[BP333]

@eek637

How do we choose pools to incentivize, and how do we know how much to incentivize each pool we choose? It seems like there are some heuristics that have guided the implementation of these types of programs so far, but it’s not clear to me that these following these heuristics has resulted in efficiently spending an incentive budget. A good case in point is the OP program, which to date has seen only a couple pools maintain sustained increases in tvl and volume. And for those pools, it’s possible that the amount spent on incentives was not appropriate (e.g. could we have spent less for the same results?). In general, I’d like to have a better idea that each ARB that we allocate to a program like this will result in lasting value to the DAO (though the definition of lasting value is admittedly a moving target in and of itself).

Just wanted to touch on this point here.

I agree with @sogipec here that existence of co-incentives from valuable partners would be a one way of getting much more capital efficient with the $ARB rewards from Uniswap that help to have sustainable liquidity over a longer period of time.

With regards to the Gauntlet study you have posted, wstETH-WETH, OP-USDC and OP-WETH were positions that had statistically significant results in providing a sustained lift in volumes + tvl. I have my own theories as to why they were successful as well. wstETH-ETH never had a presence on Uniswap until the LM program and also Kyber which was its biggest competitor experienced a smart contract bug, so Uniswap ended up dominating that route afterwards, which only happened due to the fact that Uniswap was ready to service the existing volume demand with the liquidity from the LM program.

OP-USDC was an opportunistic route because its main competition is on Velodrome as a full-range position, so Uniswap with less TVL was able to capture a lot of those volumes after obtaining a base amount of TVL.

So I believe the best pairs to choose would be the ones which similarly provide opportunistic routes to sustainable liquidity.

(Source: https://dexscreener.com/arbitrum → sort by volume)

WETH-USDC 0.05% - 25% allocation

• Generates 1.75:1 volumes per TVL ratio

• Important to stay dominant in this route as other concentrated liquidity models are highly competing for this trade route

• Trader Joe is doing around a 3:1 volume per TVL ratio in this pool

WETH-ARB - 10%

• Generates 2:1 volumes per TVL ratio

• This is a high volume route which is also favored by LPs due to having lower IL with correlated asset pairs ARB/ETH

ARB-USDC - 15%

• Generates 7:1 volumes per TVL ratio!

• This situation is very similar to the OP-USDC route which Gauntlet found to be highly sustainable in terms of increased liquidity + volumes

• We can expect a similar result for ARB-USDC given that the pools volumes can support a lot more liquidity based on the volumes its producing

Lido Pairs + Rocket Pool Pairs - 40% (20% to each)

• As mentioned before wstETH-ETH was found to be a successful pair to incentivize on Optimism.

• Uniswap does have a competitive advantage when it comes to LST pairs as more concentration will support more volumes on less TVL as it inherently has a higher volume / TVL ratio than Curve and Balancer; however, bootstrapping more liquidity in these pools would further allow Uniswap to realize this dominance and sustain it over a longer period of time

Other Partner Pairs - 10%

• Other pairs such as RDNT-ETH and MAGIC-ETH are opportunistic routes in which their only competition is on full-range AMMs (similar to the OP-USDC scenario on Optimism), so with some concentration we can expect high fees / TVL.