This post was brought to my attention on twitter so figured I’d weigh in!
IMO, any incentive program should be very narrowly tailored to accomplish a specific goal. The shotgun approach to incentives has been shown to do more harm than good in the long term (especially in down-markets). I think the goal articulated in this post is valuable, specifically:
I think there’s also a secondary goal which is implied here but not expressly articulated: Increasing NAM’s presence in partner communities that Namada cares about (Osmosis, Celestia, Cosmos Hub, etc)
It’s possible that there are other goals that an incentives program could help accomplish (e.g., encouraging traders to use shielded swaps vs unshielded ones), but I’ll just run through some example numbers using the two goals above.
Making A DEX A Primary Venue for NAM Price Discovery
Theoretically, sophisticated traders (esp algotraders / aggregators) will trade on whichever venue offers them the best trade execution pricing, so imo we should look at that as a core KPI of any incentives program. Breaking down the current markets where NAM is traded, the value needed to move the price 2% in either direction is as follows:
- Kucoin: $2,820 / -$1,668
- Gate: $1,067 / -$833
- Mexc: $490 / -$3,182
- Osmosis: $3,285 / -$567
As you can see from this, Osmosis is actually already the best place to buy NAM, largely thanks to the single-sided Magma Vault liquidity that was put into place yesterday. Volumes have reacted positively to this liquidity as well. Osmosis is well on its way to surpassing Mexc in daily trading volume.
However, because the liquidity is mostly to the buy-side, trade execution for NAM sales is worse off than most of these other venues, indicating that incentives could be helpful in attracting more USDC to this pool. As an aside, I’m managing the magma vault on Osmosis and as the NAM price rises, more of the NAM will be converted to USDC in the vault, allowing for more capital efficient sell-side liquidity as well, which should help improve trade execution.
Given the above, if incentives are used, I’d encourage the following:
- Deploying a small number of NAM incentives over a short period (e.g., 1 month), gauging the impact of those incentives on volume and execution pricing for NAM near the end of that month, and deciding whether it’s worthwhile to deploy more at that time.
- Deploying to only one pool: NAM/USDC. As @Daniel mentioned, concentrating liquidity in one pool vs many will help improve trade execution and keep collective incentives spends lower.
But I also think it’s reasonable to wait a bit to see if the Magma vault liquidity improves capital efficiency on NAM trades on Osmosis without the need to deploy incentives. Ultimately incentives will cause additional sell-pressure on the token, so there should be a good reason to deploy them. Given there’s already a good chunk of liquidity deployed in the NAM / USDC with healthy trading volumes, adding additional incentives is arguably superfluous at this stage.
Increasing NAM’s Presence in Partner Communities
IMO this is where it could make sense to deploy incentives to multiple pools, but this should be done on DEXes native to those partner communities. For example, incentives could be deployed as follows:
- NAM / USDC pool on Osmosis (will likely end up being the core NAM DEX pool)
- NAM / ATOM (or NAM / USDC) pool on the upcoming Stride DEX on Cosmos Hub
- NAM / TIA pool on a Celestia-native DEX (when one launches, RIP Flame
)
Having NAM liquidity sit on each of these chains’ native DeFi platforms will help ensure that NAM gets access to primary sources of orderflow in each of these communities which, crucially, will also raise awareness for the Namada core product in these communities. It’ll also increase cross-chain arbitrage flows for NAM and build base-level liquidity for listing NAM on local lending markets for each partner community chain.
Takeaway
Incentives could make sense, but they should really be a part of a larger incentives plan that takes into account all of the above. If there’s to be some sort of incentives program, we should:
- Carve out a maximum incentives spend in NAM (i.e., No more than XXX NAM should be spent on incentives over the course of the next 3 years)
- Identify all goals of the incentives program (the two outlined above are a good start but we should consider other goals as well)
- Set out a plan that allows for the minimum number of incentives to be deployed to accomplish these goals (using target liquidity numbers under various yield compression scenarios to deploy NAM sufficient to meet those goals).
