SIP-261: Add Futures Volume Program
| Author | |
|---|---|
| Status | Rejected |
| Type | Governance |
| Network | Optimism |
| Implementor | TBD |
| Release | TBD |
| Created | 2022-07-19 |
Simple Summary
A Volume Program similar to that described in SIP-132, which rewards partners for generating synth swap volume, should be implemented for Synthetic Futures. The Futures Volume Program will reward partner protocols based on the proportion of overall Synthetic Futures volume each partner generates on a weekly basis.
Abstract
Like the existing Volume Program, the Futures Volume Program should be built into Synthetix smart contracts, enabling members to track and claim their rewards through contract calls. Rewards should be diverted from the inflationary rewards supply.
Motivation
The Volume Program has been an important incentive for partner protocols in the early stages of building on top of Synthetix, and an important resource for partner protocols to fund development and incentivize behavior which ultimately benefits Synthetix stakers. Synthetic Futures, in particular, direct stakers much higher fees due to the dynamic fees imposed, and can potentially generate extremely large notional volumes due to the availability of leverage. These fees are an important source of revenue for L2 stakers, and should be encouraged. There is currently no other source of revenue for any partner protocol implementing futures, so a Volume Program will be important in attracting new integrations and encouraging a continued focus on Synthetix from existing partners.
The existing volume rewards program has been successfully incentivizing community developers and marketing initiatives at Kwenta, which result in direct returns for SNX stakers. 6,545 SNX has been used from the existing Volume Source Rewards program to fund over 100 development tickets from the devDAO, but current development work on Synthetic Futures features or marketing efforts does not directly impact partner rewards since futures are not yet included in the program.
In addition to incentivizing futures front ends, the Futures Volume Rewards program would help attract additional integrations such as partners building automated strategies or capital efficient hedges. Some such strategies, such as basis trading, help in balancing the skew and reducing risks to stakers from market exposure.
Specification
Rewards
The initial rewards for Futures volume should be 4,000 SNX weekly. Each volume program member would receive rewards proportional to the fees generated for SNX stakers from all Futures transactions. Although Kwenta is currently the partner generating the vast majority of Futures volume, it is expected that the implementation of the Futures Volume Rewards Program will attract new integrations from partners who have expressed interest in the past, such as dHedge as an option for fund managers, or Lyra as a method of delta hedging. If Kwenta, dHedge, and Lyra all participated in the program and began generating volume, rewards distribution could be as follows:
Example
If the fees generated by Volume Program members over the course of a week were as follows: Kwenta: 400,000 sUSD dHEDGE: 300,000 sUSD Lyra: 250,000 sUSD
Members would receive this breakdown of SNX rewards at the end of the week: Kwenta: 1600 SNX dHEDGE: 1200 SNX Lyra: 1000 SNX
Costs and Benefits for Stakers
Generating profit for stakers should be the ultimate goal of an incentive program, and should be weighted appropriately to avoid exploitation. Market value of incentives should stay well below the value of fees being generated on a weekly basis to avoid incentivizing wash trading or other inorganic or unhealthy volume. In the original iteration of the Volume Rewards Program, a rebate of 25% of fees was targeted. This proposal suggests a much lower target of only approximately 2.5% of historical average fees. This lower target was chosen based on the current limited number of Futures integrations, variance in Futures volume, and volatility in the SNX price. A target of 2.5% should ensure an extremely low risk to stakers while still providing an attractive opportunity to partners. A total cost of approximately 0.1% of overall inflation ensures a relatively low impact on inflationary rewards given to stakers, and room to expand the program if it proves successful. The Spartan Council may reassess the rewards based on growth in Futures volume or onboarding of partners after the program is implemented, and adjust rewards with SCCP.
Historical weekly fees and the current cost in SNX to fully rebate fees are listed below for reference. Tables generated 7/12/2022, and values will continue to change over time.
| Week Of | Fees Generated | Week of | Fees Generated |
|---|---|---|---|
| 03/21/22 | $306,114.00 | 05/16/22 | $34,502.00 |
| 03/28/22 | $273,877.00 | 05/23/22 | $91,195.00 |
| 04/04/22 | $252,587.00 | 05/30/22 | $119,739.00 |
| 04/11/22 | $373,005.00 | 06/06/22 | $524,465.00 |
| 04/18/22 | $832,577.00 | 06/13/22 | $1,766,162.00 |
| 04/25/22 | $440,050.00 | 06/20/22 | $254,266.00 |
| 05/02/22 | $62,885.00 | 06/27/22 | $418,364.00 |
| 05/09/22 | $332,553.00 | 07/04/22 | $352,401.00 |
| Total Fees past 16 weeks | Average weekly fees | Amount of SNX for full rebate @$2.48 | % Rebate @4000 SNX weekly | Current Weekly SNX inflation | % of total inflation @4000 SNX weekly |
|---|---|---|---|---|---|
| $6,434,742.00 | $402,171.38 | 162,165.88 SNX | 2.47% | 1.91 Million SNX | 0.105% |
Technical Specification
Implementation requires an application form which partner protocols can fill out to provide details about how the protocol will generate Synthetic Futures volume, how the protocol will utilize SNX rewards, and a wallet address which will be used to collect rewards.
Smart contract implementation is also required to allow partner protocols to claim their SNX rewards on the Optimism network, which will be automatically diverted from inflationary rewards.
Configurable Values (Via SCCP)
SNX allocation, frequency of rewards distribution.
Copyright
Copyright and related rights waived via CC0.