DRC - Shifting from LP rewards toward market maker rebates

Summary

• Market makers are a critical component of the dYdX exchange, and to compensate them for the liquidity provision service that they provide, they receive incentives.
• Currently, top market makers receive incentives in two forms: a rebate on their trading fees, and LP rewards each epoch.
• We suggest that the rebate be increased from 0.5bps to 0.85bps, and that the per-epoch LP rewards be reduced by 50% from 1,150,685 DYDX/epoch to 575,342.50 DYDX/epoch.
• We expect that this reduction will lead to improved exchange liquidity at or near the the top of the book; it will be roughly economically neutral for LPs; and it will meaningfully reduce monthly DYDX emissions.

Proposed Change

• Recommend to dYdX Trading to set the maker rebate at 0.85bps. Note, the maker rebate is not a community controlled parameter and is under the discretion of dYdX Trading Inc.
• Reduce the LP rewards by 50% from 1,150,685DYDX/epoch to 575,343 DYDX/epoch. The 575,342 DYDX/epoch that are not distributed to LPs will vest to the rewards treasury, which can be redirected by a DAO vote.

Next Steps

If this vote is successful, then the reduction of LP rewards requires an on-chain vote falling under the short timelock.

Voting Options

• YES: enact the proposed changes above.
• NO: do nothing.