Volume Incentive Program

The program in Liquidity Mining Program proposes to form partnerships with new DeFi protocols that send a substantial portion of their liquidity to Serum. That program would help these protocols attract participants by offering a SRM reward for liquidity provision, with the goal of raising TVL.

As long-term holders of SRM, we applaud that effort and encourage other SRM holders to support that initiative through voting and feedback. Separately, and in addition to that effort, we propose an aggressive program to reward trading volume on Serum.

Our reasoning: there is significant volume reflexivity in the crypto space. More retail taker volume attracts more liquidity, which attracts more taker volume. Furthermore, the Solana DeFi ecosystem is still in its nascent stages, when habits/consensus are still being formed. Even zooming out to crypto as a whole, the consensus for where risk transference will occur is very much in flux.

So, it’s a great time to invest in aggressive volume incentives, to encourage new users to discover the power of full on-chain order books on Serum.

We propose the following:

  • for the next 6 months,
  • allocate 10M SRM/month to volume incentives;
  • of this, allocate 75% to any kind of volume (passive or aggressive) and 25% to passive volume;
  • this reward should go to any end wallet interacting with the Serum orderbook, whether directly, or
  • via a partner API sending orders to Serum (like Raydium, Atrix, or Almond);
  • the reward amount per month should be fixed, and allocated prorata to all participants based on their volume.
  • SRM awarded each month should be subject to a 1-year lockup and a 1-year linear vest after that, distributed monthly.

Some notes:

  • We think that 6 months is long enough for people to invest effort into trying Serum (or in the case of automated traders, building appropriate infrastructure).
  • We think that 6 months is long enough to establish habits and cement Serum’s status.
  • We think that 6 months is short enough that there isn’t overspending or an over-commitment beyond the time when emissions are no longer as critical as a tool for discovery. Governance would always have the option to extend this later on.
  • We think that locking the SRM for one year and vesting linearly makes traders earning these rewards more aligned with Serum in the long term.

As high-volume automated traders on a number of crypto and TradFi venues globally, we can attest to the power of incentives in growing volume and establishing position as a market leader. In particular, we think that the practice of issuing a large but fixed incentive pool (rather than paying a fixed amount per unit traded) is extremely powerful, since it encourages participants to compete for pro rata share. We have observed in many previous cases in TradFi that this dynamic leads to fierce competition among liquidity providers to provide exceptionally tight spreads, which then encourages natural interest and flow.

As a point of reference, dydx committed to a program to emit about 5m DYDX every 28-day epoch for the next 5 years, for a total of ~300m DYDX, corresponding to 30% of the max supply. At $20/DYDX, the emissions total 100M USD/month or 6B USD over the 5 years.

Our proposal would give out 0.6% of the max supply over the next 6 months, resulting in 80M USD of monthly incentives (at $8/SRM). That high incentive level (similar to dydx’s) should incentivize more activity on Serum, hopefully introducing many new users to Serum execution and displaying the true power of Serum’s on-chain order book.

The time to be aggressive is now! DeFi is rapidly evolving, and new token bridges such as Wormhole are making it increasingly clear that we will live in a cross-chain world. As we move into that cross-chain world, Serum is positioned to become a leading venue for risk transference of any asset (whether originally defined on Solana, or otherwise) if Serum’s governance chooses to be aggressive now.

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What is top stop well capitalised trading houses like yours, armed with MSRMS, from high volume interacting with the books, especially with the proposed reduced stablecoin fees from other thread, and scooping up the rewards?

Can this have some kind of anti gaming system employed? The dydx discussion were a bonfire of the vanities where all the big market makers just discussed slicing up the pie for themselves.

would that result in true organic growth?

I suppport an aggressive act like this, I also support Serum/Solana going out and land grabbing at this time to show the world how powerful the CLOB on solana can be, But I want this to be organic in nature and not here to line the pockets of the big players with emissions from the Foundation.

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Just want to understand better: how do you define passive vs aggressive volume? Limit vs market?

I think the idea here is to get a lot more HFT teams trading on Serum. Right now there are very few algorithmic trading teams on Serum because development is costly and it’s hard to immediately see the rewards to be gained from trading there. Although Serum boasts good liquidity, it has low trading volumes and many professional trading teams have shyed away from investing in infrastructure to begin trading on Serum. With a volume rewards program, teams would immediately see how much they could earn for connecting to Serum and be incentivized to prioritize connecting Serum rather than the plethora of other exchanges out there all offering them favourable treatment and rewards. The length of this program doesnt have to be long because once these teams are connected and trading on Serum, the continuation costs wouldn’t be as high and as long as they’re profitable on Serum, there would be no reason for them to exit.

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First time poster. I do support this idea. The only question I have: would this incentive program be more impactful if it is initiated with a rollout of Serum’s PERPS?

I like the idea of rewarding locked SRM. But if the locked SRM’s value is higher than the fees, doesn’t this encourage wash trading that pump up the volume numbers without actually getting new traders?

Serum isn’t building perps itself. With the new Asset Agnostic Orderbook (AOB), other projects like Mango, Bonfida, and Drift can build their own perps on top of Serum in the future.

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It would to a certain extent. But each trading house would have a different value for locked SRM which could vary by a huge margin since theyre locked for 1-2 years. As more teams join in, wash trading would become more competitive as teams run into each others orders. The ones with the lower expections would end up increasing their edge to capture more spreads while the teams with the highest expectations for Serum would end up capturing more tokens by trading more aggressively.
A lot of this does hinge on making only certain market IDs elegible (tricky) and that a decent number of teams could be signed on through this initially before it is dominated by one group. Having a signup process to be included in the program would also be necessary to prevent teams from actually just self transacting.

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I agree with this proposal
I prefer Volume Incentive Proposal over the Liquidity incentive program. The liquidity Incentive program is very sketchy and can be used terribly. As some have pointed out, some protocol like Atrix, which claims to put $400m TVL on Serum, actually has massive price spreads. There is no point in quoting most of the liquidity at the tail end e.g., quoting a price of $300 for SOL when the actual price is $200 as this passive order brings very little value to the Serum user because none of those orders will ever get filled.

I believe that Mango Markets has had a similar issue in the past for MNGO liquidity mining program as well where ‘large orders which are 100bp+ out are hogging a lot of the MNGO reward distributions, where they have minimal risk of being hit’

More info here Changing formula for MNGO rewards in Liquidity Mining - Governance - Mango - Governance Forum

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