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.