ANGLE incentives effectiveness: are incentives the best way for the protocol to use the ANGLE tokens held by Governance?
We recently conducted an internal research to get a sense of how effective ANGLE incentives were from a different angle (pun intended) than for AIP - 31.
This time, the goal was to understand how liquidity on pools react to changes in incentives. In other words, is liquidity changing according to incentives or not ? Depending on this relation, we can understand better if ANGLE incentives are effective to attract and/or retain liquidity.
For a given pool, if TVL doesn’t change when incentives increase, the increase is probably a waste of incentives.
Similarly, if TVL doesn’t change when incentives decrease, it could mean that liquidity on the pool is rather sticky and doesn’t care much about incentives, which would then be wastes. In this case, we could try to decrease them again.
To measure that, we built a dashboard comparing the change in ANGLE incentives each pool receives with their change in TVL, week over week. Shoutout to @adcv who inspired this analysis with his original ANGLE incentives dashboard.
You can read the complete analysis here: https://anglemoney.notion.site/agEUR-ANGLE-pools-TVL-stickiness-Public-d3786ad7865e473faa9f62c291205dcf
Disclaimer: there is only around a year of data, so conclusions shouldn’t be taken as definitive but rather give us a sense of how liquidity and incentives react to each other.
- Once pools are “setup”, reward increases are usually under-effective, and decreases over-effective (less TVL loss than incentives decrease). Also, the bigger the pool, the less a change in incentives seem to make an impact.
→ incentives seem to be an efficient way to attract liquidity, but an inefficient way to retain it
- The decrease of 20% in ANGLE distribution voted in AIP-31 in mid-October incentives apparently had a negligible impact on TVL.
- Current incentives split between the different gauges is not optimal (cf sanFRAX), and the protocol is currently wasting ANGLE tokens.
→ From #1, it seems that using ANGLE emissions to incentivize liquidity over the long-run is a waste of ANGLE.
This can be thought about as a two part problem:
- How to distribute ANGLE tokens to grow the protocol efficiently and decentralize its ownership
- How to incentivize Angle liquidity (agEUR).
→ #2 and #3 are arguments to try and decrease incentives again before finding a better way to distribute incentives to the different pools efficiently.
We opened AIP-57 to lower incentives again.
The future of ANGLE incentives
This is just the beginning of a discussion around incentives and ANGLE distribution in general. The questions we now face is:
How can Angle Governance best use the ANGLE tokens at its disposal? Is it by incentivizing liquidity, or are there better uses of this capital?
All your feedback and thoughts are appreciated!