The incentives structure for the Perp launch has been twice-revised since launch on 9-March. The revisions penalize early liquidity providers and could seriously impact future product launches because liquidity providers (LP) lose faith in the commitments made by Alpaca at launch. It is proposed early LPs receive rewards per the original schedule for all ALP tokens held as of 28-March snapshot.
Abstract:
At issue is the credibility of Alpaca with LPs. Providers of Capital make allocation decisions based on expected return on capital (IRR). This is calculated based on principal invested, anticipated return and time horizon.
By changing any of these inputs, the IRR changes. The changes made on 29- and 23-March negatively impact the IRR for LPs.
By retroactively changing IRR after 3+ weeks LP could rightfully feel they are victim of a bait-and-switch. In other words, liquidity was provided based on an expected IRR; only to be materially changed after almost a month.
Here is revised schedule and please see original 9-March schedule in replies (only 1 image allowed in this section).
A simple vote to provide early LPs with initial 9-March structure in the form of a one-time Alpaca payment on 19-May for those ALP holdings equal (or greater than) to 28-March snapshot.
Rationale:
Implementation:
References:
as an early liquidity provider, I’m happy with the changes, I don’t see this as beneficial. It 100% makes sense to incentivize trading.
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Original 9-March schedule
Thanks for posting your concern. To add context about why we did this and why it makes sense, including for LPs, there was a little discussion about it here: https://twitter.com/AlpacaFinance/status/1641123504920698881
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As an early liquidity provider and relatively large Alpaca holder, I am also happy and in support of the delays and updates to structure.
I believe these changes are in the best interest of launching the perps exchange successfully and that’s what really matters for long term success of the platform, not the short term Alpaca tokens we may have lost out on. Furthermore, by incentivizing trading we will get more trading fees after the fee free period ends, thus the LP returns may not be as bad as you think, depending on the volume we get.
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We can all agree incentivizing traders is important. And I believe we all agree there is a desire to access institutional capital.
Retroactively changing terms of investment—in this case rewards to LPs—will scare large investors away.
We need to honor the original rewards structure up to 28-March. In other words if you provided LP capital anytime from 9-28 March you get the original terms.
Thereafter (29th onwards) I am supportive of shifting incentives to traders.
I reiterate, if we don’t honor original terms, there will be a bait-and-switch reputation that will keep valuation of ALPACA low relative to comparable platforms and prevent institutional investors from participating in future product launches or as investors.
I’m be honest with you we support the teams decision and as of right now you’re the ONLY one who doesn’t. That might be hard to hear but there just isn’t support for this. No one has said anything remotely close to your Loss of reputation statements. So, I don’t think anyone feels that way.
You are assuming that increasing rewards means that the same investors will get more rewards.
In reality what happens when apr increases is that it attracts more liquidity that will reduce the apr until it gets close to the previous amount.
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I don’t think there is a need to compensate original LPs for the following reasons.
1.) There is no lockup on he liquidity provided.
2.) We didn’t promise and never promised a fixed APR% return. But rather an amount of $ALPACA token.
When we go full-scale launch, the $ALAPCA rewards for LP is still going to go up 4.8x from the current rate. In reality, market is going to determine what APR% it requires to compensate for the capital deploy
What this means is that if the $ALPACA rewards were to be higher, LPs are still NOT GUARANTEED to have higher yields. What more likely to happen is that more liquidity will come and the pool would get to an equilibrium APR% anyway.
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