SpiritSwap - Proposal to Revamp the Gauges

INTRODUCTION

In DeFi, many DEXs (including SpiritSwap) incentivize liquidity on their platform by providing incentives to LPs. Most of the time that is done by way of emissions. The farm emissions are an investment by the protocol and are determined by how much volume (therefore, revenue a pool makes). If fees exceed the emissions, the protocol wins on that investment. On the other hand, if the emissions > fees, the ROI is negative, which means that the protocol is losing out on the investment.

To give a mathematical example, SpiritSwap's analytics show that only 8 out of 30 farms generate triple-digit revenue in average weekly fees, and 15 farms generate single-digit fees. To expand on SpiritSwap’s situation, the FTM-wPGUNK farm is getting up to 100 times more emissions than the weekly fees it is generating, which outlines the amount of inefficiency there.

In a highly competitive market where lower on-chain activity has impacted the performance of DEXs, it's crucial to utilize every asset as a competitive advantage. However, SpiritSwap needs to be more efficient in utilizing its incentives and farm emissions in recent months, which is concerning given the current market conditions. Therefore, it's imperative to effectively use the incentives provided to users for liquidity provision.

THE SOLUTION

The proposed solution is a significant but necessary one. It involves only keeping the gauges with the ones who are generating a positive ROI (or have a chance to generate a positive ROI), which are going as follows:

Variable AMM (40% of the emissions)

ㆍLQDR-FTM ㆍfUSDT-FTM ㆍDAI-FTM ㆍFTM-wBTC ㆍFTM-wETH

Stable AMM (25% of the emissions)

ㆍFTM-sFTX ㆍUSDC-FRAX ㆍUSDC-fUSDT ㆍUSDC-DAI ㆍUSDC-MIM

Isolated Gauge Proxy (35% of the emissions)

ㆍSPIRIT-FTM (20% of the emissions) ㆍUSDC-FTM (11% of the emissions) ㆍSPIRIT-linSPIRIT (1% of the emissions) ㆍSPIRIT-rainSPIRIT (1% of the emissions) ㆍSPIRIT-binSPIRIT (1% of the emissions) ㆍSPIRIT-tinSPIRIT (1 of the emissions)

These are the gauges that we would like to keep. Also, remember that any farm can be added onto/removed from that via a governance vote, just like this one.

Additional Proposed Changes

As the winSPIRIT pairs have been reduced from 5 to 4 in the previous proposal, we recommend that the allocated emissions for winSPIRIT be decreased from 5% to 4%. That 1% of emissions that have been taken away from the winSPIRIT pairs shall be allocated to the FTM-USDC pool.

Potential Advantages

As a result, voting fees distributed to inSPIRIT voters would likely increase because there will be more incentives for fewer pools, resulting in more liquidity concentration on those pools that are active. Most importantly, this approach would optimize farm incentivization's on SpiritSwap, making it much more efficient to invest liquidity on SpiritSwap.

Reducing the gauges like this would mean that approximately 20.36% of the emissions going through gauges that aren’t generating volume/fees for SpiritSwap will be divided onto the ones that are bringing revenue, therefore making SpiritSwap V2 a better liquidity hub, as the strong pairs would be much more incentivized from now on.

To sum it up, that 20.36% of freed-up emissions from closing these gauges will now ONLY be used to support the pairs that are bringing/have a chance of bringing revenue to SpiritDAO.

Potential Downsides

The protocols that have been bribers before have gotten their farms removed, therefore, this would mean that inSPIRIT holders would no longer receive bribes unless a new project decides to enter the space. But it’s also healthy to remember that no projects were putting up bribes in March and April at SpiritSwap. In addition, this downside also presents an opportunity for new projects to enter a field with no bribe-offering farms. With the improved efficiency of the $SPIRIT token, there may be new candidates for the votes of inSPIRIT pool users. This can be done by them via making a DAO proposal to open a farm, and bribing the DAO to receive the $SPIRIT emissions.

THE CONCLUSION

In a highly competitive environment like Fantom, the only way to survive is to continually improve and adapt. With the upcoming V3 technology on the horizon, SpiritSwap has a chance to regain its former greatness and recoup what it has lost in the past. If this proposal is approved, it would demonstrate that SpiritSwap is eliminating its inefficient components and concentrating its $SPIRIT emissions on the most efficient pairs, which is always critical in a DEX to incentivize liquidity to the maximum extent.

ACTIONS

Vote “For” : Vote for 15 gauges to be closed, and 1% of the emissions to be allocated for the FTM-USDC pool. Vote “Against” : Do nothing.