From 1fa239ec1032d6e8f63cd7ddb096b47720d82ec7 Mon Sep 17 00:00:00 2001 From: alpo Date: Fri, 19 May 2023 18:21:35 -0700 Subject: [PATCH] add readme section on reward splitting --- x/concentrated-liquidity/README.md | 10 ++++++++++ 1 file changed, 10 insertions(+) diff --git a/x/concentrated-liquidity/README.md b/x/concentrated-liquidity/README.md index bde13b0f90a..4f0daa43a5a 100644 --- a/x/concentrated-liquidity/README.md +++ b/x/concentrated-liquidity/README.md @@ -1408,6 +1408,16 @@ For the sake of clarity, this mechanism functions very similarly to status quo i but it has a separate accumulator for each supported uptime and ensures that only liquidity that has been in the pool for the required amount of time qualifies for claiming incentives. +### Reward Splitting Between Classic and CL pools + +While we want to nudge Classic pool LPs to transition to CL pools, we also want to ensure that we do not have a hard cutoff for incentives where past a certain point it is no longer worth it to provide liquidity to Classic pools. This is because we want to ensure that we have a healthy transition period where liquidity is not split between Classic and CL pools, but rather that liquidity is added to CL pools while Classic pools are slowly drained of liquidity. + +To achieve this in a way that is difficult to game and efficient for the chain to process, we will be using a **reward-splitting** mechanism that treats _bonded_ liquidity in a Classic pool that is paired by governance to a CL pool (e.g. for the purpose of migration) as a single full-range position on the CL pool for the purpose of calculating incentives. Note that this _does not affect fee distribution_ and only applies to the flow of incentives through a CL pool. + +One implication of this mechanism is that it moves the incentivization process to a higher level of abstraction (incentivizing _pairs_ instead of _pools_). For internal incentives (which are governance managed), this is in line with the goal of continuing to push governance to require less frequent actions, which this change ultimately does. + +To keep a small but meaningful incentive for LPs to still migrate their positions, we have added a **discount rate** to incentives that are redirected to Classic pools. This is initialized to 5% by default but is a governance-upgradable parameter that can be increased in the future. A discount rate of 100% is functionally equivalent to all the incentives staying in the CL pool. + ## TWAP Integration In the context of twap, concentrated liquidity pools function differently from