CIP-4: COW liquidity incentive program

Find the Forum post and discussion here: CIP-4: COW liquidity incentive program

Simple Summary

The purpose of this CIP is to gather support within the community to allow the treasury to release COW tokens as reward to Liquidity Providers, in order to foster a healthy ecosystem for holders and the DAO.

Motivation

This proposal will establish liquidity for the COW token by encouraging Liquidity Providers (LP) to provide the necessary liquidity required to grow and foster a healthy ecosystem. However, in order to encourage LPs, incentives must be aligned as they will be taking on risk. Goals:

• Initiate liquidity of ~$10m
• Ideally a 100k trade should incur no more than 1-2% slippage
• Reward users who are willing to provide liquidity and take the impermanent-loss risk
• Limit rewards to not attract speculators but mainly long term believers in COW.
• Reasonable COW spending to not create too much sell pressure (from potential farmers)

Specification

CowDAO will use 960k COW tokens to establish a liquidity reward program for 12 weeks. The program is proposed to incentivize few liquidity pools: Mainnet

1. Balancer pool: 50%COW/50%ETH
2. Balancer pool: 50%COW/50%GNO

• Balancer DAO: 12 weeks of 200-BAL-per-week for each pool.
• CowDAO: 12 weeks of 30k-COW-per-week for each pool (please see below the edit note)
• If the combined liquidity will reach >$5M, BAL rewards will be increased by Balancer DAO.

Gnosis Chain

• Swapr pool: 50%COW/50%ETH
• CowDAO: 12 weeks of 20k-COW-per-week.
• DXdao: 350k SWPR & 65 GNO over 12 weeks

Implementation

• Balancer will be implementing the dual rewards for LPs similar to the wstETH pool for 12 weeks following the execution of this proposal.
• DXdao will implement a reward strategy that will include base triple rewards and an extra performance reward in Carrot tokens. In order to achieve optimized liquidity, a 4-week campaign with ~40% of capital and a follow up 8-week campaign with 60% of capital is proposed. This pool can be used as an example for how it would roughly look.
• Any remaining COW tokens that (for any reason) were not used for its intended purpose of rewarding COW liquidity, will be returned to CowDAO after 12 weeks.

The program is intended target an estimated 15%-20% APY on capital locked (but of course depends ultimately on utilization of the pools) . Rewards will be assessed and potentially extended and / or changed by CowDAO and other parties during and after 12 weeks.

Note: As a next step to this proposal, and after a price is established for the COW token, CowDAO might want to consider deploying liquidity from its own treasury. This represents an opportunity for the DAO to show commitment by taking the same impermanent-loss risk it asks its community to take. Additionally, this will ensure a minimum amount of liquidity and could be a good strategy for deploying the treasury to generate extra yield.

Execution

It is proposed to be executed by transfers of COW tokens out of CowDAO mainnet Safe:

1. 720k COW to 0xc38c5f97B34E175FFd35407fc91a937300E33860 - Balancer DAO team safe on mainnet
2. 240k COW to 0x9467dcFD4519287e3878C018c02f5670465a9003 - Multisig that has been used by DXdao for launching Carrot and SWPR campaigns when not through the DAO

This proposal is dependent on the successful execution of CIP-draft: Enable Swapping of vCOW to COW. It is proposed to execute both proposals together in order to have liquidity incentive program in place when COW becomes transferable.

Safe Transaction Data

Includes three interactions:

• Send 720k COW to Balancer safe on mainnet
• Approve 240k COW for bridging
• Bridge and send 240k COW to DXdao sefe

[
  [
    {
      "to": "0xDEf1CA1fb7FBcDC777520aa7f396b4E015F497aB",
      "data": "0xa9059cbb000000000000000000000000c38c5f97b34e175ffd35407fc91a937300e338600000000000000000000000000000000000000000000098774738bc8222000000",
      "value": "0",
      "operation": 0
    },
    {
      "to": "0xDEf1CA1fb7FBcDC777520aa7f396b4E015F497aB",
      "value": "0",
      "data": "0x095ea7b300000000000000000000000088ad09518695c6c3712ac10a214be5109a6556710000000000000000000000000000000000000000000032d26d12e980b6000000",
      "operation": 0
    },
    {
      "to": "0x88ad09518695c6c3712AC10a214bE5109a655671",
      "value": "0",
      "data": "0xad58bdd1000000000000000000000000def1ca1fb7fbcdc777520aa7f396b4e015f497ab0000000000000000000000009467dcfd4519287e3878c018c02f5670465a90030000000000000000000000000000000000000000000032d26d12e980b6000000",
      "operation": 0
    }
  ]
]

Rationale

• Liquidity is essential for any token. This program will encourage community members to provide liquidity for the COW token.
• Decent liquidity will enable new participants to buy COW with minimal friction.
• Dampen COW token volatility