Increase Amp subsidy to seed spending capacity to support new Flexa-enabled apps

This proposal is for Flexa to add a subsidy of 1,000,000,000 (1 billion) Amp to network rewards. The Amp will be distributed to new app collateral pools on Flexa Capacity over the next 12 months on a tiered basis dependent on the size of the app. A tiered subsidy will allow for allocating subsidies to each app commensurate with the size of the app’s userbase. These tokens will be issued from the Network Development Fund treasury.

The goal of the proposal is to bootstrap spending capacity as new wallets and apps add payments to their development roadmap and integrate the Flexa Spend SDK. While we expect wallet launch dates to be staggered, we believe it is important to have immediate spending capacity available for adoption and user experience. Accordingly, we intend to initiate the increased rewards shortly after the next future announcement of Flexa-enabled apps.

Flexa will provide at least 72 hours advance notice prior to the increased subsidy going into effect so stakers have plenty of time to unstake from existing pools if they choose. This will be communicated via an updated dashboard on the Flexa Capacity dApp, in addition to standard Flexa announcement channels. We are excited for this next phase of network growth, which is the culmination of many years of hard work by the entirety of the Amp community.

We are seeking community feedback on this proposal with a particular focus on questions such as: how much Amp subsidy should be included? and how long should it last? We plan on eventually putting a proposal to a vote on Snapshot after community feedback is incorporated.

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Good proposal, new apps / wallets on the network should be welcomed!

Could you elaborate a bit more on your intent behind this proposal? At what stage are these future additions to the network? Is this incentive meant to become more attractive to new developers/projects or is this for existing app developers that are about to launch on the network?

Why I’m asking, if this is to attract new developers the incentive could become part of a broader, more elaborate program or package right? Some kind of Hackaton or Flexa/Amp Incubator program crossed my mind (loose thoughts).

Did you think of other methods to ‘raise’ initial amp collateral to seed the wallets (other than just subsidising)? maybe with an opportunity for amp holders to have a role in this? Thinking of bootstrapping a pool’s liquidity with a lockup period, and using the subsidy to reward the participants (amp holders).
Taking an example of the LBP model Balancer Liquidity Bootstrapping Pool 101 | by Polygen | Polygen Ecosystem | Medium

This will drive engagement amongst the holders and benefit the further decentralization of amp.

edit My mistake; I assumed this proposal was about providing initial liquidity to the pools instead of subsiding rewards. So most of above does not apply to this proposal*

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How many upcoming pools do you expect the subsidy to be split between.

Will the ammount allocated to seed the pools be equally distributed, or what factors will determine what pool gets a certain % over another.

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What’s the runway on the existing subsidy fund at 2.5M AMP per day? If we double that to 5M per day, what’s the time bomb before network transactions need to support the staking rewards before the fund runs dry?

It’s probably smart to prop up new collateral pools with 4-5+% returns until transaction fees can support the staking rewards, and after there’s enough transactions, have the subsidy act as a daily stop-gap measure so the return doesn’t dip too low as transactions slow down.

I think it’s a tricky balance, 95%+ of holders won’t stake for free without seeing a return, and 2% isn’t attractive compared to what else is out there in the market.

So my recommendation-- if we’re doubling the amount of pools, double the current subsidy if the runway is long enough, and it should last until transactions can support 4-5+% APY rewards to stakers.

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Great proposal. We are all excited to see new wallets/apps join the network.

How many new apps do you expect to receive the subsidy? I agree with the comment above that the subsidy should provide at least a 4-5% return until this level can be supported by transactions.

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So I think further clarification regarding the existing subsidies could help shape recommendations on how to proceed in the future. Based on previous calculations, it seemed that 2.5M AMP per day were being given as rewards. Initially, I believe the APY was the same between Gemini and SPEDN regardless of the raw number of AMP in each pool. That just felt like a fair system in these early days of the project.

When the Lightning transformer was introduced, the “amount” given to each pool seemed to be fixed per day and the APY fluctuated based on the number staked. This resulted in a “gold rush” of sorts where people who got in very early to the lightning pool received extremely high rewards. Over time, things have balanced out, but given the high fees to move tokens, it seemed like people with smaller bags were excluded from these early potential gains based on break even points.

It seemed a bit unfair that someone went to bed getting a 4% APY in the SPEDN app only to wake up the next day and see it cut to 2% because the team announced a new pool and redistributed the tokens to encourage movement to that pool. There has to be a better way.

Perhaps any staked token, regardless of pool, gets the same APY subsidy (let’s call it 3% but understand it to be a 2.5M/# Staked). Then when a new pool is open, maybe you give an additional 100,000 AMP per day to that new pool for the first month(amount and timing TBD). Finally, the time between announcement of the pool and distribution of the additional tokens should NOT be instant. Give it a few days or maybe a week to allow people to assess and decide if they want to spend the money to move into the pool. Turning it on and having the 15 minute distribution process caused Lightning APY to be over 100% for a while. How does that make the guy who believes in the project but has only 10,000 AMP feel when he bit the bullet, spent a bunch in gas to stake SPEDN, knowing it would take a while to earn back that sunk cost, only to see his effective APY slashed and him unable to chase the higher APY?

Yes, an additional carrot needs to be given to help encourage movement to new pools. But by building in a week or so buffer before that additional reward is started, you eliminate the gold rush feel of new pools. Instead it feels like a much more professional and controlled process, which is exactly what I’ve come to expect from the top notch team at Flexa.

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Good idea to incentivise new apps to get started on the network.

Q1: Since the target is new apps, would these tokens come from the Developer Grants? The description of the fund here seems to fit the bill.

Q2: Would this new subsidy be applied pro-rata to all stakers, or would it provide higher APYs to those willing to lockup their stake on the new apps for longer?
Prompted by FR’s creative idea above to use this additional subsidy to reward stakers who are willing to lockup their stake on new apps for increased rewards. I suppose that could be the second part of this proposal but if it turns out to be difficult to reach consensus then maybe it could be addressed as a separate proposal.
One danger I see here is further down the road if an unknown (bad actor) wallet launches and somehow manages to get people to lock their stake on it… then starts getting its collateral liquidated.
This would punish the long-term stakers who can’t withdraw so maybe there could be a liquidation escape clause for long-term stakers to withdraw their locked stake in this situation. Not sure how manageable/automatable this would be. Might not be very “decentralised”, but smarter minds than me etc.

Q3: For new Flexa-enabled apps, how much notice will we get of a new app launching?
When Capacity first went live back in November 2019, we had about a month to load up our stake before the rewards distribution started the following December. Now that we’re live, you’re not going to want to wait a month between implementing a new pool and starting to distribute the rewards, but it might help build liquidity and even out the opportunities for stakers of all sizes if we get a day or two, or even a week’s notice of a new app launching before the rewards go live.
This would probably make the super-high instantaneous APYs we saw with the zero-notice Lightning Transformer a thing of the past, but giving stakers more notice would mean that those who are staking smaller amounts would have a larger time frame to hope for lower gas fees if they want to move their stake, allowing for a more decentralized pool. Basically, it seems like a good time to standardize how new collateral pools get launched.

Subsidy period:
I’ve often thought that a subsidy like this should probably run for about a month which imo should give the app sufficient time to build up its own user base, transaction volume, collateral pool and APY. Would like to hear others’ thoughts on this though as it’s not based on anything scientific.
If the subsidy period is significantly less, then the amount of launch notice we’re given will be a factor. If a new app is launched with no announcement, and ends up getting an initial APY of 100%+ anyway, then any additional incentive might end up being dwarfed and largely irrelevant, at least at first.

Subsidy Amount:
Tough one. Agree it sounds good at the moment to start an app off at 4-5% but things might change quickly so probably better to reference the subsidy as an additional figure on top of the current highest. For example, Lightning is currently the highest at 4.29%, in that case provide enough rewards to guarantee 4.29% +1% (for example), and have this 5.29% APY taper off to the app’s own organic level at the end of the subsidy period. If the app itself starts to generate this level of APY organically, then the incentive should start to get cut off earlier than planned to preserve the incentive fund, and to avoid falsely skewing the APYs too much.

Exit:
However long the subsidy lasts, would be good to see this subsidy linearly tapered off to zero over the whole subsidy period (or maybe the last half of the period?) to avoid a stampede for the exits as the subsidy gets suddenly cut off on a known date.

I’m not really sure if the specific percentages and periods I’ve mentioned as examples would work out from a fund longevirty pov ofc. Would look to the team to provide the percentages and periods that would work, these are just structural suggestions.

Also looking forward to hearing other ideas.

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Seems like there should be some due diligence on Flexa’s part before giving subsidies to third party apps. I’m no hacker, but I’m sure there is a way to scam the system……

Q1: If third party apps are receiving a subsidy from Flexa, what safe guards will be in place to detect and deter scammers?

I agree the subsidy should only last a month, with a monthly extension available up to 5 months (total of 6 months). Extension would not be automatic, but would require the third party app to make their case to the community.

Agree there should be a greater time period between announcement and the staking pool / wallet going live. I recommend 3 days.

For those apps that are the most successful (the top 3) they should pay back into the subsidy pool after a period of time (say 1 year?). This way the pool replenishes itself and is available for future developers.

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I had an idea several months ago for additional staking rewards, not sure if any of this would be useful to you:

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Thank you for the thoughtful response.

Short answer is many years. The Network Development Fund can last for years even with doubling the subsidy to bootstrap all the new pools coming on. We were thinking each new pool could get somewhere between 50 million to 150 million Amp per year to attract stakers and stakers in the original three pools would receive a greater share of the network rewards when some stakers move to the new pools.

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Thank you for your questions.

The initial apps in the first wave will be announced shortly. We think that each new app could potentially be given an equal portion of the additional subsidy.

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Excellent news to hear about upcoming Flexa-enabled apps – this is a really great step forward in the project to incentivize additional collateral staking, without reducing returns on existing pools.

I am in favor of a fixed subsidy amount, rather than trying to hit a target APY return as others have suggested. Collateral pools associated with new Flexa-enabled apps have a number of unknown risks (e.g., app-related exploits, low transaction volume, etc.), and early-stakers need to be rewarded commensurately. The lightning pool saw tremendous growth as a result of disproportionately high returns. In addition, as seen with the lightning pool, the largest token movement will occur from large holders from one pool to another, meaning the APY of existing pools would be likely to rise.

The end goal here should be to incentivize stakers to move sufficient collateral to adequately address anticipated utilization of the app. The best proxy for that is probably # of current app users. If that information is not available, then the subsidy should probably align with the type of application. A simple wallet enabling payments would be in line with SPEDN, and should probably target the 375,000/day (~140MM/year) used for SPEDN. An exchange enabling payments should be in line with Gemini, and should target $1MM/day ($365MM/year). Other types of apps (e.g., hybrid spending, loyalty points, etc.) could be pegged around these figures, at least to start, but could depend on the app developer and their number of users.

Would suggest at least 9-12 months of subsidy to at least give these apps a fair chance to attract users and increase independent spending usage, given the early stage nature of crypto payments industry.

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Hi Chris- so just to fully understand, if a new pool is added tomorrow, will they get a portion of the 2.5M/day that is currently split between the existing 3 pools? Or would the only reward be the supplemental 50-150M per year you are considering?

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Great question! The new pools will not share in the 2.5M/day subsidy split by the existing 3 pools. The three existing pools will continue to receive 2.5M/day subsidy and each new pool will get a pool specific subsidy of ~50M-150M per year.

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1B tokens are currently earmarked per year in the Network Development Fund. At 2.5M tokens per day there were at least 87.5M tokens unused last year and another 240K per day available from current allocation for this year.

Is this enough to get the “first wave” started and then see how tokens get moved from existing pools to see how to better allocate these precious funds? Get them started and then we can better plan on a permanent solution for this wave and future ones.

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Q2: Would this new subsidy be applied pro-rata to all stakers, or would it provide higher APYs to those willing to lockup their stake on the new apps for longer?

I think you’re spot on regarding lockups. The difficulty with allowing lockups to pools or across pools is the system depends on the ability to move Amp quickly if one app starts needing to slash Amp for any reason (bad actor, bad app, or otherwise).

Q3: For new Flexa-enabled apps, how much notice will we get of a new app launching?

We’ll provide at least 72 hours advance notice prior to the increased subsidy going into effect so stakers have plenty of time to unstake from existing pools if they choose.

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Great questions @FloatingRatio

We’re going to be announcing the first wave of apps and the initial collateral pool grants shortly. The Developer Grants will be partially used for initiatives like incentivizing new apps to integrate the Flexa Network. The Network Development Fund will be used primarily to incentivize the community, current stakers, and new participants to stake to the new collateral pools. This portion will be between 50M-150M per pool, depending on app size, number of users, and other factors (a good point mentioned by @AtomicWedgie517 below).

When you say soon, how soon do you mean :thinking:

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With your proposal, there is a risk that the APY for wallets and apps with some unexpected volume could be much higher than the other pools with subsidies. This could lead to a scenario where pools with lower APY have their collateral siphoned. I believe having a variable subsidy to meet a specific APY would be more beneficial. The APY could be set high enough to incentivize early stakers but also leaving room pools and users to grow.

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So let’s say XYZ app goes live. The team would announce a 100M grant to be paid to stakers over the next year…3 days notice is given to allow people to transfer into the new pool before rewards start…and the way I understand it, any collected fees associated with XYZ app would be used to make open market purchases of AMP, which would then be given to XYZ stakers only…correct?

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