EGP-5

Title: Enable Temporary Protocol Incentives for Liquidity Providers

Author(s): @MacnBTC Type: Protocol Proposal Status: Executable Date Proposed: July 20th, 2022

Sentence Summary

Enable protocol incentives to keep TVL in the protocol, and increase network distribution to more users prior to ELFI unlock.

Paragraph Summary

Discussing a fair short term incentive program before enabling transferability of ELFI. As Element’s vaults begin to expire, the necessity of incentivizing rollover is getting more and more important to help retain liquidity in the protocol. The fixed income markets require liquidity to create the opportunity for fixed rate purchasers to earn a fixed rate with minimal slippage.

Motivation

• Retain TVL in the protocol, increasing the spread of the token distribution to more power users of the Element protocol.
• Further increase distribution and the amount of ELFI holders
• Distribution of ELFI to power users providing liquidity to active (non-matured) vaults (Version 1.1 vaults).

Specification

We propose 1% of the total ELFI supply distributed over 6 months divided across all the vaults. This gives a yearly emission rate of 2% which is argumentatively enough to retain and attract users without overly inflating the ELFI supply.

This is including and counting the vaults launched recently, with the most recent upgrade of Version 1.1. The individuals LPing in those vaults have been using and supporting the protocol without incentives even after the airdrop snapshot was announced. We propose to reward their time spent in the vault at the same emission rate. This proposal would begin rewarding users effectively at the expiration of the April 29th vaults at a daily proportional rate proposed. Reasoning for this is due to the fact that this proposal is not likely to get passed until a later date, but retaining liquidity and incentivizing rollovers is necessary NOW.

Technical:

This aspect will use the open sourced Element script that performed data analysis for the previous Element airdrop to reward historical LP’ers/users.

As soon as it passes the snapshot, construct a merkel root for that date.

This proposal is an experimental measure to retain users and TVL in the protocol while GSC and governance can focus on discussing different issues and solving current ones (EGP-1, EGP-2, and EGP-3). Technical Implementation

1. Deploy the modified masterchef rewards contract which only withdraws to governance https://github.com/element-foundation/peripherals/blob/main/contracts/MCMod.sol We want to deploy the Liquidity Mining contract from the open sourced Element Repo.
2. The vote will use the script developed by @Gregory | ChainSafe as a template, but instead of calling GSC, it will call the treasury contract to transfer tokens into the Liquidity Mining contract.