This proposal would create new Volume Splitting Groups (VSGs) that omit the remaining Classic pools from the currently used groupings, signaling the removal of Classic pools from the incentive system.
Background
The Incentive Algorithm has been attempting to increase liquidity in Classic xyk pools by increasing incentives directed to each group at each monthly proposal.
Incentives allocated to specific pools by the incentive algorithm are grouped within Volume Splitting Groups. As the Classic pools do far less volume per unit of liquidity than the Supercharged pools within the same VSG, the intended incentives are diverted to the Supercharged pool by the greater share of volume.
This results in inefficient incentive spending on Classic pools, as only a fraction of the increase reaches the intended pool.
These pools have also had consistent liquidity despite full-range Supercharged pools offering a similar experience with a higher return and no bonding period, therefore this liquidity is likely abandoned and a poor use of incentives.
As these Classic pools have very low incentives compared to the return from swap fees and the Superfluid component, incentives should be able to be removed from these pools to increase the efficiency of the incentive algorithm calculations and further reducing total incentive emissions for Osmosis without heavily impacting the return of liquidity providers within these pools.
This proposal creates four new VSGs, which will replace the current VSGs for the groups in the following proposal and directly adjust incentive distribution.
Classic pools will no longer be allocated any incentives as part of the incentive algorithm.
