[RFC] Euler Experience Points (XP) Initiative

Ideas
1

Introduction

Euler is set to relaunch in the very near future. Following discussions with key protocol contributors, we would like to put forward the Euler Experience Points Initiative — a system for tracking and reporting the experience points (XP) of key classes of protocol users. The purpose of this is to acknowledge users of the Euler protocol to more effectively build the community and ecosystem of Euler.

We recommend the DAO carry out an annual review of the XP initiative to determine what, if anything, the DAO wants to do to reward accrued XP.

Rationale

Which classes of users should accrue XP? How and when do users accrue XP? This is a topic for the Euler DAO community to debate.

The suggested implementation of this initiative is to allocate XP over 4 month blocks of time called ‘seasons’, and to custom-design how XP is accrued according to the DAO’s needs and success of prior XP programmes.

In Season 1 we suggest XP should initially be allocated to two different classes of users: liquidity providers and vault creators. Why these users? Because at launch there can be no deposits if there are no well-designed vaults, and there can be no borrowers if there isn’t any liquidity.

In later seasons the DAO might decide to additionally award XP to other types of users, such as borrowers or traders.

Specification

Here is an initial specification for the initiative. As always, we welcome feedback, questions, suggestions, and debate.

Season 1

Create two programmes at launch:

  1. Liquidity Providers; and
  2. Vault Creators.

1. Liquidity providers

For liquidity providers, we suggest creating lpXP, where 1 lpXP accrues per $1 utilised liquidity per day for providers of ETH or USDC liquidity into verified governed or ungoverned classes vaults. We have suggested awarding XP to liquidity providers of these assets because they are the main assets DeFi users want to borrow today.

2. Vault creators

For vault creators, we suggest creating vcXP, where 1 vcXP accrues per $1 value generated through vault fees for Euler DAO. Recall that vault fees are auctioned periodically through FeeFlow. The value generated would be measured at the market price at the time of fee conversion & transfer to the Fee Flow contract. Note that this system would be very difficult to game because vault creators only get awarded vcXP if they generate real value for the DAO. A vault that creates value for the DAO, regardless of what asset it holds, will get points.

Season 2

The second season is up for debate. The DAO might consider keeping points for liquidity providers, but also start tracking trading volumes of users, trading profits of users or award points for a more diverse set of markets, and so on. The rules should be settled at least 4 weeks prior to the start of the season.

Season 3

The third season is also completely up for debate, and can be designed based on the outcome of the prior seasons. Again, the rules should be settled 4 weeks prior to the start of the season.

Next Steps

In order to implement this initiative, we request that Euler Labs build the required interface and tracking system in order for this initiative to go live when the front-end on app.euler.finance is available. There is no active request for a distribution from the DAO to support this initiative.

Disclaimers

We recommend an annual review be carried out to determine what, if anything, the DAO wants to do to reward accrued XP, but that it should otherwise be made clear that XP itself has no inherent value and confers no rights to those addresses it accrues to. In the event the DAO does opt to reward XP holders in the future, those rewards should not be made eligible to users from the US or any other type of user that does not adhere to the terms of service listed on euler.finance.

It is important to say that under this initiative vcXP and lpXP are not equal and cannot be exchanged 1 for 1. Experience points for different classes of users should always be measured in different units and tracked separately from one another.

Finally, we suggest that any liquidity provider or vault creator using or creating custom-vaults which are designed simply to game the XP should be excluded from the programme. Exclusions should be obvious, but could be voted on by the DAO if contentious.

3 Likes
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FYI link is dead

(see here for definition of vault types).

3

This initiative helps to address a complicated question: how do we incentivize usage of a protocol post TGE without directly paying through emissions? While I am not the most supportive of points in general, I understand their place in a protocol’s ecosystem growth toolkit.

Ideally the protocol’s key value propositions and design will drive significant organic growth, my experience growing other DeFi protocols and observing self-proclaimed “superior” technologies know that relying on that alone is a recipe for disappointment.

As we consider what we want the points program to achieve, we must consider why does Euler exist? In my eyes, its purpose is to generate revenue. With that in mind, I propose should a time come that these points provide some form of reward (financial or otherwise) have a significant difference in entitlement. Vault Creator XP should be worth a drastically higher amount more than lpXP, as this will reward contributions of higher value to the DAO.

Should another type of XP be included whereby integrations with other protocols are more heavily incentivized? I want to avoid an overcomplicated points system but not every $ of TVL is as useful as another - sometimes the first dollar from a partner protocol can be 50x as difficult to organize as the 10 millionth from a whale already well plugged into the system, and I want the DAO to be able to recognize these efforts. I’m not sure if ultimately this could be needless solutionism but it is something that springs to mind.

Points programs need a finite time frame and clear KPIs so I value these being included here. I do not under any circumstances want those early depositors to have their faith go unrecognized so we must be generous should a reward be decided on. If we are perceived as farming DeFi participants then it may result in souring relationships with a community we cannot afford to alienate.

Should a conversion event ever occur, I do not want a DAO to ideate on how best to end a “season”. I want service providers to bid on a contract to convert the XP and ideally present 3 options for the DAO to have the ultimate say on. This could emulate the success of Arbitrum’s STEP program in inducting both high quality RWA vendors and high quality service providers into the ecosystem and avoids needless circling by a DAO incapable of parameterisation.

I will vote in favour of this, but it is a watchful “yes”

4

Anthias Labs has reviewed this proposal and discussed with @river0x. We agree that not all liquidity is the same. We would like greater granularity around which assets to incentivize the supply of. The end game here is to increase borrows and thus increase protocol revenue, so we place an emphasis on this goal as opposed to just attracting liquidity via points for the sake of TVL, which does not increase protocol revenue.

Typically, a few assets compose the majority of borrower interest. These assets are ETH, USDC, and USDT. Because of this, we think 60% of supply-focused XP should be deployed across these three assets. The remaining 40% can be distributed among other assets. XP distribution should work in a bid system whereby vault governors utilize the forum to emphasize why their vaults should receive greater incentives than others, which the DAO can then vote on. This will likely involve a significant focus on the interestFee parameter: vault governors can lower fees and attract more XP from the DAO.

Lastly, we disagree that no XP should be allocated to borrowers for Season 1, as the goal of XP should be to garner revenue in the form of borrows. We believe 20% of XP should be allocated to borrowers in Season 1, with a similar bid system implemented. This 20% can be taken from the vault creator XP side, as the two (vault creation and borrowing) are intertwined.

Anthias Labs or another DAO contributor could handle the implementation of the XP bid system if the Foundation would rather not handle this.

5

I agree spray and pray to be avoided. The current idea is only for USDC and ETH liquidity if I’m not mistaken, which I think are the right assets to attract liquidity for, because those are the things most borrowers want to borrow.

On incentivising borrowers I understand the idea for that, but think that the added complexity of the system to users and the devs brings its own drawbacks. Many borrowers will already be rewarded if they are using collateral ETH or USDC, or will anyway benefit from lower rates for borrowing those assets owing to the incentives involved.

All this being said, I do think points programmes work best when they can be adapted to fit changing needs, as long as it is transparent and feasible from a technical standpoint. I think getting some support on guiding that from DAO stakeholders would be great. We’re here at Labs to build whatever people want.

Right now we’re just building the tracking leaderboard for XP. Once it’s up and running it can be adapted pretty quickly if people want. That’s the beauty of points programmes.

1 Like
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GM Euler Team!

The Euler XP Initiative sounds like a great idea to align lenders and vault creators around the Euler Protocol.

As an Euler Integrator, Superform Labs has some suggestions around what would be useful from an integrator standpoint to best support this initiative.

Tracking XP

  1. A way to track XP earned for any given address:

    • Total Amount earned
    • Broken down by vault, chain, and source

    Ideally, XP earned can be tracked onchain but an offchain solution works as well.

    • For tracking points on chain, Aloe’s solution works very well. They use something similar to Compound v2’s COMP emissions contract. This way the emissions for points are calculated on the contract only. As new deposits come in user points are calculated prorata without having to get external data and onchain accounting is maintained as if the points were a token. Yield Protocols’s reward contract is also inspired along similar lines and is a good starting point as inspiration to build an onchain points distribution system.
    • For tracking points offchain, Ethena’s Sats program has a really good endpoint where they handle all of the indexing on their end and respond with user’s points balances broken down by source like borrowing, lending, etc. Their endpoint is as simple as app.ethena.fi/api/referral/get-referree?address=. This is efficient for the integrators who can do accounting of points collected on their end.

  2. A way to get the earning rate for any given Euler vault:

    Sometimes different vaults earn rewards/points/XP at different rates. The proposal suggests “1 lpXP accrues per $1 utilised liquidity per day.” Given that this rate could change, we feel that surfacing this information is relevant to future-proof the API.

    • A good example is Exactly Protocol which does a great job by having a suite of periphery contracts to support their rewards program. Exactly Protocol’s Previewer maintains the reward rates, making it easy to fetch onchain.

  3. When XP data is fetched, it should be available and up-to-date:

    • When a new vault is created the rewards data should be available immediately or soon after.
    • When earning rates change, those should be reflected immediately.
    • XP should be allocated to addresses relatively frequently (e.g., every hour, no longer than every 24 hours).

Rewarding Accrued XP

We would also like to suggest to the DAO a few best practices for rewarding accrued XP if that reward is a claimable token:

  1. The claim function should be open. Some protocols like Superform or Spectra use aggregator contracts that can’t call external functions.
  2. If the claim function is not open for whatever reason, let protocols assign addresses that can claim on behalf of a contract. This is what Exactly does: ✨ rewards: support claim on behalf of account by santichez · Pull Request #733 · exactly/protocol · GitHub

We’re happy to dig deeper on any of these suggestions/ideas. Superform Labs has integrated onchain and offchain rewards for 20+ protocols, and we’d love to see Euler adopt some of the best practices we’ve observed in the space.

7

Appreciate all of the comments and feedback on the Euler Points Initiative! The Euler Foundation is hosting an open Office Hours tomorrow (Tuesday 3 September) at 12pm EST/5pm BST to provide a platform for community feedback.

It would be great to hear from @river0x, @blockdaddy and @0xBroze.Defishy. The call is open and we would encourage community members who are interested in this initiative to come along, whether it is to build their understanding and context or to provide feedback and suggestions.

:phone: Please use this link to access the Google Meet.

The call will start at 12pm EST/5pm BST on Tuesday 3rd September.

1 Like
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Will be there @alisha.eth :saluting_face:

1 Like