DRC: A Step Towards a More Equitable Liquidity Provider Reward Structure
AI summary
This proposal aims to change how dYdX distributes rewards to liquidity providers (LPs). Currently, rewards heavily favor LPs who provide large amounts of capital (deep liquidity), leading to two addresses dominating the rewards. The proposal suggests introducing "maker volume" (the amount of new orders placed on the order book) as a factor in reward calculation. It also reduces the weight given to staked dYdX tokens (stkDYDX) and the depth/spread of liquidity provided.
If passed, the changes would incentivize more active trading and tighter price spreads, potentially benefiting regular traders with better prices. Existing large liquidity providers might see a reduction in their reward share, while LPs focused on active order placement could see increased rewards. The overall goal is a more equitable distribution of rewards among LPs.
Voting results
🐳 Whale votes
0 votes > 5% VPFull proposal
Summary
Wintermute recently conducted research on the type of liquidity dYdX incentivizes for on its platform and its implications on reward distribution, LP competition, and the trading environment for users. We found that:
- Liquidity provider rewards have been largely dominated by 2 addresses for a significant period of time
- dYdX is overpaying for deep liquidity, while more active liquidity is being penalized, i.e., Liquidity providers are rewarded for their ability to show size, rather than compete for market share
- Introducing maker volume into the calculation of rewards and reduci…