Formal Vote - Executable CGP4 - Liquidity Task Force

The goal of this proposal is to propose the establishment of a Liquidity Task Force (LTF) with a focus on increasing Connext's liquidity and volume across chains/pairs. It also outlines various strategies to incentivize certain routes to provide the best user experience by reducing delays and slippage while bridging their assets.

Motivation:

In the near future, Connext will begin adding support for new chains such as Linea, Zksync, Mantle, and more. To support those chains, sufficient liquidity needs to be available so that users can experience fast path and bridge without any delays. Using AMBs, Connext can always offer the slow path if liquidity happens to be thin or unavailable on certain assets/chains. However, this may lead most users to seek faster alternatives for bridging to new chains.

Rationale:

Most of the transfers related to bridging nowadays occur mainly through aggregators such as Lifi and Socket, which offer the cheapest and fastest bridge available for the corresponding asset and chain. If Connext happens to offer longer bridging times or higher slippage on the transfer, all bridge aggregators will not recommend Connext as the best option for that transfer, thus reducing the volume going through Connext.

That's why it's important to bootstrap enough liquidity by providing proper incentives for Routers and LPs. Currently, Connext is not generating enough fees for LPs due to low volume, resulting in LPs not earning enough or even sometimes losing money operating a router due to operational costs. Operating an incentive program requires expertise and proper research to identify which chains and assets will have demand, to avoid distributing NEXT to LPs on routes that are unlikely to generate any volume.

That's the goal of a Liquidity Task Force. It will consist of a working group comprising individuals from different backgrounds within and outside of Connext, with a focus on researching and identifying those paths that will have demand. The LTF aims to provide incentives to LPs to fill the necessary liquidity for users as fast as possible.

Ideally, the LTF will follow and monitor different shifts in trends in the demand of the supported chains and take proper ownership of allocating and reallocating the NEXT rewards to different LPs to increase liquidity.

Specification:

The LTF will request 3.5 million NEXT to kickstart the liquidity incentive program for LPs. On a bi-weekly basis, the LTF will have full autonomy in announcing incentives for new chains and assets and will also be responsible for reallocating the rewards to respond to new demands. If the general feedback and impression that the LTF is bringing improvement and growth to Connext, the LTF may request further allocations through another DAO proposal to continue responding to Connext’s liquidity need.

KPIs

Currently, Connext has around 11m$ TVL, and around 7.3m$ from that amount is from the Gnosis team providing liquidity for their chain.

Upon inspection of the rest of the chains, liquidity is very fragmented, averaging between 30k & 100k per asset (USDC/DAI/USDT/ETH).

• Enable deeper liquidity

Start incentivizing LP on current supported chains such as Arbitrum, Optimism, Polygon and BNB. Currently, 3.8m are distributed across those chains, averaging 30k-100k liquidity per asset. With an average 3m$ weekly volume, that would generate around 1.5k$ in fees for routers and LPs.

The first phase would focus on incentivizing LPs on those chains with a target to double the liquidity per asset. In the first phase, The LTF will start experimenting by distributing a certain amount of NEXT to the routers and LPs and review the results in the first month to check for any improvements and growth of the liquidity in the network. The incentive should make sure at least it covers the operation costs of running a router, and the slippage costs to rebalance on different chains

Asides from the incentive program, the LTF will be tasked on leading outreach and onboard new LPs into the network, and apply for grants programs from other DAOs/Foundations whenever possible to distribute them back to LPs.

• Bootstrapping LP for new chains

Connext will add new chains once the eagerly awaited upgrade is fully live in the near future, including Linea, Zksync, Mantle, Scroll, Cronos, and many more!

The LTF should be tasked with ensuring that there is enough liquidity bootstrapped before the support for each chain goes live to accommodate users' bridging requests. It's crucial for Connext to have sufficient liquidity for any chains that are going live to capture more growth through user acquisition. Historically, Connext has consistently attracted new users with the support of new chains on day 1, as these users discover Connext for the first time, given that it was one of the only bridges available on that day.

Similar to some of the processes from Phase 1, the LTF will reach out to DAOs and Foundations to request grants as an additional incentive for LPs for new chains going live and coordinate with current and future routers to ensure sufficient liquidity.

Steps to Implement:

A new multisig was created: 0x569a4edB518fc83eF4f82791c02B1bBECB5A69b3 where tokens for the LTF will be transferred (if proposal is passed). Amount requested will be used for the duration of the pilot program that will last for 3 months.

Member of the LTF multisig for pilot were assigned discretionary so that LTF can start contributing immediately, and consist of: Veil (delegate and proposer) Chompk (external contributor) Khalil (core team member) Algo (router operator)

In the future, LTF multisig members will be elected. Call for LTF members and the election will be held for the first time in the last month of the pilot program and after that every time the term ends (DAO can decide how long the term is to last; e.g. 6 or 12 months). Structure of the multisig should still reflect the first cohort and include individuals or groups with relevant experience together with a member of the Connext Core Team.

Note: Connext Foundation is hiring a Revenue and Analytics Lead who will drive router optimization and liquidity, and will thus be a core team member that will participate in LTF once hired, likely from December 2023. Once this person is hired they will be expected to bring different proposals to LTF to review and decide on and should be added as a signer to the multisig as a fifth member.

LTF will be open and interested delegates will be able to participate, however LTF multisig members will effectively lead the LTF.

LTF multisig members can be removed/changed outside of the elections with a formal vote.

Overall Costs:

The LTF is requesting 3.5 million NEXT to kickstart the liquidity incentive program.