Thank you to everyone who has engaged with this proposal thus far. We have read through your comments and questions, and are sharing our thoughts and responses below.
First, to reiterate our recent comment in our Uniswap Unleashed Proposal – this proposal is about shoring up the Uniswap ecosystem’s long term competitive advantage – both its growth and sustainability.
- From a growth perspective, we are kickstarting network effects for both Uniswap v4 and Unichain – providing a better experience to developers and their end users. In today’s market, technological innovation alone isn’t enough to drive growth; strategic investment into building network effects is essential.
- From a sustainability perspective, both of these programs may lead to opportunities for the community to generate revenue for itself in order to pursue future growth opportunities.
Liquidity incentives as an approach to growth
We agree that there have been many wasteful, ineffective liquidity mining programs run across other chains and protocols in the past.
These campaigns are built differently – with a focus on driving sustained engagement. Specifically, the campaigns we propose:
- Use a dynamic strategy that adjusts regularly to market conditions. As one example, Gauntlet will regularly adjust pool incentives to determine the elasticity of demand – information we may use to ensure we are growing activity cost effectively.
- Support concurrent demand generation efforts, including holistic builder and protocol support on v4 and Unichain. In our Uniswap Unleashed Proposal, we refer to both Unichain and v4 as platforms where a supply of liquidity is consumed by demand in the form of new hooks and DeFi protocols. We plan to grow the demand side using our grants budget while the supply side is kickstarted through these liquidity incentives. Our goal is to reach a stable state where demand exceeds supply, creating an attractive opportunity for both liquidity providers and users of Unichain’s DeFi ecosystem.
We do not aim to replicate Aerodrome’s approach – we call out their and others’ incentive campaign expenditures to underscore the competition for liquidity today. Action is required to kickstart our platforms’ flywheels.
Governance control and transparency
That being said, Governance will have transparency and maintain ultimate control through the proposed campaigns. To be specific,
- Governance will maintain control of the funds throughout the campaigns. If delegates are unhappy with the progression of a given campaign, they may recall unused funds.
- The campaigns are tranched. For Unichain specifically, we are only requesting a portion of funds upfront, so we are able to gain confidence in the campaign’s efficacy prior to returning to Governance for more.
- Transparent dashboards will be made available one month after the campaigns have launched for the community to monitor the progress of the campaigns.
Gauntlet selection processes
Gauntlet has undergone more scrutiny than our typical grantee, having undergone our diligence process twice.
- In early 2023, the UF was selecting an advisor for incentives analysis. In order to select a provider, we provided a similar prompt to three potential grantees. We assessed the final results on analytical rigor, comprehensiveness, and ability to drive execution post-analysis. Gauntlet’s output exceeded the output of others.
- In Q3 2024, the UF evaluated a set of candidates to determine who would be best equipped to partner with the UF on incentive campaigns for Uniswap v4 and Unichain. Here, we assessed the candidates’ track record, relevant experience, and capabilities of achieving our desired outcomes. Based on our analysis, we determined Gauntlet was best suited to take on the task at hand. At this point in time, we also took the opportunity to renegotiate our contract, and are currently set to pay on a per-campaign basis, with locked in rates through 2027.
As with all grantees, we reserve the right in our contract to terminate the grant early if we are dissatisfied with the impact of a grant. We have done this with other grants before, and will do this in the future for all grants which fail to meet expectations.
Aera selection processes
In the lead up to Unichain and v4 launch, we worked with Gauntlet to plan campaign strategy and operations. From an operational perspective, we sought a solution which:
- Eliminates the need for a manually-operated third party-operated multisig, which adds complexity and risk
- Enables governance to retain control of incentive funds up until the moment they are distributed
- Limits the potential uses of funds to specified function signatures, including those required to interact with the Merkl distributor contracts
- Enables bi-weekly adjustments to campaign strategy in a streamlined, dynamic manner
We surveyed the options:
- Manual execution. It is possible to execute these campaigns manually - however for a campaign of this scope, we believe a more programmatic solution can significantly reduce risk and inefficiency.
- Alternative decentralized asset management solutions. The alternatives we explored would all require some level of customization to fulfill our criteria. This customization would generally require audits and add additional complexity without added benefits.
Aera works for our use case out of the box, and after our due diligence, we determined it would be best suited for our needs here. We are not paying any fees for the use of Aera.
On the use of one vs. multiple incentive distribution providers
We believe using a singular provider best enables our ability to achieve the stated TVL and volume targets, as a solo provider:
- Ties accountability for achieving the benchmarks to one party. Spreading accountability across multiple parties reduces our ability to hold any single party accountable to achieve the stated impact metrics. As a reminder, Gauntlet will publish a Dashboard with live campaign data one month after launch for the community’s review
- Minimizes coordination costs and operational complexity for a task that has a fair degree of each
- It enables the creation of a single, comprehensive strategy, which we can iterate upon over time based on our learnings more easily than with multiple concurrent strategies
We do recognize there are many ways to deploy incentives, and that there are many talented teams that do so. We are already experimenting with other forms of incentives. For instance, we are using Conditional Funding Markets to fund grants that allow lending protocols to design their own incentivization programs. We expect to do more of these experiments in the future, are open to suggestions as to what those might look like, and would look forward to working with other talented organizations in our ecosystem to execute them.