Buy crypto anonymously on the Incognito pDEX   

Liquidity program suggestion for stability

#1

We can all agree the current model of deposit and withdrawal of liquidity needs some tweaking. Having the entire pool eligible to withdraw at any time promotes run on the bank mentality. With no Penalty for cashing out the system one large withdrawal leads to panicked responses from other liquidity providers.
I suggest the liquidity program institute a timed withdrawal policy, where rewards increase in proportion to length of time you agree to provide liquidity.
Almost along the lines of a crypto CD.
The CDs should be formulated as to reward long term investment and penalize those that want to hop in and out as they please as this destabilizes the pool.
Terms should be laid out ahead of time so investors understand the process before they jump in.
There could be various time rewards for CD crypto pairings. A daily rate, a weekly rate a monthly rate ect…
Withdrawals before the agreed time would draw a reward penalty.
The lowest rate should go to the liquidity providers that choose the option of instant withdrawal.
First level- Under 24 hours gets no reward
The next level -Daily ( 24hr + 1sec) withdrawal would be paid smallest reward
The next level - weekly (168 hrs + 1sec) withdrawal option with reward paid end of week for
The highest rate should go for those that choose to provide liquidity for 4 weeks(672 hrs + 1sec).

Crypto liquidity CDs would auto renew at end of term unless the CD owner elects to not renew.

There can even be a limit of how much of the pool comes from each CD tier. Imbalances could be forestalled by limiting the amount of new investment one tier or another
Thoughts?

9 Likes
#2

Additionally the size of the liquidity pairs could be pre set, this could lead to CD units that could be traded?
Just spitballing here…

3 Likes
#3

Hmm, I feel like putting a timed withdraw sends the wrong message. We already have a part of the platform that can take a while to do (unstaking). I rather have control over my money at any given time. In my opinion staking seems like the path for longer term investing, but I guess providing liquidity is in the same realm.

Penalizing people for other people pulling out might not be the best move. I’m not saying it’s a bad idea, if this change was made I would welcome it. Personally I prefer rewarding users. If someone takes a large amount of liquidity out, the liquidity you provide is inherently worth more to the network.
-Low liquidity should give you more rewards (More important to the network)
-High liquidity should give you little rewards (Less important to the network)
When users take out liquidity, people providing should see an increase in rewards. If more people provide, the rewards should decrease accordingly. This would also help balance out the liquidity between the various pools. People would see this as opportunity.

Exchanging with PRV:
If people want to exchange PRV for another coin, if the liquidity pool is low, the transaction fee in PRV should increase to reflect that. If the liquidity pool is high, the transaction fee in PRV should be much lower.

What should the rewards be?
Instead of calculating rewards weekly, maybe we should tweak staking numbers. Depending on how much liquidity you provide, your rate on staking PRV could change. This would promote even more PRV being locked up and large PRV holders are encouraged to provide liquidity to increase their rewards.
This system would allow stakers to effectively control their risk profile. If they want higher profits, they have to provide more for lower liquidity pools.

What should the numbers look like?
Well, if we make it a direct relationship, people could dump a decent amount of money in low liquidity pools increasing their staking rate. They could then stake a huge (like huge huge) cash stack and see massive returns. This may not be ideal.

Their should be diminishing returns, the more liquidity you provide, the higher your staking rate, but if you keep providing more and more liquidity, the added increase should get smaller and smaller.

For example:
If I provide $5000 total in liquidity, depending on the size of the liquidity pool, (the % amount of the pool that I own/contribute), determines my staking rewards increase.
Each consecutive $1000 (or whatever value we decide [using easy numbers]) lowers the multiplier.
-First $1000 provided = 4% increase
-Second $1000 provided = 2% increase
-Third $1000 provided = 1% increase
-Forth $1000 provided = 0.5% increase
-Fifth $1000 provided = 0.25% increase
Overall with my $5000 investment, I get a 7.75% increase. If the liquidity pool shrinks, the percentage ownership I own of the liquidity pool will increase those numbers. If the liquidity pool increases, my ownership decreases, which lowers those numbers.

I was just thinking out loud, what do you think?
It doesn’t have to be exactly half, and the number doesn’t have to be that high or low. It was just proof of concept.

4 Likes
#4

I had thought about variations of what you were talking about. One very simple thing that can, and should be implemented. A minimum period of time for your funds added to the liquidity pool to remain “locked” in the liquidity pool. This will mainly provide a bit of stability but still help. Also yes, allow early withdrawal. However if its before your “lock” period you pay a fee of say 10% like an IRA would for early withdrawal.

It may not even be a bad idea to add a minimum deposit amount to the liquidity pool? I do not mean anything drastic by any means maybe $500.00 total? $250 between each of the 2 pairs you want.

3 Likes
#5

Ok…I read all the posts from Silvercaps to Revolve to Tryche…you all made very good suggestions and arguements for the various ideas you presented. I definetly agree with some sort of locking in mechanism, a fluctuating reward level or percentage based on amount of liquidity in the system and amount invested by the individual. Making minimum levels might work against us…some folks might not have as much as others and therefore would be left out of liquidity pool investment and yes there should definetly be penalties for early withdrawls…I look forward to seeing what perhaps you 3 are able to hammer out for the community… :grinning: :sunglasses:

2 Likes
#6

Great ideas!
I like the tiered approach. However I think having set fiat values as a tier requirement might put off new adapters. Crypto should innovate for all levels of investment. Being excluded from a higher rate because one can’t afford to invest that much is old school to me.

If a unit system could be created where the units are a a set minimum value: 10PRV + p( any coin), we could allow every investor to get maximum return on based on their willingness to keep their pair locked up rather than getting best return for having more money to invest.
I could buy a 10 PRV + pBTC pairing , which is tiny amount, but that “unit” could earn top tier if I chose to keep it locked in pool for maximum time.
That way people with a lot of money to invest can do so at Top Return rate for units and people with limited funds can get in the game.
This would encourage use of growth because small amounts are not penalized
And this would encourage whales To invest in a structured system.
And as we are using units with a certain minimum value we can call it Quantum investing!

3 Likes
#7

My only piece would be to say, don’t dock anyone anything, but instead incentivize longer investing etc. positive reinforcement rather than negative, especially at the beginning of this project.
The minimum would allow super low returns, the longer it is in there the higher the return automatically. No locking, instead an auto timed change.

You want to pull it out, fine.
Keep it longer, good.

3 Likes
#8

So for not penalties we could try system of increased tiered rewards:
You create a liquidity pairing
It earns lowest rate for first time period <x days
It bumps up to higher rate after ( x ) days
It maxes out to highest rate after 4(x) days
After 4x days It will earn this max rate until it is withdrawn

This would provide incentives to keep pairs in pool.

3 Likes
#9

Well I was thinking that if you put in to the liquidity pool, what matters most is your first $1000, or whatever value we decide. That would already be most of the increase. Just by adding some money to the pool, your already way better off then you were.

It would incentivize people with less money invested, to still want to invest in the liquidity pool, while at the same time making people with lots of money still have a profit/reward advantage over others.

4 Likes
#10

I wholeheartedly support a tiered structure like this. Really, the biggest problem liquidity faces is centralization: a few individuals control the majority of the funds. This is not healthy. If the system could incentivize everyone to contribute some amount of liquidity (like $2,000 or whatever), that would help decentralize the liquidity pool and make things way more stable.

6 Likes
#11

Ok so no penalities I can see the logic behind it…but indeed there has to be decentralization of the pool for the last thing we need is a couple of whales taking over the liquidity pool and thereby taking too much control then of it and thereby that control spilling over into the rest of the project

1 Like
#12

Here is my full vision of what I see for changes to Liquidity Pool applying a variation of Sivercap18 thoughts

Here is the Interest Rate for 3 tiers of Liquidity Pool investors I picture

$100.00 to $500 USDC = 40% APY (for 30 days, Increase by 2% for 60 days, 2% for 90 to 180 days, 3% So up to 7% bonus added to the 40% for 47% total APY)

$500 to $2,000 USDC = 50% APY (for 30 days, Increase by 2% for 60 days, 3% for 90 to 180 days, 5% So up to 10% bonus added to the 50% for 60% total APY)

$2,000 and Up USDC = 55% APY (for 30 days, Increase by 4% for 60 days, 4% for 90 to 180 days, 5% So up to 13% bonus added to the 55% for 68% total APY)

I am not a mathematician, or economist, those numbers are for examples. I also feel the added maximum 6% APY increase if $2,000 or more is locked in the Liquidity Pool for the minimum 90 days.
Do not offer interest earning on each pair, or if this is how it works, just simplify it by one total APY % return.

@Jerry_Watson @Tempestblack No penalties, okay. I can of course handle this. What about an “Incentive” to not withdraw Liquidity before the “lock/Stake” period is the ability to take a loan against their Crypto?

4 Likes
#13

Hmm…now Tryche there is an idea indeed…incentive to not withdraw liquidity before “lock/stake” period is done by giving investor ability to borrow against their crypto…might work…but no interest against the loan they would make against their own crypto cause if you are going to charge them interest for borrowing against their own crypto that is currently locked up I do not believe they would go for that