Prop 390: Reduce incentives on established Major and Stable category pools
- By voting YES on this proposal, OSMO stakers voice their support for a staged reduction of emitted OSMO incentives to the Major/OSMO and Stable/OSMO to defer inflation as outlined below.
* By voting NO on this proposal, OSMO stakers voice their dissent to a staged reduction of emitted OSMO incentives to the Major/OSMO and Stable/OSMO to defer inflation as outlined below.
## Details
Previous incentive reduction proposals have reduced the emitted quantity of OSMO to all pools. Proposal 364 put this staged reduction in to the hands of a working group who have continued to reduce emissions down to 50% of standard. This was carried out slowly as the required hurdle rate of pools adjusts with market and liquidity changes. Several of these pools, notably the WETH, WBTC, CRO, USDC and DAI pools have had high incentives compared to their hurdle rate and have never been a factor in choosing whether to proceed with the reduction due to being excessively incentivised compared to comparable rates.
Monitoring the OSMO/MAJOR and OSMO/STABLE pool GAMM levels shows that very few liquidity providers have left these pools, however new liquidity providers are not being attracted. Meanwhile, the high inflation of Osmosis is causing token value to be diluted resulting in impermanent loss in all pools as can be seen by the paired tokens in the pools decreasing faster than the GAMM tokens representing liquidity provided.
Liquidity Provided to OSMO/ATOM vs ATOM Token Liquidity
Liquidity Provided to OSMO/USDC vs USDC Token Liquidity
Liquidity Provided to OSMO/WETH vs WETH Token Liquidity
Liquidity Provided to OSMO/WBTC vs WBTC Token Liquidity
This proposal aims to set the incentive rate for all established Major and Stable pools to be approximately the comparable staking rate of each half of the pools, or the OSMO staking APR, plus a 5% premium to account for impermanent loss, at the current liquidity levels.
This aims to be a preliminary step to reduce inflation of the OSMO token until target liquidity levels can be set and further measures to reduce overall inflation can be implemented.
This results in only significant changes to the OSMO/MAJOR and OSMO/STABLE categories with the following estimated effect on APR:
APR Chart
Which compares to the comparable staking rate as follows:
Comparable Rates
## Current allocations
Community pool share of OSMO LP Incentives: 50%
Leaving 50% emitted to Liquidity Providers - 123,288 OSMO/day
Current category shares
* 45% OSMO/MAJOR - 60,966 OSMO/day
* 30% OSMO/STABLE - 40,644 OSMO/day
* 14% OSMO/MINOR - 18,967 OSMO/day
* 2% OTHERS - 2,710 OSMO/day
* Up to 4% Stable/Stable
These are further normalised to 100%
Current Minimums
* 9 OSMO/CRO: 3%
* 704 OSMO/WETH: 10%
* 712 OSMO/WBTC: 10%
* 773 OSMO/DOT: 0.5%
* 789 OSMO/MATIC: 0.5% with 4 week sunset
Current Maximum
* 1 OSMO/ATOM: 25%
## Proposed Allocations
Community pool share of OSMO LP Incentives: 70%
Leaving 30% emitted to Liquidity Providers - 73,973 OSMO/day
Proposed category shares
These are normalised to 100% if the Stable/Stable allocation is not used:
* 54% OSMO/MAJOR - 39,945 OSMO/day (-21,021, or -34%)
* 17% OSMO/STABLE - 12,575 OSMO/day (-28,069 or -69%)
* 25% OSMO/MINOR - 18,493 OSMO/day (-474 or -2.5%)
* Up to 4% Stable/Stable
The OTHERS Category is being voted on removal in Proposal 389. If this proposal was to be rejected then the 2% allocation would retain the OSMO proportionately according to the category shares. However, this change is modelled with that proposal succeeding.
Proposed Minimums:
* 1 OSMO/ATOM: Removed
* 9 OSMO/CRO: Reduced to 2%.
* 481 OSMO/EEUR: 0.5% added.
* 674 OSMO/DAI: 3.5% added.
* 704 OSMO/WETH: 10% maintained.
* 712 OSMO/WBTC: Reduced to 8.5%.
* 773 OSMO/DOT: 0.5% maintained.
* 789 OSMO/MATIC: 0.5% with existing sunset period from Proposal 386
Proposed Maximums
* 1 OSMO/ATOM Increase to 35%
* 678 OSMO/USDC Addition of 13%
## Implementation
This proposal is an incentive adjustment proposal with the listed new Minimums, an increase in the Maximum for Pool 1 to 30%, an increase of the Community Pool Share of incentives to 60% and the ratio of category changes halfway implemented.
The second increase of the community pool, final category rebalances and the other changes to Maximums would be implemented in the routine incentive proposal dated the 26th December 2022, taking effect on the epoch of the 1st January 2023.
Commonwealth Thread: https://commonwealth.im/osmosis/discussion/8542-reduce-incentives-on-established-major-and-stable-category-pools