Summary: With the October 13th, 2021 deadline approaching for the end of the current farming rewards period, the DAO needs to determine how long to extend rewards for, and how much to reduce rewards by. During discussion/ideation there was no interest in increasing rewards, so this proposal focuses on reduction.
Motivation: Incentivizing Liquidity Providers (LP's) through farms at this stage of the project is still important because FOX does not yet have a broad centralized exchange presence. A broad centralized exchange presence carries several benefits:
- More liquidity to buy/sell against (deeper depth)
- More locations to buy/sell
- More daily volume due to arbitrage options between exchanges
- More exposure
Through incentives for LPs, FOX is able to bridge the gap regarding most of these benefits without the immediate need for centralized exchange listings. For now, we want to focus on the first item, liquidity.
Abtract: As mentioned earlier, FOX has $23.5 million of liquidity on Uniswap. When determining liquidity provider rewards, it's important to consider how it will affect the total quantity of LP. A reduction in LP rewards will almost always result in a reduction in total LP. As LP's review their positions and the rates of return on the pools they're providing liquidity in, they move their liquidity in order to obtain the best rewards with the least amount of risk possible. Due to this, it's important to carefully consider any changes to rewards as they could have a negative effect on total liquidity. Since FOX is currently not listed on any large centralized exchanges, a sudden loss of liquidity would be damaging.
A 50% reduction (for example) of LP rewards, could result in a 50% reduction in total liquidity provided. In reality, the reduction is usually less than the rewards reduction due to several factors:
- Dedicated holders will take any reward, at any risk, because they are so dedicated
- LPs may forget they're providing LP, so it will just stay provided through thick and thin
- LPs may be speculating that the coin price will increase, so they will continue to provide LP at lower rewards
Since FOX has only provided one series of LP rewards, we only have a single data point to look at for this specific project. This does leave us in a position where we're making an educated decision based on minimal data points, but there is no way around this at the current state of the project. If this proposal passes we will obtain a second data point to use for future LP reward forecasting and decision-making. That should lead to more accurate decisions in the future.
Through input from several members of the community, and based on additional polling, the majority of the community appears to support a reduction of farming rewards by 33%. Current farm rewards are 175,200 FOX per day (15,768,000 FOX spread over 90 days).
Similarly, several members of the community discussed and polled during the discussion/ideation phase indicated support for an extension of farming for a period of 9 months. After further discussion, it was determined treasury does not have enough FOX to support this spend currently, so the proposal is to chop the period in half and go with a 4.5 month farm duration.
This results in a new daily FOX expenditure of 117,384, with a total FOX expenditure of 15,846,840 for farming.
Math
Current daily FOX farm rewards: 175,200 FOX
Proposed reduction: 33%
New daily FOX = 175200 * .67 = 117,384 FOX
Proposed timeframe: 4.5 months (135 days)
Farming FOX Required = 135 * 117384 = 15,846,840 FOX
An additional 35,000 FOX will be allocated to FOX developers in order to create, audit, deploy, and configure the next staking rewards contract.
Total Fox Required = 15846840 + 35000 = 15,881,840 FOX
Benefits
- FOX maintains adequate liquidity for market participants to trade against on Uniswap V2
- FOX continues to gain investors and attention driven by liquidity and volume on Uniswap V2
- FOX avoids a potentially damaging drop in liquidity suddenly, should rewards completely expire
Drawbacks
- It is a large quantity of FOX
NOTE: If the FOX is not needed for engineering to deploy the contract, it will be returned to the DAO.
Vote
For - Extend FOX LP rewards for a period of 4.5 months with a total of 15,881,840 FOX, at a rate of 117,384 FOX per day, including 35,000 FOX to set up the farm.
Against - Do not extend FOX LP rewards at this time.
