In our recent community call, we continued our discussion about the Meteora 10% LP Stimulus Program and the associated scoring system.
This discussion started back in December 2023 with the idea of a points system to encourage LPs to add liquidity to Meteora (via DLMM, Dynamic pools, Multi-token pools), which would help drive TVL and liquidity growth on Solana.
We’ve been trying to reach a rough community consensus on a few topics, three of which were covered in the call:
- What would be a suitable LP points scoring system that is both forward-looking and rewards early OG LPs who helped improve Meteora?
- How much should fees be incentivized relative to TVL?
- Should we turn on protocol fees and what should the % be?
It’s awesome to see the community actively engage in these discussions and help Meteora design what could potentially be the best incentive and fee system to date on Solana.
LP Points Multiplier: OGs vs New LPs
Initial proposal
Basic Scoring
- 1 point per $1 of TVL per day
- 1000 points per $1 of fees earned
- On all liquidity: DLMM, dynamic pools, multi-token pools
Multipliers
- 1.5x multiplier for LPs if you started LPing on Meteora before Dec 1 and have continued till launch.
- 1.2x multiplier for LPs if you started LPing on Meteora before Points has launched and you continue thru to Launch
- Multipliers are on the wallet, not your LP positions. It will apply to all positions.
@Chri_SOL felt that in the initial proposal, the multiplier boost attaches too much importance to early LPs who started adding liquidity before the official launch of the points system, since LPs who enter late but can potentially add liquidity long term would unfairly miss out on the multiplier boost altogether.
As such, he proposed a different multiplier system aimed at improving the fairness and alignment of incentives for everyone. His general suggestion:
- OG LPs who added liquidity before the announcement of the points system get a higher multiplier on their points, which gets reduced after every month or after a certain time interval.
- Everyone else moving forward after the points system launch earns a multiplier on their points, but it is slightly lower compared to OGs.
This approach would mean everyone earns a multiplier before and after the launch, and no one would feel they “missed the boat” and get discouraged from continuing to add liquidity.
An important consideration highlighted by other community members was that any LP who educates themselves early about DLMM or other pools will naturally have an edge vs latecomers as they will be ready to earn points right at launch. Passive LPs who contribute to TVL for stable pairs in full-range dynamic pools without actively market making may not get a lot of points — but these are the type of LPs we should incentivize to a smaller extent anyway.
Richard_ISC concurred with @Chri_SOL’s suggestions regarding OG LPs. He felt that we should not discount their contributions, yet only reward them with a slightly advantaged multiplier — sufficiently high enough such that they would be happy to continue adding liquidity after the initial points system has ended.
LP Points Scoring: Fees vs TVL
In a controversial move, @durdenwannabe suggested a much bigger 500,000 points per $1 of fee (WTF!), based on a recent poll. Although a massive number vs the 1 point per $1 in TVL at first glance, it was worth a discussion on whether it could truly bring more active LPs to Meteora so that they can enjoy DLMM’s powerful fee-generation features.
It was a good opportunity to emphasize to the community that active liquidity that brings in volume and fees to Meteora is much more valuable than idle, inactive TVL, which has its own benefits but might feel more like a vanity metric.
The primary driver behind Durden’s suggestion was that there weren’t many strong arguments put forth by the community in the past few weeks regarding the need for TVL incentivization. He pointed out that LPs who simply add liquidity to stable pairs in dynamic pools take very little risk to earn points (and MET) and could be mercenary LPs that don’t add sufficient value to the Meteora ecosystem, and thus should be incentivized much, much less.
As expected, there were opposing views from the community. Richard_ISC helped present Durden’s initial poll in a different way, basically:
“What % of points should go to TVL and what % of points should go to fees?”
- 1% to TVL 99% to Fees
- 10% to TVL 90% to Fees
- 20% to TVL 80% to Fees
- 30% to TVL 70% to Fees
- 40% to TVL 60% to Fees
- 50% to TVL 50% to Fees
- 60% to TVL 40% to Fees
- 70% to TVL 30% to Fees
- 80% to TVL 20% to Fees
- 90% to TVL 10% to Fees
In Richard_ISC’s pov, with any % beyond 90% going to fees, we might as well not reward TVL at all. He also felt that the actual number isn’t all that important, compared to educating more LPs that certain pools and strategies would earn more points.
Ben also reminded the community that Meteora will soon have multiple opportunities for stacked points and incentives. For example, we might place multipliers on the JUP-paired pools after the JUP launch, and Kamino is integrating DLMM pools to create vaults where liquidity would earn both Meteora and Kamino points!
Therefore, we might want to stick to a basic points scoring system for the launch that can be easily recalled by LPs:
- 1 point per $1 in TVL
- 1,000 points per $1 in fees
Too detailed a system, despite the opportunity for more rewards, could get lost in all the positive news. Before launching a big difference in points between TVL and fees, perhaps we can wait until we are able to review the performance of the current system and decide whether more needs to be done to encourage greater active LPing.
Doing it at a later date when there are less points stacking and incentive initiatives happening might give it the attention it deserves.
Switching on Protocol Fees
Currently, all Meteora pools collect 0 protocol fees, giving all fees to LPs. The community discussed the pros and cons of tweaking this system, keeping in mind that Meteora needs to achieve sustainability as a project in the long run.
The current proposal was to turn on protocol fees together with the LP points system, and fees would then apply to both the DLMM and other pools.
Main objectives:
- Help slowly capture fees for the MET DAO and Meteora team to sustain long-term operations.
- Protocol fees as a growth lever in the future. For instance, giving Meteora the flexibility to optimize fees after MET incentives end, which is a much better look compared to simply increasing fees later.
- Discourage wash trading on permissionless pools created by LPs who are trying to unfairly farm Meteora points. Since dynamic pool creation is permissionless, you can create 2 fake tokens, earn volume and fees on your TVL plus Meteora points, and it would cost you nothing etc.
As a thought experiment, we asked the community what they thought of a high 30% protocol fee, and Durden even upped the ante to 50%!
Durden mentioned that raising protocol fees is reasonable since Meteora arguably has product-market-fit, already achieving approximately ¼ of Orca or Raydium TVL even without distributing much incentives so far.
Otto also felt that we should not discount the MET value eventually received by LPs due to the points system, which would offset an increase in fees. Since the MET incentive program would end after a certain period, we can preemptively raise fees first until MET incentives end then incentivize LPs again by reducing fees.
However, most other viewpoints were against very high fees.
In fact, Richard_ISC was in favour of 0 protocol fees or extremely low fees for now, citing Jupiter’s 0-fee aggregator strategy, which he believes helped it achieve pmf.
Community members such as MEPIGME and Amrasara brought up a good point that unique user growth and retention is likely more important than fee generation at this early stage, as we need more users to try out DLMM to love it like we do! High fees that are not competitive with the industry standard would likely put them off and diminish the TVL in the pools over time.
C2yptic felt we might be a little irresponsible to experiment with very high fees and he’d rather stick with the industry standard first, before reducing or increasing fees based on the performance of the pools.
Ultimately, turning on fees depends on how Meteora wants to run the project at different stages of growth and how the fees are going to be used. Fees may help keep things sustainable and experimenting with high fees can yield innovative growth strategies later on. But it does add a layer of friction when getting LPs to try Meteora and this results in slower initial growth in the process.
However, we should not attempt a race to the bottom when it comes to fees and should attract LPs based on the merits of Meteora’s technology instead. For example, DLMM can maximize the use of capital and potentially capture a lot of fees for active LPs. Like some community members said:
We wouldn’t want LPs to just feel that “Meteora is just cheaper”. Instead they should feel that “Meteora is BETTER”.
We should also not replicate Jupiter’s fee strategies exactly, as there are many nuances involved when comparing a DEX aggregator to a DEX/liquidity platform.
The general agreement was that more research needs to be done on the Meteora protocol fee system. Without more data points, the community appeared to prefer a starting fee that was close to industry standard, which was suggested as ~15% (to be verified if it’s indeed the standard). Amrasara also suggested that we consider charging different protocol fee % for different types of pools, similar to what some other DEXes do by not charging any protocol fees for pools with no or low fee tiers.
In addition, Meteora can eventually leverage our dynamic vaults, which could be our superpower! Instead of protocol fees, we can potentially make bank by capitalizing on the growth in TVL in the dynamic pools (integrated with the dynamic vaults), part of which gets used on external lending protocols for lending yield. This could mean Meteora operating with low to 0 fees indefinitely, giving us a powerful edge over alternatives.
What should protocol fees be used for?
The community briefly discussed what protocol fees collected should be used for once we turn it on.
Some initial suggestions:
- Build up an insurance fund to complement the audits we’ve done and help LPs feel more secure.
- Transfer protocol fees to the MET DAO and distribute them back to MET holders later. It would essentially mean the LPs who participated in the points program earlier get back some of the fees taken.
- Use the protocol fees for further LP incentivization or referral programs once the first batch of MET incentives have been distributed.
As always, we will continue to engage the Meteora community (and later the MET DAO) on proposals related to the points system and protocol fee switch.
We have found that an operating principle of “discuss now, determine later” (h/t Durden) is perhaps the most efficient when it comes to executing new innovative ideas together with the community. Simplicity in execution paired with a level of fairness is also key when rewarding and incentivizing product users.
As such, we may not want to spec out the tokenomics and protocol fees in detail right away, as it might be better to design the system only when we have the necessary data to review what works and what doesn’t.
Meanwhile, we highly encourage the community and budding LPs to chime in on these critical topics. All are welcome to join our discussions in the Meteora discord!
