My issues with this are as follows:
- This won’t enhance trading much via slippage reduction. See below.
- This will reduce LP returns for people in the pair perhaps by 1/3-1/2 almost instantly. Worse it sends the wrong message to LPs “that the DAOs are going to compete with them for LP returns” driving LP suppliers out of the LP pair (completely against the goal you are trying to achieve)
- IF one is going to do this HNY:STAKE is the wrong pair to incentivize. The STAKE:wxDAI pair is the one that actually needs liquidity and you don’t need HNY for that. Just take the STAKE and sell for wxDAI and put into LP. But again see negative LP message from (2). If you are going to do this drip it in over time so LP providers don’t see a sudden shift in their LP returns.
- What is going to be the measurement metric of success? I still have not seen all the Honeyswap trading data so a full analysis of pairs can be done. In particular here all the STAKE pairs should be looked at before and after such a move.
My own look at the HNY:wxDAI trading data provided by luigy lemon indicated that even when we tripled liquidity via farming the average trading size DECREASED over time instead of increasing. I can only speculate but I believe this happened because we got more traders. Volume went up but only in proportion to liquidity and no more. There was NO multiplier effect of improved liquidity on trading volumes or sizes. I believe this was because HNY price began a farming decline that over time created losses that drove people away. In the end LP went away and volumes dropped.
My own thesis regarding LP, trading volumes is as follows:
Give people reasons to trade and hence create volume. this will lead to increased LP returns, that will then be taken advantage of by LP providers creating a positive reinforcement loop. STAKE is consistently one of the higher LP return tokens as more people own STAKE, and as more people move to xDAI, the LP return will push to 40% it will drive more LPs to supply liquidity We don’t need to incentivize this and players looking for real STAKE volume can find it on the main net. A person looking to do a big STAKE trade on xDAI can literally do 10 for lower fees simply waiting for prices to readjust. I know because I have done large HNY trades in steps, same for wETH (probably the pair I’d like to see more liquidity in personally). Sure it is annoying but it doesn’t stop me from pushing 10wETH or 20HNY through and at least on WETH this is like 10-20% of the LP liquidity.
There is no magic bullet that adding liquidity solves here mostly because the real big players don’t care about main net network fees and can source significant liquidity there. Build the reasons for people to come to xDAI, increase volume here, make the RPCs and infrastructure rock solid reliable, become a HUB via bridges to all L2s, etc. build it and the volume and LP will come. The beauty here is that as volumes increase, LP returns will increase, encouraging our decentralized liquidity providers to add more liquidity further driving a positive feedback loop.
Having DAOs that are going to compete with LPs on return sends a strong message to LP providers - you have a competitor that doesn’t care about you. It sends absolutely the worst message at the wrong time to the few people who are here providing LP and may drive them away from xDAI and Honeyswap - perhaps for good.
On the basis of this I am against the DAOs becoming competitors to LP providers except to perhaps jump start a single LP, or to support their own tokens, or even to earn some return (dripping slowly in and out). HNY:STAKE for xDAI (to support STAKE) is totally the wrong pair. If anything xDAI should support STAKE:wxDAI so people can buy-in and sell-out. There is no need to tie HNY to STAKE directly (this will happen on its own) and the liquidity offered above will at best allow for a 1/3-1/2 decrease in slippage in same size HNY:STAKE trades not 10x. I think most people who want to trade either HNY or STAKE want to do this directly to xDAI and not through a second pair.
I know I will probably stand out as against pairing this but based on previous data in this regard will not achieve the goal AND will send the wrong message to LP providers at a critical time xDAI and 1Hive via Honeyswap etc. are trying to grow.
BTW: Why not consider an alternative Drip out Stake as a farming reward on probably the STAKE:wxDAI pair. you have 8000STAKE you could offer like 1000/month STAKE drip (start with 200-250 and see what happens) on the Honeyswap farm. I know this would take some work but already people have been talking about dripping out 2 pairs or other tokens possibly with a vesting component. I think these are better incentives than just dropping liquidity into the pair and possibly driving out other LP providers.