ethFactor: Incentivizing most useful liquidity


Market Making is an activity that in traditional markets is needed specially in the more traded pairs. If we review what are the more traded markets in the world. Forex is the largest and most liquid market in the world and specially Euro/Dollar. In 2010, it accounted for more than $3 trillion of daily trading. Liquidity is not equal distributed in all the pairs all over the world, because it will be very inefficient to do it. Thats the reason usually a lot of trading is related to Currency A - Dolar - Currency B. That is probably the most important assets in terms of providing liquidity.

To have liquidity of Dolars will impact in the liquidity of all markets. If we compare with Crypto Markets, probably ETH and Stable Coins is also in the center of all pairs. As I will say most of the trades usually rest in ETH or stable coins after trading other crypto asset.

If we want to deliver usuful liquidity I will say that we have to incentivice where we add more value or more efficienci for people who is using Balancer. If I will think about I will say that for sure that ETH/DAI/USDC will be one of the most important pools to deliver efficiency to our users. And not all the Pools, only the biggest one with less comision

Probably the Pool could be that one like this

What if we incentivice this concrete Pool to create the more important Pool for ETH/DAI/USDC. How much comission we will save to the trading users in Crypto?

To incentivice the biggers pools of the most traded assets we are delivering the most usefull liquidity. Probably we have to think in ETH BTC and Stable Coins. That liquidity for sure will be more usefull, and it can also impact the rest of the pairs.

In some way we have to incentive to create the most effiency exchange. If we achieve that, that will be the best way to invite to integrate Balancer as we will have the best price.

We can test with ETH/DAI/USDC in order to check that hypothesis.

I think it’s the right thing to do.
This is where volume is.

I’m afraid that if we make the proposal too specific, BAL holders not pooling that specific liquidity will vote against to protect their rewards.

I think that expanding it to ETH-USD-BTC triangle pairs will make it more likely to pass. Possibly expanded by a few more currencies but it would be hard to agree on just a few more.

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If we achieve the largest pools of ETH-USD-BTC in Crypto that will really make us the most competitive price of the most traded assets.

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Being too specific and targeting just this pool:
will lose votes of people pooling for example ETH against mUSD and it is a large pool.

It depends of what is the motivation of BAL Holders. If the motivation is the long term, I think the ETH/USDC/DAI will offer more value than the ETH/mUSD as far as USDC and DAI will continue leading the stable coin and it is not surpassed by mUSD.

the mUSD rigth now has it own reward to be very profitable. And probably they can move to other AMM is rewards change and incentive other AMM.

IMHO as a BAL Holders we have to think about leading the most traded pairs because they will generate the best competitive advantage. The liquidity will grow around this big Pools. We have to support all the projects that want to use our platform, but without leaving our main mission.

There’s been some really great discussion around this in governance channel. I’ll put it down here there was some support for extending it to simply incentivise any of WETH, WBTC, DAI and USDC

I really like the idea of incentivising a single monster big:
40 ETH
20 DAI
pool (or similar). Preferably with a low fee, maybe 0.1-0.2% range

  1. It will shift rewards away from low quality coins like DZAR and PRO
  2. Our customers will pay less gas to trade with a single pool rather than with fragmented pools - big gass efficiency
  3. Great arbitrage thanks to gas efficiency - arbitragers will have lower threshold to generate volume by trading with our pools


Think it is worth experimenting with but maybe timeboxing a 3 month period to see what the impacts are? (at end of three months, we are analyse the impacts, ROI etc.)

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