[DIP-22] Reallocate a portion of existing DFX rewards from Polygon to incentivize liquidity on Arbitrum (for CADC & GYEN)

Overview:

DFX has expanded to Arbitrum. At present, only CADC and GYEN are supported since only these two have native support on the L2 by their respective issuers.

In order to attract liquidity in these two new pools we need to provide DFX incentives. We do not want to increase the total amount of DFX rewards given each month so this proposal calls for the reallocation of a portion of DFX rewards already used to incentivize liquidity on existing stablecoin pools, specifically DFX pools on Polygon.

Motivation:

Arbitrum is one of the most popular Ethereum scaling solutions available out there–it provides faster speeds at a significantly lower cost all the while having the same level of security as Ethereum. It should only be natural for the protocol to expand to such a popular L2 to further scale our stablecoin ecosystem.

Specifications:

The two mentioned stablecoin pools are already deployed on Arbitrum and only need LP incentives to attract liquidity.

Note: Gauge rewards on Ethereum are preloaded in the distributor contract, removing rewards from the contract would likely cause issues with gauge rewards distribution. In the meantime, while we figure out a way to properly redirect rewards on L2’s via gauge voting on Ethereum mainnet, rewards will have to be reallocated from Polygon as the pools there employ conventional staking contracts.

Proposed Changes:

Currently, there is approximately 113,100 DFX allocated to incentivize liquidity on Polygon. In order to incentivize liquidity on Arbitrum, but not increase the total amount of DFX distributed each month, a portion of Polygon DFX rewards will be reallocated to Arbitrum.

We present two options:

A) Reallocation based on the current point system we have for Polygon. 45694 DFX will be freed up to be used on Arbitrum.

B) Reallocation based on liquidity utilization (7d volume/liquidity ratio). 31000 DFX will be freed up to be used for Arbitrum.

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Pros:

• This will create demand for non-USD stablecoins on Arbitrum as liquidity providers will want to take advantage of the reward incentives for participating.

• Incentives will bootstrap liquidity for non-USD stablecoins on DFX via Arbitrum

• Reallocation of existing rewards as opposed to adding new rewards will not flood the market with additional DFX.

Cons:

• This will reduce the current reward allocation on Polygon.

• The reduction in reward allocation to the existing Polygon pools will lower APY.

Summary:

DFX has expanded to Arbitrum and currently offers CADC/USDC & GYEN/USDC pool. These two pools need incentives to attract liquidity. Proposal calls for the reallocation of rewards from Polygon–this will free up either 45694 or 31,000 DFX. Use the DFX to incentive liquidity in the new Arbitrum pools.