Inequalities in Farming: Some Thoughts

Farming is the action of taking cash incentives in exchange for providing liquidity.

The same way CEXes incentivise market makers by offering fee rebates, AMM-based DEXes incentivise liquidity providers by offering farming rewards.

In layman’s terms, the goal is simple; to attract activity and demand for the product. While new companies, such as Gauntlet, are working successfuly on improving the distribution of incentives according to actual demand (to avoid waste of incentives), few to none are looking at the distribution of incentives, or the wealth structure inside the farming population.

Below is a table of the wealth structure of eight farms on Ref. Data were taken a few weeks ago.

For example, you can read that the poorest 50% of the USDT<>wNEAR farming population own 0.002% of the farm, thus is entitled to 0.002% of the farming rewards.

Yes, the rewards must be proportional to the risks. The more you take (risks), the more you potentially get.

Yet, it’s worth noting that the wealth concentration across the above farms, at the exception of UTO<>wNEAR, is more extreme than that of the ‘real world’.

The richest 10% own around 60-80% of wealth in the various world regions. The poorest 50% always own less than 5%. - Thomas Picketty, World Inequality Report 2022

My objective is to invite the reader and our users to think about ways to improve the distribution of incentives, (also) taking into account extreme wealth concentration.

A few raw thoughts/ideas below:

  1. Progressive farming rate
Multiple of Average Share Farming Rate
1 1
2 0.99
5 0.98
10 0.95
100 0.9
1000 0.4
10000 0.1

For example, if a farmer has more than 5 times, but less than 10 times, the shares of the average farmer, his/her farming rate would be 0.98%.

Taking the REF<>wNEAR farm, where the farming APR is approx 94%, for example, will lead to the following new farming APR:

  • Richest farmers (multiple of average share between 100 and 1,000): 38%
  • 2nd richest farmers (multiple of average share between 10 and 100): 85%
  • Etc.

Cons of such a model:

  • Confiscate sentiment vs. reward big liquidity providers
  • Easy to get around programmatically; multi accounts management
  1. Positive contribution

Imagine if one could relate and assess the farmer positive contribution to the ecosystem and adjust farming rewards accordingly.

Such a system would be possible once the bridge between DeFi and Identity/Reputation is built.

[…] Start experimenting with public goods funding, governance/DAOs, decentralized identity/reputation, regenerative finance and privacy tools. - sassal.eth

  1. Locked farming

The idea that the incentives must be aligned with a commitment in the mid/long term, rather than encouraging short term cycles.

The new farming contract will incentivise locked LP tokens.

  1. Capped rewards
  2. Etc.

Obviously, all the above could not be considered in isolation. It would require a significant shift of mentality in the ecosystem, in order to create a Nash Equilibrium, where the outcome would be sustainable vs. (today) unsustainable.


It can be a very interesting approach. :thinking:


Hi Didier,

I appreciate the thought that goes into this proposal. No doubt, this is a well intended, equitable proposal.

You’ve already highlighted some of the potential challenges or shortcomings of this proposal (i.e. creating multiple accounts).

However, there are a couple more aspects that I believe are worth considering:

  • Do we have any data as to how different farmers deal with the earned REF? Are small holders or large holders more likely to accumulate or to sell?
  • The proposal seem to optimise for distribution of REF at the point where it is handed over as rewards, but from the point of view of the protocol, rather than changing where the REF goes, we should me working in ways to reduce the amount of sales, encourage long term hold and, overall, increase the value of the token for all token holders.
  • Another interesting aspect is ‘control’ of the exchange (through future REF enabled voting power). I can see very legitimate arguments for wanting to avoid small groups of people to gain effective control of the exchange, yet:
  • It is hard to stop small farmers from selling, the more tokens they receive the more they sell, the lower price gets. If someone really wants control of REF, they won’t be just farming, they are likely also buying in the market. Disproportionately rewarding small farmers may actually make it cheaper for large players to accumulate as they just scoop cheap coins (even if more expensive than farming).
  • Also, it could be assumed that as far as governance goes, people that are invested larger amounts of REF are more likely to care and be good stewards of the REF exchange and future development.

Once again, thanks for the thought provoking proposal. At this time I am going to have to pass but keen to see what others have to say about the topics