CIP-9: Should CowDAO renew its COW liquidity incentive program

Simple Summary

The original liquidity incentive program (CIP-4) will end on 2022-06-19, marking 12 weeks from its launch. This proposal is intended to renew incentives for liquidity providers of the COW token. In light of the recent discussion, the outlined proposal contains few changes:

1. On mainnet, it is proposed to use COW tokens for incentivizing (bribing) veBAL votes for boosing BAL rewards of the Balancer COW pools
2. The sections for "Protocol owned liquidity" is removed as there are plans to propose active treasury management which could more efficiently manage liquidity positions.

Motivation

DEXs are the main trading venue for the COW token. It is important to ensure that COW liquidity pools maintain a baseline of liquidity that allows trading. In light of the market downturn, it is quite clear that the liquidity goals for the previous proposal were not met. Providing liquidity for COW is deemed by liquidity providers a risky endeavor that requires decent return to make it worthwhile. At the time of writing APYs on Balancer mainnet pools are 30-60% while on Swapr Gnosis Chain pools the situation is similar if taking into account carrot tokens that will not fully convert. Current state of COW liquidity pools:

• Balancer pool: 10,942,232 COW / 370.6 ETH (Pool value: $1,312,985)
• Balancer pool: 4,089,716 COW / 9,305.6 GNO (Pool value: $3,519,279)
• Swapr pool: (Pool value: $418,667)
• Swapr pool: (Pool value: $139,437)

Goals for the next 12 weeks of the program:

• Maintain the current liquidity of COW
• 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

Rewards

CowDAO will use 750k COW tokens to establish a liquidity reward program for 12 weeks. The program is proposed to incentivize few liquidity pools: Mainnet

• Balancer pool: 50%COW/50%ETH

CowDAO will use COW tokens to incentivize (bribe) veBAL holders and boost BAL rewards: 12 weeks of 40k-COW-per-week. It is expected that boosted BAL rewards will take a week due to the voting process. For the first week an additional 30k COW direct incentive is proposed.

Gnosis Chain

• Swapr pool: 50%COW/50%ETH
• Rewards schedule: 12 weeks of 20k-COW-per-week

**GNO pools on Balancer and Swapr are expected be incentivized by Gnosis DAO using GNO

Implementation

Mainnet Allocated COW tokens (510k COW) will be sent to a 2/3 multisig with middleway.eth, mastercow.eth and CowDAO as signers. This multisig will send 40k COW bribes every two weeks for the COW/ETH balancer pool on Hidden Hand

Gnosis Chain DXdao will implement a reward strategy that will include base rewards and an extra performance reward in Carrot tokens. It is considered to move to an 8-week campaign cycle to reduce operational overhead for LPs.

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.

Rewards will be assessed and potentially changed from bribs to direct rewards by CowDAO or multisig signers during those 12 weeks.

Execution

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

1. 510k COW to eth:0xa8193E38C17E879CaC6CdBB996E49bc24Ad65C7c - Dedicated safe for this program operations
2. 240k COW to gno:0x9467dcFD4519287e3878C018c02f5670465a9003 - Multisig on Gnosis Chain that has been used by DXdao for launching Carrot and SWPR campaigns when not through the DAO

Safe Transaction Data

{
	"version": "1.0",
	"chainId": "1",
	"createdAt": 1655206108177,
	"meta": {
		"name": "Transactions Batch",
		"description": "",
		"txBuilderVersion": "1.8.0",
		"createdFromSafeAddress": "0xcA771eda0c70aA7d053aB1B25004559B918FE662",
		"createdFromOwnerAddress": "",
		"checksum": "0xe9bb54e4f32535084ae6ac3351a8354c2bcd2e057d1f6785c3c47591bc43dfd2"
	},
	"transactions": [{
		"to": "0xdef1ca1fb7fbcdc777520aa7f396b4e015f497ab",
		"value": "0",
		"data": "0xa9059cbb000000000000000000000000a8193e38c17e879cac6cdbb996e49bc24ad65c7c000000000000000000000000000000000000000000006bff27c8303182c00000",
		"contractMethod": null,
		"contractInputsValues": null
	}, {
		"to": "0xDEf1CA1fb7FBcDC777520aa7f396b4E015F497aB",
		"value": "0",
		"data": "0x095ea7b300000000000000000000000088ad09518695c6c3712ac10a214be5109a6556710000000000000000000000000000000000000000000032d26d12e980b6000000",
		"contractMethod": {
			"inputs": [],
			"name": "AlreadyInflated",
			"payable": false
		},
		"contractInputsValues": null
	}, {
		"to": "0x88ad09518695c6c3712AC10a214bE5109a655671",
		"value": "0",
		"data": "0xad58bdd1000000000000000000000000def1ca1fb7fbcdc777520aa7f396b4e015f497ab0000000000000000000000009467dcfd4519287e3878c018c02f5670465a90030000000000000000000000000000000000000000000032d26d12e980b6000000",
		"contractMethod": {
			"inputs": [{
				"name": "version",
				"type": "uint256"
			}, {
				"name": "implementation",
				"type": "address"
			}],
			"name": "upgradeTo",
			"payable": false
		},
		"contractInputsValues": null
	}]
}

Transaction simulation

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