Introduction
As part of Gauntlet’s ongoing engagement with the NEAR Foundation and in collaboration with the House of Stake, an in-depth analysis of the Liquidity Mining (LM) incentives distributed on the Ref Finance smart contract (boostfarm.ref-labs.near) from January 1st, 2024, to June 30th, 2024, was conducted. This document aims to evaluate the efficacy of these incentives across various pools, propose strategic adjustments via dynamic pool allocations, and enhance their impact on sustainable growth within the NEAR ecosystem.
Assumption: Ref Finance Incentive Budget for the month of September is ~$100,000.
Key Metric: Return on Incremental Volume
A pre-post analysis methodology was utilized to measure the impact of incentives on pool performance. This involved comparing the average daily volume seven days before the start of the incentive period (pre-period) with the average volume generated from the day the incentives were introduced until the beginning of the next campaign (post-period).
Analysis Methodology
- Pre-Period Analysis:
- Calculate the average daily volume for each pool during the seven days preceding the incentive period.
- Post-Period Analysis:
- Calculate the average daily volume from the day the incentives were given until the start of the next campaign.
- If no subsequent campaign exists for a pool, calculate the average daily volume for 14 days following the start of the current campaign.
- Campaign: A new campaign for a pool is considered to have started whenever incentives are added to boostfarm.ref-labs.near for that specific pool.
Key Metric Calculation
The metric, termed “Return on Incremental Volume,” provides insights into the effectiveness of each incentive campaign. The formula for Net Incremental Volume is as follows:
Findings:
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70% of the total incentives were allocated to four pools (see Graph 1):
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Certain pools, such as FRAX-USDC, NEAR-USDC/USDT, and REF-NEAR, are strategically important for the ecosystem despite their modest returns
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4 Stable Coin Pool demonstrated a significant positive impact from incentives, with an average Return on Incremental volume of 136. This is the best return we observed compared to all the other incentivized pools (refer to Table 1).
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Other highly incentivized pools either showed no significant change or a decline in volume (refer to Table 1).
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Memecoin pairs did not respond well to incentives, with an average Return on Incremental volume of -14.2 (a weighted average of all incentivized meme coin pools), indicating a need for a revised strategy.
Graph 1: Total Incentive Spend from Jan’24 to Jun’24 on Ref.
| Pool Name | Incentives (USD) | Return on Incremental Volume |
|---|---|---|
| 4 Stablecoin Pool | 302,491 | 136.7 |
| WNEAR-BLACKDRAGON | 177,540 | 0.1 |
| LONK-WNEAR | 172,631 | (28.9) |
| REF-NEAR | 169,073 | (8.0) |
| NEAR-USDC.e | 63,917 | (1.8) |
| FRAX-USDC | 60,126 | (3.6) |
| NEAR-USDT.e | 59,889 | 11.4 |
Table 1: Performance of Most Incentivized Pools.
Proposed Methodology
Based on the analysis from January 2024 to June 2024, there is a recognized need for a robust monitoring system for each pool within every campaign. To enhance the effectiveness of future campaigns, the following methodology is proposed:
The proposed objective is to concentrate on four key strategic areas to optimize pool performance. Below is a detailed breakdown of the approach and specific recommendations for each strategic area. These strategies are subject to change as data and impact are observed.
Each strategy’s success is defined based on its performance on the metrics initially agreed upon.
Gauntlet Proposed Recommendations
Strategy 1: Optimize Pool Volume Performance
- Description:
Adjust incentives based on the Return on Incremental Volume of each pool. - Rationale:
Under Strategy 1, all pools with a positive Return on Incremental Volume that do not overlap with other strategies are recommended.
Optimizing pools that receive high volume is beneficial for REF growth as it encourages activity and adds liquidity as these pools grow in activity. - Metric:
Volume Elasticity per Incentive Amount
Strategy 2: Blue Chips
- Description:
Continue incentivizing pools identified by the REF and NEAR teams as strategically important. - Rationale:
Core Pools with tokens WETH, BTC, REF, NEAR, stables & SOL are crucial for the ecosystem’s growth. - Metric:
Increased Volume of Bridged Assets. (75% weightage)
Volume Elasticity per Incentive Amount (25% weightage)
Strategy 3: Promote Pools on Meme Coin Launchpad
- Description:
Capture and increase market share in the meme coin segment. - Rationale:
Decreasing incentives (relative to their performance) in a linear way, expecting new meme coins coming from meme pads in the future. - Metric:
Increase in Meme Coin Market Share
Strategy 4: Expand Pool Distribution Diversity
- Description:
Diversify pool distribution to ensure a broad range of assets is supported and incentivized. - Rationale:
Based on our finding that 70% of incentives are currently given to just four pools, there is an opportunity to allocate incentives over a broader set of pools according to their elasticity on Return on Incremental Volume.
Implementing test campaigns on pools lacking sufficient data will help determine their potential impact.
More campaigns under this strategy will enable the recommendation of pools with high elasticity towards incentives, optimizing the overall distribution of incentives and maximizing their effectiveness. - Metric:
Pool Specific: SOL<>wNEAR & aBTC<>USDC will be incentivized for September under this strategy. Hence, the metric will be Bridged SOL/BTC on NEAR.
Proposed Allocation Adjustments
Strategy Allocations:
| Strategy | Metric | July Incentive Share % | Sep Incentive Share % |
|---|---|---|---|
| 1. Pool Volume Performance | Volume Elasticity per Incentive | 1.4% | 11.7% |
| 2. Blue Chips | Bridged TVL & Volume Elasticity | 42.5% | 35.7% |
| 3. Meme Coin Launchpad | Market Share % | 37.6% | 29.1% |
| 4. Expand Pool Diversity | Bridged TVL (Sep Only) | 18.5% | 23.4% |
Table 3: Strategy Allocations
Strategy Rationale:
- Pool Volume Performance saw a significant increase in allocation from July to September (from 1.4% to 11.7%). This change reflects the growing emphasis on optimizing pools that have demonstrated strong elasticity in response to incentives. The focus is on maximizing the efficiency and impact on overall volume growth within the ecosystem.
- Blue Chips experienced a slight decrease in allocation (from 42.5% to 35.7%). This adjustment was made to redistribute resources towards strategies with higher immediate potential for volume generation. While blue chips remain crucial, the shift addresses the need to test other areas.
- Meme Coin Launchpad allocations were reduced from 37.6% to 29.1%. This decision was based on the findings that the market share impact of meme coins, while still important, was not as substantial as initially expected. The reduction allows for a reallocation towards strategies with higher projected returns.
- Expand Pool Diversity increased from 18.5% to 23.4%, specifically focusing on pools expected to contribute significantly to Bridged TVL in September. This strategic shift is intended to broaden the range of assets supported, thus enhancing the ecosystem’s resilience and attracting more diverse liquidity.
In summary, ongoing data modeling and strategic goals drove the allocation adjustments from July to September. The proposal recommends a balanced allocation approach, with ongoing optimization to ensure the right balance is achieved as more data becomes available.
Looking Forward
Should the DAO agree to incorporate the proposed strategies and adjustments, Gauntlet is prepared to monitor the impact of these changes, publish dashboards that could help the community understand the impact of incentives under each strategy, provide ongoing recommendations to the current incentive program, and iterate as needed.
Conclusion and Recommendations
Based on the analysis and rationale mentioned above, the following recommendations for incentive distribution are proposed:
| Pool | Category | Strategy | Recommendations |
|---|---|---|---|
| SOL-wNEAR | Tier 1 | 4 | 20.0% |
| USDt-USDC (4 pools) | Stable | 2 | 15.0% |
| LONK-wNEAR | Meme | 3 | 10.0% |
| BlackDragon-WNEAR | Meme | 3 | 10.0% |
| REF-wNEAR | Tier 1 | 2 | 7.0% |
| SHITZU-wNEAR | Meme | 3 | 5.0% |
| USDC.e-wNEAR | Tier 1 | 2 | 4.0% |
| AURORA-wNEAR | Tier 2 | 1 | 3.0% |
| REF-FRAX | Tier 2 | 2 | 3.0% |
| wNEAR-aBTC | Tier 1 | 4 | 3.4% |
| SWEAT-wNEAR | Tier 2 | 1 | 2.7% |
| ETH-wNEAR | Tier 1 | 2 | 2.7% |
| wNEAR-NEKO | Meme | 3 | 2.0% |
| nKOK-wNEAR | Meme | 3 | 2.0% |
| LINEAR-wNEAR | Stable | 1 | 2.0% |
| STNEAR-wNEAR | Stable | 1 | 2.0% |
| USDT.e-wNEAR | Tier 1 | 2 | 2.0% |
| FRAX-USDC | Stable | 2 | 2.0% |
| BRRR-wNEAR | Tier 2 | 1 | 1.0% |
| wNEAR-NEAT | Tier 2 | 1 | 1.0% |
| wNEAR-OTTO | Meme | 3 | 0.1% |
Table 4: Pool Allocations based on Strategies
Note: The monthly budget is assumed to be $100K, and the recommendations are a percentage of the budget.
Should the DAO implement these recommendations, we aim to optimize the allocation of incentives, maximize the impact on volume, and ensure the strategic growth of Ref Finance and Near.