xU3LP Retrospective, plus an Update on Incentives

It’s been about four months since we launched xU3LP Wave 1 and about two months since Wave 2. The product line has been a major success for us, earning investors returns on stablecoins of up to 15%. xU3LP also serves an important role diversifying our product offering, providing xToken users with investment options that aren’t simply Long DeFi. We’re excited to launch Wave 3 in the coming months!

The rest of this post will be a review of how we’re thinking about each active instance and a proposal for the next ten week rewards period, starting October 20th.

We’ve divided the incentive buckets into four categories based on a variety of factors explained below:

  • High: 120k XTK/week
  • Medium: 80k XTK/week
  • Low: 40k XTK/week
  • None: No rewards

Each pool is assigned High, Medium, Low or None based on a variety of factors explained below.

Note: 30-Day APY and AUM data change every day so numbers may be slightly stale

xU3LPa

Pair: DAI-USDC

AUM: $2.6m

30-Day APY: 9.90%

This is a fundamental DeFi pair that has performed well for LPs. We account for just less than 3% of the total AUM of the Uniswap pool and, given the fee generation potential, this is a pool where we should try to gain share. We should definitely continue incentives on this pool.

Rewards extension: High

xU3LPb

Pair: USDC-USDT

AUM: $1.3m

30-Day APY: 4.66%

This is another fundamental DeFi pair, though both are centralized stablecoins. Despite the $135m in this Uniswap pool, returns have been solid, roughly equivalent to the average of lending these two coins on Aave or Compound. We consider xU3LP’s rough benchmark for stablecoin pairs to be the returns on lending platforms. It seems prudent to continue incentivizing this pair, though not at the highest rate.

Rewards extension: Medium

xU3LPc

Pair: sUSD-USDC

AUM: $1.7m

30-Day APY: 11.84%

This has been one of our best performing pairs, as it’s become clear that sUSD is the primary external medium of exchange for the Synthetix ecosystem. We account for most of the TVL in the Uniswap pool and should continue to incentivize this pair.

Rewards extension: High

xU3LPd

Pair: sETH-WETH

AUM: $2.3m

30-Day APY: 0.44%

This has been arguably our least successful pair and we’ve learned that most Synthetix liquidity trades through sUSD (xU3LPc). That said, it makes sense to maintain some ETH exposure in our protocol, as the pool has occasionally shown higher volume and finding liquid yield on ETH can be challenging.

Rewards extension: Low

xU3LPe

Pair: WBTC-renBTC

AUM: $2.9m

30-Day APY: 2.26%

This pair has provided solid if unremarkable returns for BTC holders. It makes sense to maintain some BTC exposure in our protocol and the pool has occasionally shown higher volume.

Rewards extension: Medium

xU3LPf

Pair: USDC-UST

AUM: $1.8m

30-Day APY: 16.10%

This has been indisputably our most successful pair, owing largely to the volatility of UST. APY has ranged between 12% and 16% for most of the duration of the fund. We are responsible for more than half of the liquidity on the Uniswap pool and should continue to establish a presence on this pair.

Rewards extension: High

xU3LPg

Pair: FRAX-USDC

AUM: $1.5m

30-Day APY: 0.64%

Frax is a great project, but there is over $80m in their Uniswap V3 pool, with a low fees/TVL ratio. There is an additional $400m+ in their incentivized Curve metapool. It seems unlikely that xU3LPg will be a productive product for us with such a competitive capital structure.

Rewards extension: None

xU3LPh

Pair: BUSD-USDT

AUM: $1.4m

30-Day APY: 4.22%

We account for the vast majority of liquidity on this Uniswap pair and the returns have been solid, roughly in line with returns available on lending platforms. We’re well-positioned should volume on this pair increase.

Rewards extension: Medium

2 Likes

Has there been more thought into distributing xXTKa instead of XTK as liquidity mining incentives?

Would it not be a better option for rewarding/incentivizing long-term XTK holders? Currently many users just farm and dump the XTK being distributed, with the vesting period doing little to deter this. Little value is being captured by the protocol and XTK holders. If it were instead distributed as xXTKa, dumpers would need to first exit to XTK paying the unstake fee to all the long-term XTK holders. Smaller XTK bulls would also be grateful for reducing the number of on-chain transactions required to stake. Nobody enjoys paying mainnet fees these days.

It also seems adding the liquidity mining incentive rewards to the xXTKa contract won’t significantly dilute the APR for xXTKa holders below what it is currently either, especially seeing as the current vote is leaning towards increasing the xXTKa staking rewards by 50%. This proposal has 6,400,000 XTK being distributed over 10 weeks, that would represent around a 6.5% increase of XTK being staked in xXTKa. Dilution easily covered by the 50% bump in rewards + the unstake fee from dumpers exiting the module. All in all, incentives for staking XTK as xXTKa will remain very generous for users that provide no value/service to the system as I have previously brought up.

4 Likes