Proposal Details
Proposal #757
Proposal title
Increase Uptime Incentives default to one minute
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Proposal #757 description
This proposal activates the default global uptime incentives parameter for Supercharged pools to be one minute.
This increases the breadth of liquidity in Supercharged pools by requiring that positions remain in place for one minute before receiving Osmosis incentives or External incentives with no uptime previously specified. The tradeoff for increased liquidity resilience to volatility is that capital efficiency is lowered.
What are Uptime Incentives
For an overview of Uptime Incentives, see Proposal 737.
Choice of Default Duration
Incentives have previously been emitted with a hard-coded 1ns uptime. Any effective uptime must be more than one block, currently ~5s, in duration, as this is the shortest period of on-chain action.
Market-making bots constantly reposition to the narrowest possible liquidity positions on many incentivized pools. These provide excellent depth of liquidity at the active tick range; however, there is almost no breadth provided by these bots. If a bot’s position leaves range, it can withdraw liquidity and redeploy within the new tick range with a minimal disadvantage compared to the incentives received.
If this position is not replaced, then liquidity must be provided by the positions that previously had liquidity that was not entirely in range. Due to the high capital efficiency of these bots, these less efficient positions receive a much smaller share of both swap fees and Osmosis incentives.
As Osmosis incentives act as a fee subsidy, the withdrawal of these narrow positions before the uptime has passed will cause the retroactive incentives earned to be redistributed to those positions that have met the uptime requirement, resulting in wider positions being potentially more profitable, when comparing incentive accumulation alone, than a narrow position which is repositioned frequently during times of volatility.
Moving Osmosis incentives to an uptime model will likely cause these active liquidity providers to split into two types.
- Those that ignore the Osmosis incentives and target the narrow tick range to provide depth with little breadth while receiving swap fees only.
- Those that compete to be in the narrowest tick range that still reliably receive Osmosis incentives for a multiple of the uptime. These will receive slightly lower swap fees than the narrowest range but higher incentives than previously.
A higher uptime should, therefore, cause a flatter liquidity curve. Supercharged pools lose capital efficiency in exchange for more reliable liquidity during periods of volatility. Uptime should be as low as possible to provide an incentive to stay in the pool and provide liquidity to a broader spread while not reducing capital efficiency excessively.
This proposal would directly implement an initial uptime of one minute, ensuring a minimum breadth of liquidity available while minimally impacting the capital efficiency of Supercharged pools.
Further proposals may experiment with adding incentives via the external incentive gauge creation mechanism, which can add custom uptimes per pool to see the impact on the liquidity curve of higher uptimes.
Forum Thread:https://forum.osmosis.zone/t/increase-uptime-incentives-default-to-one-minute/2468