Kaskade LUSD Volume Incentivization Campaign Launch

The DeFi collective is on a mission to support value-aligned DeFi protocols to overcome liquidity challenges using its network, expertise, and assets. In that context, we are testing an innovative approach combining liquidity supply-side and demand-side incentives.

To understand how the incentive model will work for this campaign, you can think of liquidity for a token like a marketplace, with sellers (liquidity providers) and buyers (traders). On the supply side, liquidity providers are providing liquidity to traders. Traders represent the demand side. Traders need more supply (think TVL) for better trading conditions: minimal price impact on their trades. Liquidity providers need more demand (think volume) to generate more returns for the funds they are committing.

This campaign will have two sides to it:

1. On the supply side, since last week and for the upcoming 30 days, the DeFi Collective has been allocating $20k$ of its war chest to boost the largest LUSD/USDC pool on Maverick. 50% of this investment will be allocated to this “Static” pool - BP#106 and 50% to the “both” strategy - BP#107 .
2. On the demand side, starting today and for the next 30 days, thanks to the partnership with Kaskade, LUSD/USDC pool traders can earn rewards based on their trading activity. The Collective and Kaskade have allocated $30k$ to reward the traders of those pools. Let’s dive deep into this part of the incentives.

Kaskade and liquidity incentives optimization

Kaskade Finance is the cross-chain liquidity bootstrapping layer for DeFi protocols and networks that leverage volume-focused incentives to increase fees to liquidity pools. Kaskade is creating a new mechanism to incentivize liquidity, first emphasizing volume, with the understanding that liquidity will subsequently increase.

Kaskade is a brand new project that has already shown the efficiency of its new approach with its first partnership with Dinero. Kaskade has already generated 3.2 million dollars of trading volume on its platform at the time of writing. Moreover, more fees were generated for the liquidity providers than incentives were spent, making it a clear win for the protocol.

Demand brings supply, not the other way around

Kaskade’s novel approach is based on the observation that incentives on the supply side of the liquidity pools do not inherently generate demand. What we mean by incentives on the supply side is rewarding liquidity providers based on the TVL they add to the pool only. This approach efficiently attracts capital to the liquidity pools, but it does not help with other aspects of the token’s actual liquidity.

Volume is a key part of liquidity, and it is unclear that TVL attracts trading volume by itself. You can always build it; it’s not so sure they will come. In current incentive programs, a large chunk of the TVL attracted by the incentive programs does not produce any value. To quote Kaskade, “A lot of that liquidity is just sitting there, getting inflationary rewards and not being used.” (source ).

Kaskade tackles the chicken-and-egg problem of bootstrapping liquidity from a new lens. Kaskade will incentivize traders by rewarding them with points that can be converted into tokens. This will definitely attract volume as it is directly spent for that goal, and traders will notice. In turn, the volume of the liquidity pools will increase, which means that the fees for liquidity providers will increase. As APYs on those pools increase, more liquidity providers will allocate their funds to the pool.

Good trading conditions alone do not attract trading volume, which is a key part of the liquidity profile of a token. Through the Kaskade collaboration, the DeFi Collective is trying out an innovative approach where we first attract traders on the boosted trading pairs, which in turn will generate more fees for Liquidity Providers. More fees for Liquidity Providers means higher APYs, which will mean more liquidity, more TVL, and in turn reduced slippage and better prices.

More traders > more fees > higher APYs > more liquidity providers > better liquidity > more traders.

What’s in it for users

• If you want to LP stablecoins: expect higher APYs on the USDC/LUSD pools on both Maverick and Uniswap.
• If you are an arbitrageur** **and want to make the most of arbitrage opportunities, now is your time to shine as you will receive an additional bonus for each dollar you trade.
• If you want to diversify your stable coin allocations, for example if you hold a majority of USDC and have been wanting to diversify into LUSD, this is the right time to do it.
• If you are just in it for the rewards, that works too, don’t hesitate to ape in and grab those rewards while they last.

The DeFi Collective is uniquely positioned to help fuel innovation around liquidity mining

Kaskade is a novel product that is still in its infancy. The DeFi Collective’s mission is to help fix liquidity bootstrapping issues, and we support their innovative approach. The proposed approach is very much aligned with the stance on liquidity that the DeFi Collective has been supporting for a while:

• Maverick is one of the most capital-efficient DEXes out there and an early supporter of the DeFi Collective.
• LUSD is the most resilient and long-term-focused stablecoin and is strongly aligned with the values the Collective stands for.

We view this incentive program as an experiment. We believe the Collective’s role is to innovate on the liquidity front. We already know that good management of incentive budgets is key to improving asset liquidity. If, with this experiment, we actually manage to find a way to improve incentive efficiency, then that is a massive step forward for the industry.

We want to support innovative and value-aligned projects like Kaskade and help them grow so they can help the industry grow and thrive.

How the Kaskade incentives will be distributed

Each dollar traded earns you trading points. The points you earned will be displayed on the Kaskade interface. At the end of each week, Kaskade will distribute this week’s portion of the incentives to the trader pro rata their trading volume.

NB: Only volume traded through the Kaskade interface is eligible for the incentives.

30k LUSD will be distributed to users who trade the LUSD/USDC over the next three weeks, meaning 10,500 LUSD will be distributed weekly. If you generate, for example, 5% of the total trading volume on Kaskade for that week, you will be able to claim 5% of 10 000 = 500 LUSD.

What’s next

The DeFi Collective is super excited to share this new project. We will be very careful in analyzing this experiment’s results to ensure that incremental value was created for the liquidity of LUSD. We will be reporting regularly. We have a few ideas on measuring the test’s success in the least biased way - stay tuned for more on this. If the experience is positive, expect more from the Collective on this front!