Mis-use of Marinade gauges by closed AMM

Governance
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#33

I think what you describe is dangerous territory. Just imagine Solend, Orca, Raydium, etc. would follow this approach and stop giving out MNDE rewards to LPs and instead hodl it for themselves to maximize their governance position. All their mSOL TVL goes to 0, Marinade is screwed big times, but the governance bribe wars are in full swing over who can ponzi out the most value from the MNDE gauges. Don’t think that’s what we want either.

What you describe makes sense if the investment is in growth in users who are actively contributing to mSOL ecosystem. It makes sense that protocols should allocate part of the revenue generated through the users who came for the emitted MNDE rewards back into getting more MNDE rewards to attract more users, but the key point for Marinade is that these users need to benefit the mSOL ecosystem and not just buy into a MNDE ponzi.

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#34

Lifinity got their MNDE through a grant proposal. There is now a grant committee at Marinade and your protocol could apply for it if it was relevant to Marinade.

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#35

I can’t stress this enough, but I strongly believe that this proposal risks heavily damaging the reputation of the Marinade DAO itself, but also of the value of the LM gauges, and the MNDE token in general.

To respond to your comment though, I think I’d rather imagine a scenario where the other Solana protocols actively participated in Marinade governance. I also wouldn’t be against seeing something like a MNDE treasury swap with native DEX tokens (RAY, ORCA, SBR, etc) allowing Marinade DAO to become a stakeholder in the other protocols and at the same time diversifying its own treasury.

I don’t see why Marinade DAO should punish Lifinity for taking time to participate in governance. Not to mention their following through with the offer to lock up the MNDE tokens so they aren’t sold onto the open market as most other LM rewards are.

Can’t similar arrangements be made with other protocols that would allow them to be more competitive in the weekly gauges? Couldn’t every other Solana protocol come to the Marinade DAO forums with a proposal and jump through the governance hoops needed to get their desired proposal passed just as Lifinity’s team and community did?

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#36

Agree that we want a healthy setup for MNDE! :slight_smile:

It’s a mistake to think that Lifinity gets MNDE for free. Lifinity is providing liquidity, which entails both price risk and impermanent loss risk. On other DEXs, these risks are assumed by LPs, which are external to the protocol; the protocol takes on no risk. In the case of Lifinity, the protocol itself provides the liquidity and thus takes on the risks. Just as LPs on other DEXs are compensated for the risk with MNDE rewards, Lifinity is also compensated for the risk with MNDE rewards.

Originally, Marinade manually determined how much MNDE emissions went to each protocol. The switch to gauges was made for a variety of reasons, but ultimately it was seen as a superior model. Most people are aware that it is an emulation of Curve, which has proven to be extremely successful. The model is designed for protocols to acquire tokens and vote for their own gauges (as opposed to individuals being incentivized to lock and vote, for example, as explained in my previous post). And that is precisely what Lifinity is doing.

This will lead to MNDE losing significant utility and prevent new participants to come in.

On the contrary, CRV gained significant utility through its gauges, even as each protocol showed differing levels of willingness to purchase CRV to participate in voting. Some early projects saw the benefit of buying and locking CRV, and as time passed more projects joined in. This only accelerated with the introduction of bribes, and if I’m not mistaken Marinade is currently building out this functionality for MNDE.

Through the discussions here and elsewhere, I am getting the sense that some protocols prefer the former method of the Marinade team manually determining emissions. This way, there is no need for protocols to make an investment in MNDE and they can receive assets to incentivize usage of their protocol for free! Or they are fine with the gauges…as long as no protocol accumulates MNDE so that the share of rewards for protocols that don’t accumulate decreases over time. But if there’s some sort of implicit agreement that protocols can’t accumulate MNDE, then we are just anchoring to some arbitrary distribution based on the initial amount of MNDE that protocols happen to have. I see no good reason to do this. On the contrary, it seems obvious to me that Marinade should want protocols to accumulate their token.

Finally, I want to mention that any protocol can do what Lifinity is doing or similar if they are willing to put in the effort. For example, protocols can create a system where users’ MNDE rewards are locked until a future date, and in the meantime the MNDE is locked and used to vote for their own gauges. Get creative!

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#37

Whenever market conditions get tough, market makers / LPs are incentivised to withdraw their funds. On a regular DEX I stop earning MNDE rewards the second I do so, and also my rewards are now up for grabs for other potential LPs.

With Lifinity that is not the case, Lifinity can stop market making when conditions are bad, but still receive MNDE rewards, there is no punishment for withdrawing liquidity. Why would Lifinity care to increase the liquidity when market conditions are bad if they get the rewards anyways?

If MNDE and mSOL goes to 0, sure LFNTY holders will see some impact but nowhere close to the impact real LPs would see, so many more assets go into LFNTY.

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#38

To clarify for people who weren’t around for the proposal: part of Lifinity’s partnership proposal included requesting 2M MNDE from the DAO, received as an NFT, which Lifinity committed to holding for at least a year.

While they called it a “grant” in the proposal, it was meant as a replacement for the volume-based fee on their original proposal, and outside the parameters that the grant committee can consider. Any protocol wanting a similar amount would still need through a governance vote.

Update: to clarify… a proposal has passed allowing us to form a grant committee. We have yet to form it, but I plan to get the discussion going soon.

@Hao You can read more about the grant committee and the parameters where it can assign MNDE without going through a governance vote on this proposal.

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#39

even more a reason to stop the feedback loop, since more MNDE to Lifinity does not mean more liquidity.
If e.g. Orca controls 100% of MNDE votes, there will be whatever TVL the total MNDE rewards allow for on Orca.
If Lifinity controls 100% of MNDE votes, there will be 1M TVL on Lifinity…

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#40

I think you and @Durden miss the point slightly here. The issue is not that protocols like Lifinity get big grants and hold a lot of MNDE, the issue is that they can use all their MNDE to vote for rewards, collect all those rewards for themselves, and use them to vote for even more MNDE in the next cycle leading to this exponential feedback loop.
If every protocol would do this, you get the MNDE ponzi that @Hao is describing, without driving any actual value to mSOL/mDAO.

To make things concrete: Let’s say Orca would just decide to stop showing their mSOL/USDC whirlpool on the website, put 1M of their own money in it, not allow any deposits, collect all MNDE rewards, use them to vote for more rewards next cycle.
Why would mDAO want Orca to do this, what is the benefit for Marinade that Orca is switching to this? Surely you can see that would be an absurd move of Orca. Yet this is exactly what you are suggesting here that Orca should be doing “just as Lifinity’s team and community did”

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#41

Our mSOL-USDC liquidity is permanent, unless Marinade violates the terms of the grant, Lifinity decides to dissolve, or something like that. If I remember correctly this was discussed somewhere in the thread of the proposal.

Whenever market conditions get tough, market makers / LPs are incentivised to withdraw their funds.

As an aside, I mentioned this earlier but one of the benefits of Lifinity is that we don’t decrease the liquidity we provide even as market conditions get tough. It’s stable regardless of the price of MNDE.

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#42

But also less MNDE to Lifinity doesn’t mean less liquidity, which is beneficial to Marinade. It goes both ways.

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#43

If every protocol would do this, you get the MNDE ponzi that @Hao is describing, without driving any actual value to mSOL/mDAO.

This is entirely dependent on the exact model being used. For example, it’s not true of Lifinity’s model, because the MNDE acquired ultimately belongs to token holders. Protocols permanently keeping all rewards for itself is just one possible model, and I certainly don’t recommend it. As I mentioned in a post above, protocols could simply delay the distribution of MNDE rewards to LPs, using it to lock and vote in the meantime. Ultimately, it’s a matter of willingness to withhold instant gratification (lock and vote now, distribute later).

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#44

so the conclusion is that it is in the best interest of mDAO to send less MNDE to Lifinity and put it to better use elsewhere? :stuck_out_tongue_winking_eye:

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#45

I think this thread is looking more and more about people looking after their own interests and loosing sight of the bigger picture. mSOL adoption and increased use. Lifinity partnership came about as there was a need for ‘Deeper’ liquidity for mSOL and the fact Lifinity concentrates liquidity by up to a factor of a 100X is a net positive in this regard. Its disingenuous to suggest Lifinity has not lived up to its side of the bargain here, and apart from offering a valued service, it executed professionally every step of the agreement that was voted upon.

Ive been researching Lifinity since late December 2021. Ive used SRM and RAY since day 1. Most of you know me as ive been on Marinade since the beginning.

Traditional LM based Dex structure is already outdated. Its simply unsustainable and by its nature cannot last long term. Witness race to the bottom on fees to just try grow TVL. And no protocol appears to be looking at a traditional profit making business model.

POL / Concentrated Proactive AMM is the present and the future. Pyth and Jump are 100% committed to Oracle driven stock exchanges and have very deep pockets. Lifintiy is the closest thing right now to that and most resembles a tradfi MM.

This is why its great Marinade community voted to add lifinity as a partner and seek diversification over traditional lp pools.

I invested in lifinity initially in the flares and then at IDO. I follow them daily. I have Witnessed the team deliver and the culture & execution is exemplary.

To me this its important that we acknowledge the benefits the Lifinity partnership has delivered. Its a better solution than what we currently have in place in every way imho, and its moving with the times. Its much cheaper and more efficient. Its brought MNDE / mSOL awareness and adoption in lifinity community, so much so we voted to lock up our MNDE from the guages. And this is a bad thing!!! Should we dump it as soon as we receive - would that be better :thinking: Also a hell of a lot of the community bought MNDE and Octopus NFTs…this is helping to drive Msol / MNDE adoption organically which is the strongest and stickiest imho.

Also, anyone try trade mSOL on FTX? I have and the spread is terrible (was 30 points)…actually discourages SOL folks from holding mSOL. Since Lifinity ive been back holding more mSOL and therefore confidently trading knowing im working with a tight spread. Dont underestimate how important this is to mSOL holders.

https://twitter.com/PigFahy/status/1553449137013760004?t=mX_lMYRcRfYXRtxSPcArPw&s=19

In conclusion we dont want this to turn into a witch hunt for a partner that has done everything asked of it and more. Lets be careful as we wanted a decentralized DAO. If something needs amending then we are free to table a vote. Buy your MNDE to play.

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#46

totally agree on Lifinity’s contributions, I don’t think anyone here is trying to undermine the benefits the partnership has brought to the ecosystem.

At the same time keeping the bigger picture of the goal to increase mSOL adoption and use in mind, we can’t ignore the reality that the current gauge is going to hurt both mSOL adoption and use in the long run.
Every concern that has been brought up has been solely focused on the exponential feedback loop that the current gauge enables, I don’t see anyone saying Lifinity should not be able to get more MNDE in addition to the grant or even that they did not deserve the 2M MNDE grant. It is just the exponential feedback loop that presents a practical issue because:

a. It encourages other protocols to turn MNDE gauges into a ponzi as outlined in my and other examples; the alternative is that Lifinity will eventually own virtually all MNDE drying up all other gauges and we end up being stuck with 1M worth of mSOL liquidity in perpetuity.
b. Lifinity doesn’t need more MNDE to maintain TVL (as @Durden admitted), so there is real opportunity cost in allocating more and more MNDE to Lifinity every cycle.

I think the goal of this discussion should be how the gauge can be reworked into something that is still attractive for Lifinity, while also making sure it leads to the desired increase in mSOL adoption and use in the overall ecosystem.
The unfortunate reality right now is that the current gauge is not helping to regulate mSOL liquidity but purely a vehicle to drive more value to LFNTY holders at the expense of mDAO incentives.

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#47

The way I see it, there are 3 paths forward:

  1. Lifinity begins distributing MNDE rewards so that their share of rewards no longer increases. MNDE dumping accelerates a bit.

  2. Other protocols either begin buying MNDE or temporarily retain users’ MNDE rewards to lock and vote, increasing their share of rewards in lockstep. MNDE dumping decelerates or is reversed into accumulation.

  3. The way the gauges work is changed.

I am of course biased, but in my mind 2 would be the best outcome since it increases the value of MNDE and creates an invaluable narrative around it – the MNDE Wars. 3 could also be good, but we would need a truly innovative idea, one that could be expected to outperform Curve’s proven model. 1 is the least interesting and directly goes against the MNDE Wars narrative since it discourages MNDE accumulation.

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#48

The discussion here is if MNDE incentives should go to a closed private pool where:

  • the amount of liquidity does not depend on the incentives
  • the MNDE does not get distributed

The MNDE incentives distribution core objectives are:

  • Increase mSOL liquidity in the market, more MNDE distributed => more mSOL liquidity (Lifinity gauge is failing here, the depth does not depends on incentives)
  • Distribute MNDE governance power in the community (Lifinity gauge is failing here too)

The entire system of incentives is based on the idea of decentralizing voting power, and you’re on a self-reinforced feedback loop generating concentration that grows exponentially. We need to fix this problem.

Gauges were created to distribute incentives to open, scalable, community fed liquidity pools and other community fed mSOL uses.

Before that, we were not distributing increasing MNDE amounts to private pools that can’t grow organically, that makes no sense for Marinade.

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#49

The current situation has nothing to do with “Curve’s proven model”, you really should stop bringing that up as an example.
CRV means one DEX is giving out rewards and multiple tokens compete for building up liquidity for their token on that DEX. They are competing for LPs that “I know where I want to provide, WHAT token do I provide liquidity for?”
MNDE is one protocol giving out rewards for liquidity on one token and multiple DEXs compete for providing liquidity for that token. They are competing for LPs that “I know what I want to provide liquidity for, WHERE do I do it?”

In addition, part of the reason CRV wars work is because there are simply not enough alternatives for a protocol to build up good liquidity in other places, so they are more required to participate in CRV wars.
Meanwhile for MNDE, the DEXs and other potential mSOL integrators, don’t need to nearly rely on one pair / token as much. While it probably would suck, Solend, Orca, etc. are gonna survive if they had to remove / lower their TVL in mSOL and mSOL/USDC, esp. with alternatives for liquid staking popping up.
Just saying f it and bailing on mSOL is a very viable option if they deem the MNDE wars to be pointless because of players with “unfair” advantages

For the option you are lining out:

  1. isn’t doing anything unless Lifinity also opens up to external LPs to provide liquidity and farm MNDE, so not really an option unless Lifinity fundamentally changes

  2. is not going to help since Lifinity users can just sit through whatever lockup other protocols pick and outcompete this way, since -again- LFNTY holders do not have their money directly at stake in the pool

To give more color to 3, some viable options in my opinion are:

  1. the Lifinity gauge gets removed, Lifinity can receive more MNDE through additional grants if needed

  2. the Lifinity gauge gets a fixed limit on votes that can be committed to it to avoid exponential growth

  3. the amount of MNDE rewards awarded to Lifinity needs to directly correlate with how much TVL is provided on Lifinity (might be hard to enforce)

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#50

I think we should not make a specific rule aimed at Lifinity. They are showing us that we have a problem, that we didn’t understand correctly the implications when we created the Lifinity gauge, and that the problem must be corrected.

We also need general rules on gauges creation in the future, so MNDE distribution is always aligned with Marinade objectives. That’s basic. The Lifinity gauge should be disabled because it does not aligns with Marinade core objectives for MNDE distribution at all, and the problem was not noticed on the original proposal.

Any gauge with the same problems should be disabled/never created.

The Lifinity gauge is failing all core objectives. It is not that Lifinity is getting exponentially more MNDE because doing a great job at building mSOL liquidity (liquidity is fixed) or decentralizing MNDE governance (MNDE is concentrated)… it is the exact opposite of that.

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#51

sorry I missphrased in my last post using Lifinity as scapegoat while this should be applied to “closed AMM” gauges in general.
Very much agree that this needs to be a general rule moving forward so we don’t have the same conversation again whenever the next “closed AMM” shows up

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#52

Note: I’m cool with what Lifinity does as closed AMM providing mSOL/USDC liquidity. We paid a fixed 2mm MNDE grant for that and for the development of the oracle, and Lifinity is getting close to $430k/year in profit from the user’s swapping in their private pool. That’s good.
But the gauge itself is an exponential problem, it is contrary to Marinade objectives and should be disabled.

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