Increase LP timelock from 24H to 48H (4 epochs)

#1

Hi I think we should propose to increase the timelock for LPs from 24 to 48H’s or 4 epochs. I am noticing significant reductions in liquidity especially close to rebases. Increasing the timelock will help reduce sell pressure on Dollars and help ensure the liquidity pool continues to grow. Liquidity begets liquidity.

Anyway it seems like the current proposal to increase the timelock to 60H is not getting enough traction to pass. So I suggest drafting a proposal to increase the timelock to 48Hs as I believe it will be more likely to pass.

Thoughts?

#2

Not entirely sure what implications you’re asserting with regards to lock-up time vs liquidity. Can you clarify what the concern is, why you believe this and how the proposal remedies this?

#3

Thanks for the question. If you are providing liquidity for a substantial portion of the rebase there should be a commitment on behalf of the user to maintain that liquidity position in the protocol in order to help it grow and 24H does not seem to crystalize that commitment. More importantly, the more liquidity is locked, the more people will want to fomo in more liquidity. Which will drive the price for dollars higher and reduce the impact of large selling. As another person in our community mentioned. You can look at things like cream as an example. Forced lock for days means explosive growth as people want in

#4

substantial portion of the rebase

I assume you just mean a substantial amount of time. The rebase is just a momentary tx. Maybe you mean a large % of the rebase interval?

should be a commitment

Providing liquidity has its own value proposition, and associated risk. It’s not a ‘commitment’, someone that changes their strategy or risk profile should be free (as possible) to implement those changes by moving their liquidity. Why should it be a commitment? From what I know, the original intention for the timelock was to avoid pool hopping. If this is following from those intentions, why does the 24H lock not work? If there is another intention here, it would be nice to clarify what that might be.

the more liquidity is locked, the more people will want to fomo in more liquidity

I’m not sure I follow why this necessarily is the case. Seems anecdotal to me. Would love to hear what makes you think this.

I’m just trying to deterministically understand what the problems and motivations here are. It’s not quite clear what this is based on other than some speculative anecdotes. In any case, why would any other timelock period be suitable? Why not follow through with the 5 epoch proposal? Vote traction is not an argument for or against the merit of a proposal.

The longer the proposed timelock, the larger justification there needs to be for preventing people from freely moving their liquidity (for whatever reasons they have).

#5

What I mean here is a substantial amount of dollar value is being accrued by LPs especially after the recent governance change raising the reward payout to 30% for the USD-USDC pool and merging share mining.

I believe your assertion here is a subjective difference on what we believe an LP’s responsibility is to the protocol . I think an LP should be of course notified of any timelock restrictions before providing liquidity. However it is my opinion that the protocol has every right to implement restrictions on liquidity provision, if it benefits the long term health and viability of the protocol. And it clearly works to reduce selling pressure as our competitors DSD and ESD have implemented similar restrictions, but more strict than what I am proposing. For example DSD starts the timelock only when a user withdraws rather than when they deposit.

Doubling the timelock will certainly restrict the flow of liquidity out of the system therefore reducing sell pressure on the price of dollars, while at the same the increase in liquidity will reduce price impact of people who sell. The positive impact this will have on price and maintaining liquidity in the system, should incentivize other people to provide liquidity as they see a healthy protocol that continuously attracts more liquidity and has good price appreciation.

The length whether it be 24H, 48H or 60H is somewhat arbitrary. That being said I do recognize that some people have hesitated to agree to a 60H lock so I think a compromise may be necessary in order to get the above mentioned benefits. The truth is our USDC-USD pool when merged with share mining will provide a potentially very high roi with minimal IL risk. If our competitors can successfully implement more restrictive timelocks I think it would be prudent for us to make a similar but less restrictive adjusment as well .

#6

There are other ways to reduce sell pressure. I’m afraid without really discussing the other implications of such a proposal, and focussing on what the ‘happy path’ is, this isn’t really a robust proposal. You’re repeating “extra time lock restricts flow of liquidity which reduces sell pressure on dollars”. When I asked about why you think this happens, I was looking to hear why you think there is a causal link between the two, not to just restate your hypothesis.

subjective difference on what we believe an LP’s responsibility is to the protocol

LP’s don’t have a responsibility to the protocol. They become LPs because they speculate that by doing so there is material gain. People don’t become altruistic LPs, and I certainly know that you aren’t. You LP because there are gains to be made. As does everyone else, as such it is an economic proposition and if the incentive structures aren’t right, and you want to just enforce a rule on people without understanding the implications (because people will react in their best interest) then this ISN’T in the interest of protocol health (which is also an incentive for LPs NOT a responsibility).

After seigniorage payouts nothing stops people from claiming the seigniorage and selling. There is still a rush to sell. Time locking the pools won’t just affect dollars, it also affects SHARE-ETH holders which has nothing to do with dollars other than seigniorage payouts (which are unaffected by timelocks anyway). Then there’s case where restricting freedom of liquidity movement means people that are locked up that cannot exit their liquidity away from an upcoming debase means they just get punished for being a LP. This completely changes the incentives for becoming a LP of USDX because of the higher risk (you will only LP if you are sure within the timelock period there will be no debase).

My point is, there are many other ways to reduce sell pressure on dollar (which is clearly your only intention here) and your proposed change will affect much more in the protocol than ONLY reduce sell pressure on the dollar (which you neglected to address here). Like you said:

if it benefits the long term health and viability of the protocol

And a strong case needs to be made for why it definitely will have this effect. Asserting that it will is not an argument. Until it’s made I think we don’t really have a discussion here.