SIP-14 Beyond Gauge-Weight Wars

Proposal:

Problems

  • Gauge-weight wars, as observed on Curve.fi from time to time can be detrimental to LPs in the long run.
  • The short burst of insanely high APYs provided by weekly gauge changes are profitable to only a handful, with a large amount of assets.
  • Gauge-weights at times end up swaying rewards to pools that actually don’t bring much in terms of volume to the ecosystem, this leads to a problem where LPs get higher APYs in a low volume pool as opposed to being rewarded for supplying liquidity to a more active pool.
  • Gauge-weights add unpredictability to longer term returns, and push the LPs to re-evaluate their strategies ever so often.
  • Guage-weights force LPs within Swerve to compete against each other.

Proposal

Short Term

Have a phased-out update to gauge weights instead of abrupt in case if the gauge-weight change would cause more than X % of change.
So instead of a whale pumping in X in a certain gauge, and pre-timing the deposit to make use of it for benefit, if the X is large enough to cause a significant change, then enable a gradual shift instead of abrupt.

Details

  • Choose a curve function X to slowly make gauge-weight changes.
  • Extend the curve over Y period of time.
  • Now whenever gauge-weight votes happen (every week) the max INSTANT change is limited due to the gradual increase/decay.
  • Show up a progress sort of thing where current weight is what it is, and a target of where it has to reach, and the time it would take to reach there.
  • Gives enough time to everyone to plan and shift and allocate capital in advance, rebalancing everything in harmony.

Longer Term

  • Andrew has proposed using prediction markets to calculate estimated admin fees based on pool volume, and offer a share of the admin fee to incentivise more favourable gauge-weights that are in line with the best returns for the entire ecosystem.
  • More discussion is needed on longer term strategies and approach.

Benefits

  • No gauge- wars.
  • More harmony within the ecosystem, where every pool works together for the best outcome and puts up a unified front against competitors instead of competing internally.
  • No opportunistic whale mining.
  • No alpha on being early in a high gauge weight pool right at the weekly change.

Disadvantages

  • Reduces game theory element for whales and potential alpha for front-runners.
  • Reduces overall ecosystem competition in favour of harmony, if human history has shown us anything - wars are good, peace is bad.

Implementation

  • This would require a redeployment of Gauge Weight Controller with proposed modification.
  • Andrew has proposed the following formula which would require only one state variable.
gw = c * gw + (1 - c) * lastGw

Where:
gw = gaugeweight
lastGw = previous gauge weight
c = free parameter
PS: Considering most of the community members have locked their SWRV in preparation for on-chain votes, this proposal uses Block 10,886,360 (same as SIP-10, SIP-12, SIP-9-T4) for SWRV snapshot so everyone can vote the SWRV they held earlier prior to locking.

Options:

  • Yes - Move towards harmony!
  • No - Continue the battle!

Off-chain Vote:
https://snapshot.page/#/swerve/proposal/QmV6q5Lgq7oGyhYvwBT7ox5TBoRs49bmEtgFptNdqnGFZ9

I think ideal solution is to move to a weighting system completely dependent on admin fee generated. Under that system, any gaming of the system is beneficial to the treasury thus incentives are aligned, I support this step.