Liquidity v.2

Hey guys,

We’ve been thinking a lot about how we can improve the current liquidity providing experience, and what Liquidity v.2 on the pDEX could potentially look like. I’d love to have your input.

Tech

v.1

We currently have two options to provide liquidity.

1. Add - when you directly interact with the chain and contribute both sides of a pair.

Incognito-ADD

2. Provide - when you contribute single currencies through a more complex flow.

Incognito-Povide

Both options have their own pros and cons. In pDEX v.2, we hope to combine the best of both worlds.

v.2

Here, we’d see Add and Provide combined into one:

  • Provide single-sided liquidity (as you currently do via Provide)
  • Interact directly with the chain (as you do via Add)

Sustainability

v.1

Back in April - June, we ran a LP campaign that incentivized liquidity providers to provide both sides of a pair. Rewards were calculated according to total locked liquidity. The UX was difficult, the program was convoluted, and providers suffered from impermanent loss.

From July, Provide was launched, allowing providers to contribute single currencies to pDEX liquidity, with rewards calculated automatically based on the type and amount of coins provided. Users are guaranteed the full amount of their initial investment, and are protected against impermanent loss.

While Provide is for most people, an improvement over the original program, both initiatives are not sustainable forever and require continuous topping up of the rewards fund.

v.2

For liquidity providers, we are considering options in 2 broad directions:

Direction 1: Distribute liquidity rewards as a percentage of block rewards – for every block mined, a percentage will go directly to liquidity providers.

Direction 2: Create a dedicated pDEX token to be distributed among liquidity providers based on the duration and amount of funds contributed to the pools.

Which option is more attractive to you, and why?

Governance

v.1

pDEX currently does not have governance in-built.

v.2

Liquidity providers could determine trading fees for the pair they contribute. If a pDEX token is created, they could use it to participate in making decisions regarding pDEX infrastructure and governance.

Growth

v.1

Currently, the only way to access pDEX is from the Incognito app.

v.2

Work on the necessary infrastructure to allow any crypto wallet to integrate Incognito DEX.

As with everything we do, pDEX is a work in progress. Looking forward to hearing your thoughts!

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Direction 2 sounds like it might have less impact node operators. Direction 1 sounds like it would take from the reward pool and the percentage is not defined and would mostly change to maintain sustainability.

I think allowing the fees to be selectable on the shielding and/or unshielding flow should be defined by the governance process.

I would like to see the voting rights be a formula of time and amount of liquidity.
I am not sure if unbalanced pairs are allowed, but if so then the external crypto should be the value given importance to for the governance vote.
In that way someone could not dump funds in short term, alter the fees, skew the price and then take the profits leaving long term pair providers with no incentives.

It would be helpful to have more details on these directions and adding options for them to have a clear understanding of the intent and potential variations.

Thank you for sharing what is being discussed.

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Thanks for the input @fitz_fiat I’ll add more info once I add to have more details. On the first stage, we figure out the technical possibility, what exactly can be done, and how. Will try to bring details to all questions, one by one.

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Gotta agree Direction 2 sounds much better than Direction 1. Direction 1 seems like yet another kick in the pants for Node operators. Reduce block awards to incentive pDEX liquidity, then the annual block reward kicks in and reduces awards again? Yeah, no thanks. By that point, facing at least another 8 months until the fixed nodes are removed, the incentive to run a Node will disappear faster than Chef Nomi.

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Hey @Mike_Wagner, please do not narrow this discussion to the validator rewards only; the idea is much more fundamental.

Incognito might be the first blockchain in the world with advanced tokenomic when the network powers validators, development, liquidity, etc.


@fitz_fiat @Mike_Wagner quick question: let say if we go with second option, which % of your PRV you ready to allocate to provide liquidity and earn PDEX coin instead of PRV? :thinking:

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I like the idea and if it helps grow the community, network, people using the wallet to transact, and trading in the pDex it would be beneficial in the long-term with more traffic going through it’ll produce more fees.

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Before we can provide details we need to be provided more context.

Thus it depends on what context the pDex coin serves and operations that can be processed with it.
Also with pair liquidity I would want the pdex coin to be based on the % of the other paired coin and not the PRV, if I understand your question correctly.

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Honestly? Entirely depends on timely, transparent and well-articulated details of the governance the pDEX Token would be fueling.

What is the scope of the governance? Will there be clear governance documentation? How do the Tokens grant voting rights? And in what ratio are they weighted (or not weighted) against other pDEX Token holders? What is the supply and emission rate? How often are Incognito pDEX Improvement Proposals (IpIP?) voted on? Who brings proposals up for a vote?

There are just way too many unknowns to honestly answer that question.

I’m in the project for the long-haul; especially the original vision – privacy for all cryptocurrencies. For my 2 PRV and with respect to that vision, the project seems to be wandering a bit right now. Hopefully resources can return to the original vision and shore up the ecosystem fundamentals before expanding in other directions.

Losing three months of dev time to the pKyber and pUniswap features only to shelve them shortly after launch is frustrating. Though the situation is understood to be temporary, owing to high network GAS fees, the lost dev time can’t be recovered. Chasing the DeFi dragon seems to mean work to bring other chains (basically ANYTHING that ISN’T ERC20based) to Incognito has all but stalled.

Currently if a prospective user has an unshielded asset that isn’t BTC or ETH/ERC20, they are basically out-of-luck. 5 of the top 10 cryptos by marketcap on CMC currently can’t be shielded on Incognito. If the project is truly seeking to boost liquidity and volume, shouldn’t that be the metric? Incentivizing liquidity in an ERC20 token with a market cap of a few million will generate relatively low volume vs a high marketcap asset. The number 4 crypto by marketcap has ~$10.8 billion in potential volume. Let’s enable that volume to shield/unshield on Incognito. And then the next asset by marketcap. Rinse and repeat.

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I really like this idea and I can see the long term sustainability of the project if we decide to go this route. However, I know this is going to be a huge slap in the face to current node operators, and a lot of people aren’t going to be happy if this feature is implemented. We really want to minimize outcry from the community as much as possible. Though I do like the model.

This is an interesting idea, however I am unsure where the value of this Token will come from. I can get rewarded this pDex token, but why is it worth anything? What value does it have? Why should I own it? There are a lot of questions that need answering to implement something like this. (Is the only thing we get, voting rights?)


Alternatively I think we can come up with something better and more unique. The problem we are facing is the fact that the Provide function drains money. Another problem we face is the fact that people don’t like the impermanent losses suffered from the Add feature which is completely understandable.

  • Realistically, we need to either change the system, or find a new source of income.

I’m going to completely spitball here and view Incognito as if it were a country.
(PRV Staking = Money Printer | Money = PRV)
The problem with Incognito’s Money Printer is that it’s planned to stop printing money. If we keep printing money, we just increase inflation exponentially. If we make it a finite commodity, then the value increases over time. It becomes a utility token, and it’s value is determined by it’s utility (which we all like btw). But if we keep the printer going and to manage the inflation, we start burning money as well, we start doing what every country has been doing for years.

What if users can buy up Incognito’s debt to supplement the losses from these programs. Let’s call them Debt Tokens. Users who own Debt Tokens can vote on all things regarding the Incognito platform. Another feature and utility of this coin is that they can also exchange these Debt Tokens to burn PRV in the Incognito pDex. That way the price of PRV goes up and all users who own PRV get their value out from owning the Debt Token. Obviously there has to be rules and limits on how this is done, but it might be an interesting concept to look into. I hate the Federal Reserve as much as the next guy, but a distributed decentralized Federal Reserve, idk maybe?

Maybe the Debt Token is the pDex Token you were talking about in Direction 2.

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About this issue, I think the team can easily integrate Incognito with Binance Smart Chain (BEP20). Even they can get some funds from Binance. As of yesterday, BEP20 supports Cardano (ADA), BCH, BTC, EOS, ETH (and some ERC-20 tokens), LTC, ONT, XRP, XTZ chains. They are the top cryptos by marketcap. To Binance, BEP20 has easy migration from Ethereum chain. Probably, with no or little modification to the code, the team may use its existing Ethereum smart contracts. I think the team should separate some labor on Binance Smart Chain integration. This will increase the visibility of Incognito, the shielding volume and pDEX volume/liquidity. Besides, the main vision (privacy) is kept as much as possible.

Related:

https://www.binance.com/en/support/articles/daca7c991d5f4c45a4d1083f70912515

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This is wonderful. I like it, it’s easy to provide. Hosting node is not easy for many people. PRV have value, so it can abstract some people to provide liquidity.

The second option is more like to split the value of PRV. PDex token maybe value less. I don’t think it will abstract some people.

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Option 1 should the way we choose but i have to admit it got cons more than pros so we need another solution.The fees.Privacy is a expensive thing.We have to charge %0.5 - 1 for amount to be shielded.And then pay providers Via this.Our only income is now block rewards and if its get worse we will lose lots of users i think.

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I think this is the best direction BUT we need to set up Higher fees for everything, the fees are too low. Then we can lower them if PRV price goes up in value. So everything should be sustainable and we don’t have another token.

About Governance PRV should be the governance token so people would buy for governance and price will go up helping to lower the fees.

In this way PRV price will benefit and problem can be solved. Another token is not good to have or if we want really the supply must be super low like yearn finance for example.

I would be happy to see BEP20 integration so we could save network fees from the public network.

Growth
Work on the necessary infrastructure to allow any crypto wallet to integrate Incognito DEX.

So basically making a webversion of pDEX like Uniswap!
That would be amazing for the future growth of Incognito!

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This comment is good and bad to me. For one, its good that it would streamline the process for those that don’t want to buy a node. However, the goal is to decentralize. What if Direction 1 gave a bonus to node holders? A percentage of block rewards goes to liquidity providers, but almost all node holders are included in that since we all roll our earnings back into provide for the most part. So take that percentage for block rewards and split it up. But you receive 3 to 1 rewards if you own a node compared to everyone that is simply investing without taking on the additional costs of owning and operating a node? That way, node holders don’t feel so slighted when their earnings go down as new nodes flood the network to cover for provide, and there is still incentive for people to buy or run a p/vnode. That being said, I agree with most so far that Option 1 has more cons than pros in general. Just thinking out loud here.

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This is an interesting idea but the volume on that chain hardly makes intergration valuable for none other than Binnace. Growing the pDex liquidity on incognito without the tie in serves better for long term since incognito offers an extremely unique and necessary need.

What’s the timeline on when this needs to be implemented by?

I feel like neither option is good…

1)There are already some questions if the nodes are profitable—but this is primarily because 2/3 of the rewards are reserved for the team. However if the team plans to allow more than 1/3 of reward slots to the validators, but then just takes it to pay for liquidity, it’s essentially the same thing as we’re doing now. We’re shuffling the same amount of PRV around for all needs.
2)The idea of a governance token may or may not stick around. I think it’s a coronavirus fad that will not last sustainably past the end of the year.

I believe that there is a more creative solution as @Revolve said. I don’t fully understand the idea of the debt token but creative ideas like this should be the focus of this conversation.

However, this comes at a time where the provide rewards are increasing (except for PRV)—which seems to be in conflict with incognito having a money (PRV) problem. Putting some context about when this change needs to take place would help us provide better ideas. Are we 6 weeks away from running out of PRV? 6 months? 2 years? ETC…

Thanks as always for your commitment to the project and community!

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A tweet from CZ about this:

I would like to keep things the way they are with Provide, nice and easy. Isn’t the plan for all 100 million PRV to be mined over 40 years, with the majority of it being mined in the first 5 or 6?

I understand that the APY may not be sustainable in the long term, but can’t that APY just be tinkered with as needed?

(For whatever it’s worth, I believe validators, on average, currently earn significantly more PRV than someone who is staking and receiving even the 37% APY on PRV.)

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17Strife…as to all validators on average earning more than providers I would have to disagree…it really goes on a case by case basis… as to the system just needing to be tinkered with from time to time for now there you might have a point as well… :sunglasses:

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If the validators were not chosen at complete random but some kind of weighted random where the longer it has been without a block reward gives you a higher preference in the queue. This is something a lot of POS chains do and would create more fair and uniform earnings for node validators.

Otherwise I agree with @17Strife to tinker with the provide interest rates to best suit the needs of building liquidity.

But @andrey, can you share with us the timeline this “problem” needs to be solved? Are we talking about 6 weeks, 6 months, or 6 years?

Lastly, IF a new coin was to be given away instead of PRV, it would be nice if the provide users could choose which coin they want. Users on Nexo and Celsius, for example, can choose if they want to earn in-kind or in their native token. The problem is that we’ve skipped paying in-kind or in fiat. We are already paying exclusively in PRV. This is why I don’t think it’s a good idea to introduce a second token native to Incognito. We should drive all the value created to PRV. BUT–this giving provide users the choice which token they want to earn would be my implementation suggestion.

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