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.
- 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.