This is a proposal for the DAO to implement OOKI rewards for traders using the OOKI platform and paying fees in order to encourage more usage of the protocol. This is based on a liquidity mining proposal @jokerbra made several months ago with some updates, and is inspired by DyDx’s successful trader incentives model.
This is very much a first draft of a Trader Rewards Proposal and the details are tricky to get right across multiple chains so comments and suggestions are welcomed. In particular, suggestions to change or refine the system to mitigate traders gaming the system (by wash trading for example) and encourage real trading, are welcomed.
Although the DAO team can begin working on this proposal as soon as it is passed, it will ONLY be implemented and rewards will only begin to be paid after the OOKI platform is fully functional and the following milestones have been hit:
-The new Interest Rates Model is implemented
-There is adequate liquidity for traders on ALL chains that the product has been deployed
-The limit orders feature has been completed and implemented for users
-The deployment of the protocol on Arbitrum has been completed.
The reason for the wait until the above features are complete is because there is no point in incentivising traders to use the protocol with an incomplete feature set - we need to draw traders to use the platform when it is fully ready to be used by professional traders and not before.
NOTE: This Proposal only deals with OOKI rewards for traders and borrowers (who pay fees to the protocol). Rewards and liquidity mining for liquidity providers to ensure sufficient liquidity for traders and borrowers is a separate subject and will be addressed separately (and arrangements are likely to be different on each chain where Ooki is deployed such as Curve bribes on Ethereum L1).
We could actually add liquidity mining rewards quite easily to this model if we wanted to - just increase the total OOKI given out and make liquidity providers eligible for reward points in each season (for example, for chains that do not support Curve bribes and where there is no other alternative) but for now I have not included it here.
Rewards Structure - Basic Concept
The basic idea is for the DAO to allot a fixed amount of OOKI per month to be paid out as rewards, and for traders to earn reward points through their trading activity and share the rewards pot on a pro-rata basis, depending on the number of points each trader has.
The rewards will be paid out at the end of each rewards period, such as each month.
For greater flexibility, we could have shorter weekly seasons in which points accrue and rewards are paid out on a weekly basis.
It is important that the DAO fixes the rules for earning points and rewards in advance of each season and does not change them for THAT season, to give traders clarity and certainty about their rewards and how to earn them.
However, for flexibility, the DAO can change the rules for each new rewards season (either every week or every month) to ensure that the rewards are spent most efficiently for the DAO’s purposes, as long as the rules for any season are clear and unchanged at the time the season starts.
For example, it may be useful to increase or decrease the amount of rewards going to a particular chain on which Ooki is deployed, or to incentivise particular behaviours. It would also be possible to simply reduce the reward emissions if organic activity on the protocol is healthy or the OOKI token price grows significantly (increasing the rewards will require a DAO vote but the team can reduce rewards without a vote if needed).
One possible way to achieve this is to have a baseline set of rules for earning rewards points and then have a “booster” variable which can changed from season to season. But I am open to other ideas as well.
While the DAO will vote and approve the basic structure of rewards, and in particular the total amount that will be paid out each month or each season, the DAO Core Team will have the discretion to change the rules and points for each season without a DAO vote in the interests of maximising flexibility and speed.
Rewards Structure - Details
The simplest form of this kind of rewards program is to allot points according to the fees paid to the protocol by each wallet address (for borrowing and trading) and give rewards in accordance with that.
This means that users of Ooki who pay fees by borrowing from the protocol and paying interest (whether to margin trade or borrowing for other reasons), OR by trading through the protocol and paying trading fees will be given rewards points (more fees paid = more points proportionally), and at the end of a season, they will share in the OOKI rewards pool for that season in proportion to the number of rewards points they have (and be able to claim the rewards for that season at the end of each season).
In order to discourage wash trading and gaming the system, it is important to NOT give rewards points for the payment of loan origination fees, because then anyone can open very large loans, pay an origination fee, and close them immediately and collect huge rewards (because the loan was so big) for taking zero risk.
My understanding is that the latest updates to the protocol and the new interest model removes origination fees completely, so this is not an issue anyway.
For the same reason however, it is likely a good idea to not give rewards to people who take out flash loans (even though they will pay a fee), and this will need to be specifically excluded because the protocol will still include flash loans.
A Dashboard for users to see the (estimated) OOKI rewards and rewards points accruing for their wallet in realtime is vital. One of the reasons a similar rewards program in 2020 failed was because traders had no way of knowing how much rewards they had earned and it was basically a surprise whenever it was paid. It will make a huge difference in UI/UX terms if a trader can look at a dashboard showing their fees paid in realtime for the current season and an estimate of rewards likely to be earned (based on numbers from the previous season). DyDx does this very well.
How much allotment per month/per week aka season? As a starting point, I suggest that 30m OOKI per month be allotted, which should be fairly sustainable given that 70m OOKI vests into the Treasury each month from vBZRX (which means each weekly season will have roughly 7m OOKI in the rewards pool - around $120k at current OOKI prices).
Multichain split - how should the rewards be divided between the chains on which OOKI is deployed? I think this is a tricky question and while we can have a starting split, the team should be given the discretion to adjust it each season depending on volume and the protocol’s needs. However, as a starting point, if the DAO allots 30m OOKI per month, Then I think 12m should go to Arbitrum, 10m to Polygon, 6m to Ethereum and 2m to BSC for the first month (or proportionately for the first season) and the team can adjust between chains after that. This is on the basis that Arbitrum and Polygon are the highest priority chains for us, and BSC is the least important, while we still need to have some presence on Ethereum L1 (despite high gas fees discouraging use) because of the amount of capital and volume there).