Title: [RFC] Euler XP Bid System Implementation
Author(s): Anthias Labs
Related Discussions: [RFC] Euler Experience Points (XP) Initiative
Submission Date: 3 September 2024
Overview
This implementation framework will outline how Anthias Labs would undertake the implementation of the Euler XP initiative—bid system. This XP system will run in tandem with the XP initiative outlined by the Euler Foundation. This doc will be a more comprehensive version of this post we made to the Euler forum.
Charlie, co-founder of Anthias Labs, previously worked with the Chaos Labs teams on the implementations for their incentive programs for both dYdX v4 and Optimism’s migration from USDC.e to native USDC. From executing these programs, he came to realize the necessity for incentive programs where the top users (who are driving revenue to the DAO) also help direct the incentives directly. Without user involvement, protocols end up spraying incentives to non long-term holders and places that eventually lead to greater sell pressure on the native token. This is what we will seek to avoid in this XP system implementation for Euler.
Goals
The primary goal of the Euler XP Initiative should be to drive revenue to the Euler protocol via borrows. Secondary goals include increasing liquidity (TVL) and the number of new vaults launched on Euler V2.
A point to note here is that the tangible purpose for this XP initiative should be to drive early activity on Euler V2 in the first initial months after launch. This will help bootstrap the ecosystem early. However, the XP system should not run in perpetuity like other points programs have—users are tired of points. This XP initiative should be aggressive and relativity fast to reward those early users of the protocol. Given the product innovations of Euler V2 and the brand Euler has already built, this XP system is likely not necessary to start activity on the protocol, but it is sure to be beneficial if implemented properly.
Considerations - Goals
The primary goal above regarding borrows is fairly fault-proof, as in it is difficult for this metric to be gamified. The two secondary goals can be gamified and can extract value from the protocol without adding equivalent value. It is for this reason that we suggest deploying XP only to vaults creators that “bid” on this XP.
Why The Bid System?
Why the Bid System instead of Euler DAO just setting a determined percentage for various assets and allocating directly?
- Allow top community members to vote directly on the vaults they want to use the most, which will drive further usage and thus revenue to the DAO.
- Force fees down via competition.
- Incentivize greater DAO participation on the part of vault creators by incentivizing them to actively engage with the DAO and its delegates.
Without the bid system, we will spray XP to underutilized markets that the DAO does not want to prioritize. With the bid system, we can attract the most capital to vaults that want this XP and are willing to vote for it.
Implementation of The Bid System
We suggest the implementation of a bid system whereby on the first Monday of each month between 9am-9pm UTC, any desiring vault creators submit a forum post under that month’s “Vault XP Bid” main post informing the community of why the DAO should allocate them a portion of the monthly XP (Monthly XP amount will vary on a month to month basis, so as to avoid gamification). Then on Tuesday of that week, a Snapshot post will go live for EUL token holders to vote on which vaults they think should receive the greatest incentives. XP will then be distributed over the month in proportion to the percentage of votes that each vault received. (E.G. If a vault received 12% of the votes, it will receive 12% of XP for that month).
After the month has concluded, the vault creator/governor/manager can submit another forum post outlining the performance of the vault, any fee changes made, and why they should be considered by the DAO for XP this next month.
Vault creators, in their monthly posts, then also determine and outline how they would like their allocated incentives distributed if they are voted through via the DAO (E.G. LRT Vault Curator #1 says that 30% of his vault’s XP will be allocated to ezETH suppliers and 70% will be distributed evenly across all borrowers).
This bid structure + monthly timeline can be revised actively via an Euler DAO proposal + vote, but should be examined in depth by the DAO after one month and three months to adjust based on the needs of the DAO and market changes. We would therefore recommend an initial trial period of 3 months for this XP initiative.
Considerations - Bid System
A primary consideration with respect to the bid system here is that the Snapshot turns into a popularity contest where a couple vault creators vote for all the XP for their own vaults, which borrowers do not want to use.
We address this consideration in two ways:
- One solution is to have a ceiling of the max percentage of monthly/weekly XP any one vault can receive. That way, no one or two vaults can vote to have all the XP go to them. We would set a cap of 20% max XP to one vault to start. If not enough vaults participate in the bidding process each month (say we’re at 60% total or something because 3 vaults got the max and no one else applied), the rest of the incentives can be deployed across the rest of the vaults evenly. However, we would highly doubt this will be the case. If it is, it shows that users do not care about XP/points anymore and the program should be eliminated entirely.
- Part of the emphasis here is a bit on the popularity contest. We want the big whales who are going to deploy a lot of capital or borrow significantly to come in and vote on the vaults they want to use, so there is a greater incentive for them to use the vaults even more. The piece to weigh here is not wanting the vault creators to simply juice their own vaults that no one wants to use, but hopefully that can be mostly blocked by the point above.
Infrastructure Needed
- Platform for borrowers + suppliers to track points earned
- Backend of data indexing for all supplied + borrowed assets over time by all Euler V2 users
- Must also index which vaults these users are interacting with
- Data display on a frontend, similar to that with Anthias did for Euler via eGP1/eGP6
- Backend calculation of XP to be distributed to each user on a weekly basis (Friday each week)
- Backend of data indexing for all supplied + borrowed assets over time by all Euler V2 users
Budget
We would need a budget here once/if we actually begin to distribute EUL in place of this XP. For the management and implementation of this incentive program, Anthias Labs would request $14k/month paid in USDC or EUL at the onset of each month of the program.
Next Steps
- Ratify this program via a snapshot vote
- Complete development of the necessary infrastructure within 3-4 weeks
- Begin the first month on November 1, 2024
We are happy to discuss the next steps of this program with any community members that would like but do not think it is appropriate to bring to a vote of put too much emphasis on this until V2 is live.
About Anthias Labs
Anthias Labs is a boutique on-chain advisory firm focused on risk management and system design. We have been Euler DAO members since June of 2022 and completed eGP 1 and eGP 6 for the DAO. We have since worked on ecosystem development for organizations including the Solana Foundation, the Uniswap Foundation, Arbitrum DAO, and Optimism Collective.