[Finished] Liquidity rewards program v2

yes, we do not have whale type money. Main point was the pool should not viewed like the staking pool. Rather a way I look at it is the liquidity pool is your IRA for long term growth. Look to staking rewards for gains yearly or so.

Agree though!

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It’s not so much about sacrificing for the greater good as it is protecting your investment. You’re not paying, you’re just providing liquidity, which you can still cash out. Impermanent loss is a factor, but not a great risk, since you can usually wait it out.

Providing liquidity to hedge against price falls while still getting a return is better than getting a higher return in a market where no one is providing liquidity. In that case, it’s more risky to put it in the staking pool. Not to mention, if most people provided liquidity for rewards instead of Node Pool, price would be more stable, and likely increase to yield greater returns than Node Pool.

I don’t like coming at it from a profit perspective, but I do get that it is something to consider. I just think it’s a misconception that Node Pool offers higher returns. It does so only nominally.

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I can understand that, but I feel like if there isn’t a bigger incentive to provide liquidity, Impermanent loss can be more of a factor. And your right that it would be more risky to stake if there is no liquidity, I imagine it will balance out to an equilibrium.
It’s also beneficial to the platform and the stability of PRV if people provide. The real problem I was trying to get at, would be to attract bigger investors. Currently I don’t see investing in liquidity as something bigger investors would want to do. You have to trust that the incentives will bring in more people, but to me at least, it doesn’t seem like it will. We want more money in the pools and to get that we need to cater to these individuals.

At the end of the day, impermanent loss is a risk. Owning PRV is a risk. I supply for liquidity because at least I can cash out (hopefully) half of my investment in crypto if things go bad. However, the odds are if I cash out, I will get hit with losses, as an investor, that’s not what I’m looking for. I need something else to mitigate that risk. If I stake however, I’m just worried about the value of PRV. The only losses I would have is if PRV devalued.

I rather have more people in the liquidity pools then staking, but I don’t think that’s going to happen in this scenario. You need to add something to give users more of a reason to provide then to just stake. Just saying it’s best for the platform doesn’t seem good enough to me. Sometimes things happen to investors and they need to liquidate. If I have my money in liquidity I have more of a chance of taking an L then staking.

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I get what you said, what you meant is that we need to incentivized ppl to bring more users to provide liquidity. Maybe the incentives are not much but it would bring a lot of benefits for Incognito platform. If there is no incentive, it will take a lot of time for Incognito team to pitch or attract users by itself which is time-consuming and non-efficient. I guess the best way is to figure out the incentivized system which can help Incognito maximize results and it can be measurable.

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@aaron, ultimately I agree with you. I shared a similar sentiment awhile back. But I think the problem is, how do you convey that concept to investors?

Those hidden benefits are not explained when users provide liquidity; they’re not even really implied. Rather, it’s a conclusion that takes time and thought for people to arrive at. All potential liquidity providers see are the upfront numbers. And those numbers are not exactly easy to calculate (not as easy as an APY anyway). I saw some confusion from people trying to figure out the rewards for the new liquidity program. Many do not find it as intuitive (and as inviting) as a 37% APY.

I think what @Revolve and others are saying is the visible reward itself, the reward that everyone sees and uses to calculate a return, must communicate and properly weight the importance of liquidity by clearly incentivizing the behavior over others.

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I’m not opposed to non economic incentives. For example you can incentivize people to add liquidity by giving them voting privileges. Maybe you can incentivize people by creating a lottery pool (No Loss)
Who knows…

Economically you could incentivize people by raising their standalone PRV staking reward % slightly.

There are many options that don’t necessarily have to break the bank that I think we should explore. Improvement is always better, especially if it attracts new providers.

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It’s hard to say Invest in this, when people don’t fully grasp the dynamics of the platform. You want the platform to work it’s magic without users having to fully understand. Sure it’s better if they did, but unfortunately most people don’t look that deep into it. Especially if your trying to attract money from lots of people. If you want people to do whats best, you have to incentivize them to do so. This creates more reliability in people doing whats best for the network, which in turn gives them better reward stability.

So yes, you need to convince people to do the right thing by giving them something flashy, but not flashy enough where it hurts the economics of the platform.

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@Revolve the voting right sounds reasonable. As everyone wants to participate in making decisions, contribution to the project is a good measurement of the voting right. Going to research around this idea.

With the current liquidity, the reward program gives liquidity providers two times higher returns than average liquidity providers earns on uniswap (with $25M in liquidity pools). And you guys still say that it should be significantly higher.

So I assume that greediness is the main factor here and higher rewards will not bring many benefits.

We build not just liquidity pools for the trading PRV. We build a privacy ecosystem when people can buy and sell any kind of crypto confidentially. So focusing on maintaining only a particular pair is the wrong direction.

I didn’t say that it’s bad that people earning money by powering network. I think it’s even good that people bring value to the project and get mutual benefits back from the network. It’s not a secret that early adopters of bitcoin and ethereum accumulate the most benefits of the network success.

The same time what I am trying to say is that if the network is just 7 months old, there is no place for conversations like “staking pool gives me +3% more so fu*k the liquidity pools, I am going to maximize my PRV” - this is wrong.

Conversations should be around "what should and what can we do to make the network stronger, and steadily growing, acquire people who want to buy and sell crypto privately, generate strong utility for the project, and so on.

Yep. Everyone who is committed to the project should understand this. People who is not interesting in privacy will leave the project anyway, so as sooner it will happen as better.

Thanks @Tryche!

I’ll just repeat, to have an intention to get benefits from the network it’s not bad, as far as you bring value to the project and helping project to grow.

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Looking at the liquidity pools over the last 7 days, I see a 8% decrease on the stable coin pools usdt, dai and usdc

It seems like liquidity providers are pulling liquidity out of those pairs.

Having been in a few different networks in crypto over the years, it’s clear to me that most are designed to use “greed” and game theory to maximize certain behaviors.

Crypto is mostly about economic incentives and is very risky so people are naturally focus on managing that risk by gaining maximum rewards.

So i think putting in mechanisms that take advantage of economic incentives is important. Certainly people want to protect the network, but big players, especially liquidity providers look closely at rewards vs risk when putting in capital. I don’t think people should be angry about that, but instead use it to our advantage

The biggest risk for liquidity providers is impermanent loss. Price has to stay relatively stable for that to be minimized, but if not they have to be rewarded in a way that exceeds that loss

Reducing risk on the prv side of the pair but increasing it on the non prv side of the pair is a bad bet for liquidity providers, because the risks don’t overcome the rewards

So that is why I think we are seeing people remove liquidity in big amounts lately. The risk (plus network risks) are likely too high for some

I think the voting is a good idea.

If liquidity providers who are delivering the most benefit to the system have a say in network decision making then they will feel more confident in knowing that they can protect their investment

They are in the hook for the losses as well as the rewards so that’s good.

If they can help set priorities for the network and direct focus on projects that are going to get incognito more integrated into the overall ecosystem I think they wold go for that.

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I think there should be a “tiered rewards structure for staking and liquidity”. This way the more invested the more they make, the less invested the less they make.

Fair is fair. It’ll balance itself out.

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@andrey
I don’t think it’s about the rewards, I think it’s more about the Incentives. The rewards can be good, but if you don’t see other people investing in the project, your going to pull out. Right now, at face value, it looks like providing liquidity is slightly less profitable then staking. You have to hardcore believe in the project long term to want to invest in liquidity. If your not sure about it, and decide to take out early, your probably going to take an L from impermanent losses. The risk is to high.

It makes sense that we are losing so much value in PRV rn. People don’t see “Supporting the network” as a good enough incentive, it was a risk to begin with.
It seems more like voluntary growth promotion, which doesn’t work. Just like voluntary taxes in the Articles of Confederation. Sure you get benefits, and it’s better for the network, and better for you in the long term, but If there is no safety mechanism in place to attract more people to it, why would I invest.

I’d also like to mention, that this is a big change in the dynamics of the system. It may not seem like it, cause the underlying principle is the same, but obviously it’s big enough for investors to want to pull out. If investors feel like this came out of the blue, they aren’t going to trust that the network has their best interest at heart.

You have to incentivize people to do things like make the network stronger. You can’t leave it to choice, makes things unpredictable and not worth investing.

I feel like mathematically, right now things should work,
but that doesn’t mean investors want to invest their money in it. There’s other elements at play. Right now, the system isn’t inspiring confidence and that’s a problem.

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I believe providing liquidity actually provides a fair return on investment. For example, say you have $1,000 available, but can really only afford to lose $500. You can buy $500 worth of PRV and keep the other $500 in USDC and Invest/Provide Liquidity (and receive 62.5% APY and 8% APY respectively). Investing/Providing Liquidity allows you to diversify your assets in this way. Considering USDC should always maintain its 1 coin = $1 value, there is no risk on your USDC investment. My plan is to hold as much PRV as I feel comfortable with, then back it with cash (i.e. USDC).

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Aren’t bonuses only provided on one side of the pair?

Only for prv?

That’s what was changed recently, I think.

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You no longer get the bonus rewards on USDC, you only gain on the PRV side of the pair.

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Yes, that is correct.

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It used to be 62% on both sides of the pair, correct?

Right now it is (unknown apy) for prv
No reward for other side of the pair

And rewards are fixed (from a pool) and are no longer unlimited I think

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62% and 8% (give or take),
Currently it’s only 62% rewards overall only on the PRV side.
The rewards are fixed from a pool.

If you don’t know that you want to invest long term, it’s potentially better to stake, as taking out liquidity in the short term gives you a higher chance to suffer from impermanent losses. However overall it’s better for you and the network to provide liquidity as it stabilizes the price of PRV. Unfortunately, the incentive to provide liquidity got reduced which I would say isn’t the best to increase the amount of providers.

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Thanks for this .

Yeah the impermanent loss issue is a big one.

Not having the rewards on the other side of the pair makes things harder.

There’s competition for market makers and bancor (no impermanent loss) and curve (limited impermanent loss) are also alternatives

If the team is continuing to tweak the liquidity incentives they might want to look at that those groups are doing.

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Someone once said there are two main driving forces to the market: fear and greed. Yes, there are other forces at play, but by far the most influential are fear and greed. Markets rise and fall based on these two emotions. In this regard, cryptocurrency, and therefore Incognito, is no different than any market.

We don’t have to look far back to see this reality. Coronavirus scares caused the stock market to crater. Even cryptocurrencies lost a ton of value–at least at first. People were scared, and that directly affected the markets.

Even in the microcosm of Incognito, we don’t have to look that far back to see the effects of fear and greed. When Incog first started the staking pool at 57%, we saw a huge influx of staked PRV. And when the original liquidity rewards program first started, liquidity skyrocketed. That’s largely greed. To wit, if Incognito offered 1% APR, no one would play. Now, with the liquidity program changing, we see a lot of retreat. That’s probably fear.

If we really stop to think about it, the whole premise of Incognito is based on fear and greed. The basic mission statement is to bring privacy to all crypto-related activities. But why do we need privacy? It’s because we’re afraid. We don’t want everyone to know our finances. And it’s because we’re greedy. We don’t want someone trying to take a cut of our money, and we want our money to work as hard as it can for us. To call users greedy because they want higher returns–it’s as insulting as it is accurate. But don’t forget that fear also plays a huge role. And when an APR turns into more of an MPR, a monthly percentage rate, because the program doesn’t last a year, the market will surely be affected by fear and greed. To survive, the platform has to adjust to these universal driving forces of human behavior–to incentivize the correct behavior.

So all we are really saying is, liquidity doesn’t have the incentive it deserves, especially compared to some of Incognito’s other offerings. We can debate all day the philosophy behind it, but the fact remains, here is the effect of fear and greed:

Capture - Copy (2)

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So then, in line with the liquidity tiered structure (which provides an incentive), if a person does not provide liquidity for any pairs then staking APY is like 20%.

If your account has $100 in staking, then if you provide $50 in liquidity (so $150 invested overall), then they are automatically tier level 2-you get say 25% APY staking, etc.

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