An Evolution of Liquidity Mining: Give Devs the Capital
Starting on November 10th, the Risk Labs foundation will pay out 50,000 $UMA weekly to developers that deploy synthetic assets using UMA. Each developer’s share of the rewards will be weighted by the value locked in their synthetic asset contract: the more popular a synth is, the greater share of the weekly rewards that the developer will receive.
Developer mining, as we are calling it, is designed to incentivize idea creation and ‘buidling’ on UMA, allowing devs to earn ownership in a network that they help create. This initial deployment will pivot and adjust based on the market’s response. It has every potential to be a multi-year program that can scale upwards dramatically — the total allocation potential for this program is 35% of the token supply, currently valued at over $250,000,000.
How we got here
Liquidity mining has exceeded everyone’s expectations. In 2019, Synthetix arguably started the movement by rewarding liquidity in the sETH/ETH pool on Uniswap. In 2020, Compound.Finance kicked off the current hype cycle with COMP “farming.” The market took that idea and ran to 🍠 some 🍣 wild 🥒 places.
UMA’s liquidity mining program, a small pilot run by the Risk Labs foundation, led to a height of $52 million locked as collateral. It demonstrated that people could be motivated to navigate UMA’s unique construction and provide synthetic asset liquidity.
Liquidity is not loyal, and it is not an end-in-itself. Risk Labs never intended to merely buy liquidity; the intention has always been to encourage liquidity for products people actually want to use.
Introducing Developer Mining
Developer mining will pay rewards to developers based on the total value locked in the financial contracts they design.
This will give developers who build apps and interfaces an immediate business model, a way for them to bootstrap until they find product-market fit. Developers can keep the rewards or distribute them to users as they see fit to increase the use of their financial contract(s). This means they have flexibility to customize their own liquidity mining programs.
The “Total Value Locked” (TVL) metric in DeFi does not always correlate to valuation for protocols. In UMA’s case, the relevance is clear-cut. Per the maths, in order to maintain the economic guarantees and secure the collateral, the market cap of UMA must exceed twice the total value locked in financial contracts that use the protocol.
It is only fitting, then, that the earmarked token allocation for growth should reward efforts that sustainably increase the TVL.
Developer Mining can encourage distributed innovation using economic incentives to reward developers who directly contribute to sustainably increasing UMA’s Total Value Locked.
The Design Space of Developer Mining
This initial developer mining program is our first attempt at incentivizing developers to build. It will likely be flawed and require iteration, and we will make those tweaks with time and feedback. Decisions around such a program require weighing and balancing tradeoffs between the effectiveness of incentives, the risks of being “gamed,” and the cost to implement.
Risk Labs will reward developers who launch a financial contract for the total value minted using the contract(s) they design. The decision to reward at the contract level was made after a careful consideration of the three factors above. This approach points the rewards firehose directly at ingenuity by rewarding developers close to the idea stage.
Whitelist & Initial Partners
To qualify for rewards, developers must be whitelisted first. This will be a lightweight process and is primarily intended to discourage non-productive products, such as ones that might be designed to soak up rewards but with no actual utility or transfer of risk.
This is an imperfect first experiment. The whitelist will evolve based on the types of applicants we receive and behaviors we observe.
Following this announcement we are open to community feedback. Initial recipients will include PerlinX, which has already launched a contract and minting interface, and is eligible to receive developer mining rewards with the start of the program. Jarvis and a number of projects developing on UMA in stealth will be eligible for this program. Finally, UMA’s Yield Dollar product that was a part of the liquidity mining program will be eligible — updates for farmers will be released shortly. At the time of publication there is about $21 million in synth value in the yield dollar products.
How to Participate
The types of products that can be built on UMA are at times overwhelmingly broad: you can build any type of financial contract, and that is admittedly vast (and exciting!).
Some products that could be built today:
- Synthetic ETH gas product
- BTC volatility tracker (a “crypto VIX”)
- San Francisco Real Estate tracker
These items above are “up for grabs.” A developer interested in deploying them and earning rewards can do so by successfully attracting capital to these assets. To get started, indicate your interest on the whitelist.
We would like to thank Alok Vasudev, Chris Burniske, Jill Carlson, Alex Evans, Tom Howard, Trent Elmore, Moises C., and Mario Laul for their feedback and insight on the Developer Mining program.