To date, Sifchain has unlocked massive value for stakers and delegators - and by bridging the Ethereum and Cosmos networks, Sifchain is accelerating value even further by creating bi-directional swapping opportunities between two of the largest crypto economies.
Despite our past successes, we just getting started and there are steps we must take as a community before we can cement Sifchain's position as the market-chosen venue with deep liquidity, high trading volume, and lower slippage and optimized pricing.
Sifchain is actively exploring ways to accelerate the network effect necessary to drive liquidity and volume, and most importantly return-on-value for stakers and delegators. While there are many novel ways to stimulate liquidity provisioning, we've come to learn the most effective near-term tool is incentivizing liquidity mining using rewards.
Consider the following example: In the first 2 weeks of the “Sif’s Harvest” program we experienced explosive growth in several key metrics:
Platform Metrics from Oct 1 to Oct 14
TVL: Increase from $16M to $60M
Rowan price: Increase from $0.16 - $0.43
Average daily users: Increase from 1.2K to 2.5K
Monthly new traders: 1.9K (partial month, already all-time high)
Monthly trading volume: >$100M (partial month, already all-time high)
Monthly swap transactions: 79K (partial month, on track for all-time high)
With liquidity in the network flourishing, we have seen signals of network effects begin to take over. High levels of TVL will only reinforce this positive feedback loop until we reach a healthy self-sustaining growth state driven by our feature set of competitive advantages including margin trading and omni-EVM compatibility.
Proposal for Inflationary Liquidity Mining on Select Pools
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Margin trading may lead to yield of 100%-300% or more through interest rates. Once it's released, an inflationary liquidity mining program may likely be unnecessary. Please consider the following proposal for inflationary liquidity mining rewards which Sifchain could implement until then.
1. Sifchain will maintain a 300% Total APR across 5 pools for 6 months.
a. Rowan:Atom and Rowan:UST will maintain a 300% APR for the entire duration of the program
b. The Sifchain community will decide via a weekly vote which other three pools will get the 300% APR for that week. Because the vote occurs weekly, these pools may change from week to week.
2. The 300% Total APR comes from a combination of swap fees, rewards from other projects, and inflation. Inflation is used to cover any APR not generated by swap fees or rewards from other projects. In this way, the community is incentivized to maximize swap fees through trading activity to reduce inflation.
Q: Can the team technically implement the program exactly as described above quickly?
A: Not necessarily, please consider the above an idealized proposal. The actual implementation depends on some technical and time-based limitations. For example, the Rowan:Atom and Rowan:UST pools may receive rewards before voting is enabled for other pools, and it may receive 300% APR from just liquidity mining in addition to rewards from swap fees. Other changes may be made as needed.
Q: Why select just two pools to be permanent throughout the program?
A: This concentrates liquidity in a small amount of pools, enabling large trades in those pools. It also concentrates liquidity mining rewards on a sustained group that is likely to hold and compound rewards vs spreading rewards across all pools at once when some of those poolers may be less likely to hold and compound. The community can still use liquidity mining to support a small number of other pools via a weekly vote.
Q: Can we implement a mechanism to remove some of this Rowan from circulation, for example a burning mechanism?
A: Such a mechanism would be great. For example, the weekly vote for selecting the three pools to get APR could be decided by having users burn Rowan to cast a vote. The Sifchain team is also considering other ways to enable the community to direct liquidity in the spirit of DeFi 2.0, any of those methods could include a burn mechanism to let users direct the flow of capital. For now, we're collecting feedback on inflationary liquidity mining but are happy to support follow a reasonable burn mechanism as well. It's important to note that burn mechanisms can be capital inefficient so the Sifchain community should also consider mechanisms that take Rowan out of the circulating supply without necessarily burning it (for example, locking it up or giving it to the Ecosystem Fund).
Q: How much inflation would this induce?
A: It's not possible to forecast that because this program is designed to maintain a specific APR rather than mint a certain number of Rowan. The total amount of inflation depends on the pool depth of the pools receiving LM and the price of Rowan, both of which will change substantially over time.
To estimate potential inflationary impacts, please play with the Rowan Inflation Calculator:
https://docs.google.com/spreadsheets/d/1zIuhOi3ehxjO-ZAyUx6lrf8VoP6woy-nomwkfMccRrs/edit?usp=sharingQ: What if people just farmed and dump the token? Wouldn't this be a net negative for the protocol?
A: Plenty of economic theory inside and outside of crypto suggests this is a real risk. However, we did show evidence that high rewards led to a net increase in demand for Rowan as the bulk of users appeared to farm and hold rather than farm and dump.
Inflationary liquidity mining's effects on the protocol should be considered based on actual impact on the market, not just theoretical risk. One thing to track is whether the hold:sell ratio is greater than 1 for poolers (ie. most distributed rewards were held rather than sold). We can track the hold:sell ratio and consider changes to the program if it drops below 1. We could even (depending on eng bandwidth) track the hold:sell ratio for individual addresses and skew rewards to addresses with higher ratios. Another to track might be buy:sell ratios for Rowan across the market.
Community Question
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Until we reach a point of maturity, we need to outcompete emerging platforms in the DeFi space. We're asking the community to give us feedback on the proposed growth strategy.
1) The proposal would require inflation to stimulate growth. Do you agree with the inflation and how it is proposed to be used?
2) What a competitive APR is the community's eyes?
3) If there were an inflation of ROWAN, how much inflation would acceptable?
4) Over what time period should the inflation be spaced out over?
Ideally inflation will allow Sifchain to attract people buying, holding, and compounding Rowan to maximize yield rather than quickly selling. Picking the right parameters is crucial to reaching that ideal.
***** If you want no inflation, you're also fine to voice that in the poll by selecting "0%" as the appropriate amount of inflation for Rowan in "What is the total acceptable amount of inflation for this program?" below.*****
We STRONGLY encourage participants in this poll to play with the Rowan Inflation Calculator prior to answering the questions below:
https://docs.google.com/spreadsheets/d/1zIuhOi3ehxjO-ZAyUx6lrf8VoP6woy-nomwkfMccRrs/edit?usp=sharing.
About this survey
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Sifchain is making strides to decentralize decision making from concept to execution. Part of the journey is engaging the community for direction and feedback on important community proposals.
We're creating this poll as a precursor to voting on chain as we adopt this and further DAO best practices. We hope you'll help us get the process underway by taking a brief moment to complete this survey.
This poll is NON-BINDING and is just used to gauge interest.
