CIP: 27
title: Incentives Mechanism for the Price Estimation Competition
author: @harisang
status: active
created:  2023-06-20

Simple Summary

Price estimation is currently a key component of the protocol. This proposal aims to set up a rewards mechanism in order to incentivize all solvers participating in the solver competition to become estimators in the price estimation competition.

Motivation

As outlined in this post, price estimation is integral for the success of the protocol. Establishing a robust, consistent and competitive quoting mechanism will lead to more accurate quotes for the users, much better fee estimation and will eventually minimize the percent of expired orders (i.e., orders that got a quote but solvers were not able to realize it). This will, ultimately, lead to increased traffic in the protocol.

Currently, only a subset of the solvers participating in the solver competition do price estimation. Concretely, only Gnosis solvers and SeaSolver are participating in the price estimation competition. Many Gnosis solvers solely rely on external APIs (such as 1inch, 0x), and from time to time these solvers get rate-limited, thus resulting in suboptimal performance. Due to this, significant dependency on external APIs poses a non-trivial risk to the protocol, and we believe that by encouraging multiple solvers to participate in the price estimation competition would mitigate this and would result in very consistent good quoting. Moreover, the solver competition is already in an advanced stage, where solvers have evolved a lot and are quite sophisticated, and able in many cases to outperform external APIs. For all these reasons, we believe it is crucial to make the price estimation competition stronger by having solvers participate in it.

Specification

To incentivize solver participation in the price estimation competition, we propose to reallocate 20% of the COW rewards towards the price estimation competition; these rewards are currently allocated for the solver competition and intended to be distributed as consistency rewards. As a reminder, there is a total of 20M COW tokens allocated for solver rewards over a year, which corresponds to an average weekly budget of 383307 COW for solver rewards, of which 25%, or 95826 COW, is intended to be used for consistency rewards, as specified by CIP-20.

A reallocation of 20% of the COW rewards budget, is equal to 4M COW over a year, would mean that the protocol would aim to spend ~77,000 COW per week, in the price estimation competition. Given the weekly budget of 77,000 COW for price estimation, we propose the following distribution mechanism:

1. Every market order being placed in the orderbook is associated with a quote, that is the winning quote of the corresponding price estimation competition that took place. We link each order with the solver that gave this winning quote. We stress here that for a quote to be eligible for participating in the price estimation competition, full calldata must be provided which should be able to successfully simulate.

2. For every market order that a solver provided a winning quote for, we track whether it got successfully executed onchain or whether it expired and in the case where the order got successfully executed onchain, the solver that provided the winning quote gets a reward of 9 COW.

Along with the weekly solver payouts, these price estimation rewards will also be distributed on a weekly basis, and will be sent out to the rewards addresses used in the solver competition.

Note: We stress that the majority of quotes do not lead to order creation. We view this as something positive, as price estimators would have to be consistent and provide quotes for most of the requests in order to get rewarded, as one cannot know in advance if a certain request will lead to an order being placed in the orderbook.

We also want to stress that only solvers participating in the solver competition can participate in the price estimation competition. We believe this is a reasonable constraint, as a very competitive quote by an estimator that is not participating as a solver might lead to orders getting very good quotes that are not matchable by any solver.

Starting date

In order to give some time to solvers, as well as the core team, to prepare for this change, we propose that this new rewards mechanism is activated on July 18, 2023, with the first adapted payout taking place on July 25, 2023.

(Further discussion and some sanity checks on the numbers proposed can be viewed in the relevant forum thread.)