Vote Incentive Roll Over: Overcoming Mercenary Governance

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Data-analyst Knight

Post Date September 28, 2023

In the ever-evolving DeFi niche Governance Wars, a noteworthy development is on the horizon: the introduction of roll over features for vote incentives. These features represent a significant step forward in enhancing the efficiency and effectiveness of vote incentive programs. This article will delve into the intricacies of these roll over features, exploring how they address key challenges faced by governance participants and creators. Let's embark on this journey to understand the transformative potential of these innovations within the realm of Dexs Governance.

Reminder: The Role of Vote Incentives

One of the primary objectives of vote incentives is to facilitate the efficient distribution of DEXs' native token emissions. This process incentivizes governance participants to direct these emissions toward pools that require liquidity bootstrapping. In doing so, we can better coordinate and align the protocol with the needs and expectations of users and stakeholders.

  1. Balancing Act: Ensuring Sustainability

A critical aspect of vote incentives revolves around striking the right balance between the monetary rewards offered for each vote and the actual value of the underlying emissions they capture and direct. This equilibrium is essential for maintaining a sustainable system. It prevents negative loops of price wars and fosters healthy competition among incentive creators and external yield sources.

The trajectory of $/votes reveals that as ecosystems mature, the standard deviation of vote incentive market rates tends to decrease. This decrease ensures greater stability and predictability in the ecosystem.

Many game theory principles can be applied to analyze and anticipate the evolution of $/votes, all showing that optimal equilibrium maximizes participants' payoffs when incentive creators under pay votes compared to the captured underlying emissions’ value.

  1. Unspent Rewards: Impact on Performance

When defining a budget and vote target, the incentive creators aims to achieve a projected APR for the incentivized pool which might be of importance to safeguard and maintain specific levels of liquidity brought by the LPs in order to allow efficient and smooth trading on their native assets, or in some cases fulfill the objectives of a Protocol Owned Liquidity farming strategy.

Failing to reach their vote targets can lead to an unbalanced state between the projected and realized performance, increasing the market risk for the deployed assets liquidity.

  1. Introducing Roll Overs

To address these challenges, some vote marketplaces introduced a valuable feature allowing incentive creators to roll over undistributed rewards to the next voting period. This feature proves especially useful when the total accrued voting power falls short of expected targets, and the budget remains partially unspent. To enhance the efficiency of period-based budgets even further, Paladin is pioneering a set of innovative rollover features.

  1. Different Options and How to Choose

Rollover options provide creators flexibility to adapt to various scenarios:

  • Roll Over Undistributed Rewards to the Next Period: This option is ideal for extended incentive campaigns involving low-volatility assets such as stablecoins.
  • Convert Unspent Rewards into Direct Liquidity Mining: It suits pools in the bootstrapping phase or when incentivizing widely adopted and highly liquid tokens.
  • Claim Back Remaining Rewards: This is the preferred choice for flexible incentive campaigns with arbitrary vote targets or projects in discovery mode within vote incentive flywheels.

In conclusion, these innovations in vote incentive roll overs empower creators and participants to optimize their strategies, ultimately strengthening the governance wars flywheel ecosystem and ensuring efficient allocation of liquidity.

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