SIP-254: Perps Trading Incentives

Author	Kain Warwick
Status	Rejected
Type	Governance
Network	Optimism
Implementor	TBD
Release	TBD
Created	2022-06-01

Simple Summary

This SIP proposes diverting 20% of weekly inflation to trading incentives on Perps.

Abstract

The perps contracts have now been on mainnet for several months, while the mechanism requires some improvements, which are already planned for perps V2, it is time to start incentivising trading volume and open interest. This SIP proposes to divert 20% of weekly inflation to users of Perps V1 based on trading volume and open interest. This inflation will be escrowed for 1 year and distributed monthly in arrears via a merkle drop on Optimism.

Motivation

With the recent launch of the OP token, and the growth in the Optimism ecosystem it is time to begin incentives for Perps to encourage both trading volume and open interest.

Specification

Overview

Each day at UTC 0 trading volume and open interest will be measured for the prior 24h period, a combination of cumulative open interest and trading volume will be calculated for each active address to assign a trading reward score. For each day in the month this reward score will be incremented until the final day of the month. The total inflation diverted during that month will then be assigned pro-rata. The SNX rewards will be based on actual diverted SNX in that calendar month, so some months will have different total rewards amounts depending on how many snapshots occur in that month.

Trade eligibility criteria

Only the portion of the position that remained unchanged for longer than 6 hours will count towards reward scores. This is to prevent the rewards from being distributed disproportionately to frontrunners.
Only trades below 50% OI limit (per side) will be eligible (at the trade start time) for either volume or OI rewards. This is to prevent exhausting the OI caps and making non reward driven usage impossible (DoS). For example if the ETH OI cap is 10M, only trades resulting in below 5M OI will be eligible. Each side will be considered separately (e.g if long OI is 5M already, no additional longs will be eligible for rewards, but all short trades that result in less than 5M short OI will be eligible).

Rewards collateral usage

In contrast to staking rewards, the escrowed trading rewards will not be part of the staking collateral. This should prevent the rewards from subsidizing toxic flow at the expense of the stakers (via minting), and prevent diverting the rewards from their intended recipients (incentive aligned users).

Possible additional criteria or limitations will be subject to governance decisions at the time (according to the negative side effects that will be observed in the usage data).

Rationale

The current high inflation rate presents an opportunity to divert rewards to incentives without risking a major shift in the staking incentive structure. Trading incentives will also ensure that there is sufficient volume from Perps V1 as we prepare to transition to Perps V2 reducing the time to gain traction once the new mechanism is live.

The proposed scoring system has been designed to be simple to reduce gaming but may require tweaking as we observe the empirical impact on trading.

Technical Specification

There are two components to the trading score:

Trading volume score is calculated as the percentage of the total notional trading volume by each address, for example if there were 100m in notional volume for the previous day and an address had traded 10m the volume score would be 10m / 100m = 0.1
OI score is calculated as the continuous avg open interest during each 24h period by each address, for example if an account maintained OI for 12 hours of 10m and the total daily open interest was 100m the OI score would be 12/24 * 10m / 100m = .05

Each day these two scores are combined to get an average score for the address for the day, for example the address above would get a combined trading score of 0.1 * .5 + 0.05 * .5 = 0.075