[IDEA] An initial framework for POL and Incentives

General
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Introduction

With the growing number of proposals for incentives and protocol owned liquidity (POL) on Neutron, I think it’s worth establishing an initial framework. This isn’t supposed to be the final evolution but is just a place to start the conversation.

Ideas

In order to make sure a sound process is implemented, it’s useful to lay out a few principles that incentive and POL allocation should be based off of. Establishing a systematic approach is important to making sure the Neutron DAO doesn’t misspend on incentives. Some of my suggestions :

  1. Objective reasoning : Incentives and POL should always be allocated for objective reasons (e.g., new token launch, volume, matching offer) instead of subjective ones (e.g., someone likes the token).
  2. Matching : Skin in the game from a partner is important, especially since many protocols on Neutron will have their own token or take revenue on the activity generated from incentives and protocol owned liquidity. Matching will help prevent one-sided deals and encourage asks to be more thoughtful and sustainable.
  3. Liquidity premium : Some assets are more liquid than others. In cases where POL is being spent, illiquid assets impose greater risks on impermanent loss. This should be considered in size of the POL.
  4. Intention : Incentives and POL shouldn’t be employed for the sake of bootstrapping liquidity pools alone. They should be used to help build blocks for a sustainable ATOM economic zone. This means prioritizing tokens which have use cases other than being swapped - such as those that will be useful for providing collateral, paying for fees, etc.
  5. Performance tracking : Incentives and POL should never be employed without a plan to track the efficacy of the spend with KPIs. If the KPIs are not met, the incentive and POL spends should be able to be reconsidered and pulled.
  6. Gradual spends : Before making large incentive or POL spends, the Neutron DAO should start small, verify its efficacy and and incrementally increase the spends according to the performance.

This is open to change and suggestions so feel free to comment with feedback what you think could be improved. At some point Neutron DAO should also probably bring in experts to collaborate to build an even better framework.

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The above suggestions sound great. A 7th factor (or perhaps a subset of “Intention”) to consider is innovation. As a chain that is technically able to deploy liquidity in ways that other chains are not yet capable of, wielding liquidity in cutting-edge ways would be a powerful demonstration of what Neutron enables. It could help attract top talent, fuel a culture innovation, and set the example for how other chains would be best served by interacting with Neutron.

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Yeah I agree that innovation within the context of the other options is definitely a good quality.

I do however think innovation is subjective though. I would encourage the treasury to be used conservatively to start but continuously ramped up as evidence of attracting talent, fueling a culture of innovation and other KPIs become evident.

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I think a really important principle not mentioned here is timeboxxing. I think indefinite liquidity spends are risky because they put the DAO in an unnecessarily adversarial position where action needs to be taken in order to rescind the liquidity - if the two parties don’t agree on the reasons, this could cause issues. By timeboxxing proposals, we are more likely to avoid conflict and inaction that can harm the DAO.

By timeboxxing incentives we also communicate to farmers and partners what to expect, and create a better experience for managing their strategies.

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