Hah, @Mike_Despo! I am also writing a devil’s advocate argument. That’s funny.
So, playing devil’s advocate, is providing liquidity such a bad deal? And should it be seen as less than staking, or more as a symbiosis?
First, Incognito’s rates for providing liquidity are competitive with, and sometimes beat, the competition. Assuming the APR in Andrey’s calculator holds true, the return for liquidity providers ranges from 16.5% to 24% APR. On the low end, this competes with Crypto.com (CdC) rates, the highest of which are 12% on USDC and 18% on CRO. And that is just on the low end of liquidity rewards. On the high end, 24%, the liquidity returns beat CdC’s highest rate of 18%. In this regard, Incognito is very competitive.
Second, saying our non-PRV coins are just sitting in liquidity doing nothing is untrue. The whole pair is effectively earning the 16.5-24% return. An investment of 50k PRV and 50k USDT at 19.5% or higher is still better than the equivalent value of CRO held at 18% on CdC. The argument that the non-PRV half of the pair is just sitting there is inherently false.
Third, thinking of staking as a stand-alone and more lucrative investment than providing liquidity is flawed logic. The two are very much interlinked, and we can see this with the current liquidity dump and devaluation of the currency. It is true we can stake at a higher percentage, but if the liquidity and PRV price falls, then our stake is doing nothing more than earning a ton of a devaluing asset that we can’t trade. Our stake is worthless if there is no liquidity. Thinking one type of Incognito investment is better than the other misses the point that they are interdependent.
Fourth, we absolutely need to think of the value of PRV in our investment decisions. When I first started, PRV was worth between 30 and 50 cents. Over the course of a couple months, it skyrocketed to 85 cents. Just in price alone, my investment had basically doubled. This price is especially important when we compare assets at other competitors, such as CdC. CRO has gone up dramatically in the past month, shooting from around 5 cents to now 10 cents a token. PRV needs to continue to perform similarly in order to stay competitive; it has proven that it can, and we should engage in behaviors that ensure our own growth.
Finally, in our calculations, we shouldn’t forget that we can reinvest liquidity rewards in 37% staking. We can take advantage of both types of investment. In a way, this means we can compound our rewards at a 37% APY–which we can’t do at CdC (or anywhere else I know of). Sure, you can reinvest in more Earn vehicles at CdC to effectively compound your earnings, but not at 37% continuous APY. This reinvestment strategy in staking will surely help make up for the lower liquidity rewards and should be incorporated in to our calculators.
Now this isn’t to say the new liquidity program doesn’t have problems. Impermanent loss and the current selloff make the new program more risky. And I still believe the incentives need adjustment for long-term health. I just think that, despite the decrease in liquidity rewards, the program is still very competitive and still worthwhile-- especially when viewed as part of a bigger ecosystem.
So, as devil’s advocate, I think we need to recontextualize this new liquidity program. We shouldn’t see it as a stand-alone investment, but as part of the overall Incognito portfolio. It’s not charity. It’s part of securing our entire investment. Remember, if liquidity drains, price plummets, and the market floods with PRV, our stake is worth nothing. Splitting our funds between liquidity and staking may seem like a sacrifice to the stability of the system, but in reality, it may be a bolster to our overall returns.
As such, I think we should all put at least some amount into the liquidity pool–not just with the health of the system in mind, but also the health of our own investments. We should do this now to stop the hemorrhaging.