[DRC] Launch Incentive Program Re-launch Proposal

[chaoslabs]

Simple Summary

Chaos Labs proposes resuming the launch incentive program to kickstart dYdX Unlimited. The objective the next phase of this program is to attract, retain and grow trader activity on dYdX Unlimited, showcasing its unique innovations.

dYdX Unlimited

The dYdX Unlimited upgrade this fall will be the biggest upgrade to dYdX Chain since its launch–introducing a range of features never before seen on any decentralized or centralized exchange. Innovations coming in this release include:

• Permissionless market listings: Users will be able to instantly list virtually any market on the dYdX Chain without requiring governance approval.
• MegaVault liquidity: A master liquidity pool ensuring sufficient liquidity on all markets while providing a passive income strategy for anyone ranging from degen trader to risk-averse farmer.
• A lucrative affiliates program: With the potential to earn up to $1,500 per month per referral, the rewards are substantial.
• Permissioned keys: Providing a more secure and customizable environment for institutional and high-value traders.

In the next few months users can also expect to see a refreshed UI, easier onboarding, and some very exciting integrations. dYdX Unlimited is set to maintain the position of the dYdX Chain as the premier perpetual futures trading platform.

Motivation

The principle underlying the design of the launch incentives program has always been to attract, retain, and grow activity on dYdX for the long term. Every aspect is designed to reward behaviors that correlate most closely with long-term usage. The objective of the launch incentive program is to motivate users try the protocol out and showcase dYdX’s value proposition.

Token incentives play a crucial role in bootstrapping trading activity on perp DEXs. dYdX has long been a market leader in rewarding traders for their activity and the launch of dYdX Unlimited presents an opportunity to continue showcasing the benefits of a fully decentralized perpetual futures exchange.

The perpetual DEX trading space has become highly competitive and continued investment is required in the form of incentives to maintain and grow dYdX’s strong market position.

The success of the program over the past 9 months is reflected in the adoption of the dYdX Chain over this period. Since the launch of the incentives program, the dYdX Chain has grown from inception to where it is today. Challenges with migrating users and activity to a new chain with a different architecture have been successfully met and the dYdX Chain is a vibrant ecosystem by most metrics. That being said, there is still a lot of rooom to grow.

Notable achievements include:

• Over $206bn in trading volume across 116 live markets.

• Over $34m in net fees while distributing $25m in launch incentives to date.

• Over 14 000 traders actively earned points through seasons 1-5 of the launch incentive program.

• Throughout the program traders have typically shown a healthy weekly retention rate of 50%-80%. Traders like what they see when they onboard to the dYdX chain.

• Over 30 different market makers have been motivated to connect their infrastructure to the dYdX Chain’s unique architecture and earn market-making rewards as a result.

There is no doubt that Seasons 1-5 of the launch incentives program have contributed positively to the adoption of the dYdX Chain thus far. Despite being only nine months old, the dYdX Chain is a regular at the top of the daily and weekly volume rankings.

Rewards from the launch incentives program have been earned by diverse users on dYdX chain, including, market makers, large volume traders at the top of trading leagues and retail traders. For example,

• Traders in the four trading leagues have competed for a total of $4m in rewards based on their trading P&L. These rewards are specifically designed to motivate traders to put in the time and effort to improve their trading performance. Traders who put in the time to hone their craft have been shown to retain significantly better than average.
• Market makers, motivated by the attractiveness of the launch incentive program’s market maker rewards segment have earned a combined $5m over the five seasons to date for adding liquidity to the various markets’ orderbooks.
• Retail trading flow, identified as traders initiating orders through one of the user interfaces, receive reward boosts. This targets incentives towards real users, a first in DeFi.

Promoting long-term alignment with the protocol, DYDX stakers are given a points boost. DYDX stakers secure the chain and have exhibited significantly greater retention than non-staking traders. This segment is rightly rewarded for the benefit they collectively bring to the dYdX Chain.

As stewards of the DYDX community Chaos Labs values transparency and community feedback highly. We have always strived to share the data we use to measure program performance, impact and effectiveness along with clear data-based rationales for why the program is designed as it is. Along the way the program has evolved with dYdX community feedback from mostly focusing on rewarding organic trading volume, to a set of targeted behaviors benefiting the dYdX Chain.

To accelerate the adoption and growth of dYdX Chain momentum, we propose re-launching the incentives program at the launch of dYdX Unlimited. At this early stage in the protocol, we believe that this investment in growth will set dYdX up for long-term, sustainable success.

Proposal

Given the Launch Incentives Program’s impact to date and its scheduled end at the end of Season 6 by August 28, 2024, we propose resuming it with a further $20m in DYDX rewards over six months immediately after the launch of dYdX Unlimited this fall. This will involve a short pause in the program between the end of season 6 and the launch of dYdX Unlimited.

The proposed structure will be administered in a similar fashion to the previous seasons of the program, with defined seasons and rewards targeted at the most valuable user activities to the ecosystem. Our industry-leading performance reporting for the community will continue each season so the community remains informed.

Should this proposal go ahead, the program will continue to be monitored for abuse using the Chaos Labs Wash Trading Detection Module. This will prevent malicious actors from diluting legitimate traders by trading with themselves or related parties.

We intend to maintain and enhance transparency on performance through detailed end-of-season reporting. Clearly defining and tracking the most impactful KPIs is essential for optimizing the program’s design and ensuring the community remains informed and empowered.

Chaos Labs values community feedback through all channels and aspires to take every suggestion on board for careful consideration. While data ultimately guides the decision making process, there is room to look into different ideas and we aim to study and respond to all well-intentioned ideas.

Proposal Timing: Why Now?

As Season 6 concludes between August 18-28, this proposal is designed to provide traders and market makers with the confidence that the program will continue for an extended period. This assurance will strengthen their motivation to invest the time and effort required to onboard to dYdX Unlimited.

Restarting the program at the same time as the Unlimited upgrade will give the upgrade the attention it deserves while rewarding early adopters.

Wash Trading Detection

Chaos Labs Wash Trading Detection Module is an advanced implementation of best-in-class wash trading algorithms, fine-tuned to cater to on-chain derivative protocol trading.

The Chaos Labs wash trading detection module is critical in incentive programs. It identifies trading patterns that result in a minimal ownership change, indicative of collusive activities. The module thoroughly analyzes all trades, employing behavioral filters to distinguish between organic and manipulative trading behaviors.

The algorithm leverages sophisticated metrics and conditions rooted in academic research and industry best practices to pinpoint wash trading activities on derivative trading protocols. Its methodology encompasses:

• Trade Graph Analysis: All trades concluded over a timeframe are transformed into a directed graph on which graph algorithms such as depth-first-search (DFS) are utilized to detect cyclical trading.

• Wash Trade Definition: Adhering to stringent criteria, the algorithm identifies wash trades based on anomalous ownership changes in relation to trade volume among clustered accounts. This extreme example shows four colluding traders creating 19 units of trading volume over six trades with no change in ownership. Our wash trading module can also detect wash trading activity where small changes in ownership occur.

This extreme example shows four colluding traders creating 19 units of trading volume over six trades with no change in ownership.

• Manual Screening: A crucial layer of manual review is incorporated to reduce the likelihood of false positives, safeguard legitimate traders, and uphold the algorithm’s precision and fairness. Example output from Chaos Labs Wash Detection Module, highlighting trade cycles identified as potential wash trading instances.

• Parameters and Conditions: Operational parameters, such as limits on colluding cycles and threshold tolerances, are fine-tuned to ensure a balanced approach between effective detection and the minimization of false alerts. This is done by taking the specific market microstructure of an exchange at a point in time into account to account for legitimate incentive-driven trading activity.

Next Steps

Following community discussion on the forums, we are targeting an on-chain vote starting on Tuesday, August 20.

[RealVovochka]

I don’t see how the program from Chaos Labs in its current form is in any way applicable to the change of protocol strategy that is being proposed by dydx unlimited.

Long tail markets are dead and account for a tiny fraction of the program’s rewards

Most of the rewards are distributed to professional market players who dump these rewards almost immediately, which negatively affects the token price, the number of real protocol users and other protocol metrics grow very slowly.

The program in its current form has fulfilled its function and should be revised, prolonging the program in its current form for such a long period of time looks like a bad idea

I have no problem with Chaos Labs being the operators of the program in the future, but the program itself should definitely be revised

[olegas]

I support.
This program will give the opportunity to continue to grow and shoot DYDX in the alt season. Its non-renewal may negatively affect the trading volumes.

I am sure that these 20 million in 6 months did not lower the price of tokens.
During this time, the largest token unlocks occurred among founders and investors, they happened in the season of a significant decline in altcoins.

[nguyenhd2107]

Agree on this, we will invest but current form of incentives is stagnant, lets look at stats during May-Jul, the volume is down significantly and even worse in compare to Hyperliquid. We can blame to overall market condition, but we invest to expect THE DIFFERENCE, that should be our investment motivation, we dont invest money to make no difference at all.
Next steps I think @chaolabs should re-introduce current incentives format after 1st incentives program, then collect community feedback before making new proposal.
1 suggestion should be counting holding $dydx/$stakeddydx to calculate the fee/reward (currently I do believe you guys couting $stakeddydx only?), something similar to v3 tier fee structure.

[RetailTrader]

Dear Chaos Labs & dYdX Team,

As a long-standing participant in your trading ecosystem, having personally contributed approximately 20% of the daily volume on v3 last year on many days, with a cumulative trading volume exceeding $15 billion across v3 and v4, I feel compelled to share insights regarding your incentive programs.

Your recent statement regarding the design principle of your launch incentives—to attract, retain, and grow activity—while laudable, appears to have missed its mark significantly. The statistics from July, which indicate fewer than 700 daily users despite an investment of $30 million in incentives over six seasons, suggest a disconnect between the program’s goals and its outcomes.

In my experience, during all seasons but especially after season 1, the competition was overwhelmingly dominated by automated trading algorithms, or ‘bots.’ My observation, supported by the leaderboard, shows that 95% of the rewards were captured by just 0.1% of users, primarily professional market maker firms. This skewed distribution undermines the program’s intent to foster broad user engagement.

The current model, where 90% of rewards are tied to trading volume, inadvertently favors these high-frequency trading entities, many of which operate at a loss pre-incentives, solely to farm volume for rewards. This strategy does not align with the stated goal of user retention or growth but rather inflates volume metrics without necessarily enhancing the trading experience for retail users.

I propose a reevaluation of the incentive structure:

Dedicated Retail Rewards: Allocate a substantial portion of the rewards, perhaps 75% or more, exclusively to retail users (desktop and mobile app users). This would not only level the playing field but also genuinely incentivize new user acquisition and retention.

Gamification for Engagement: Introduce a ‘DYDX Unlimited Journey’ program, a tiered reward system where users can achieve milestones through various activities. For instance, starting with a modest reward for a small deposit and volume, escalating to significant rewards for sustained activity and higher volumes.

Clarity on Affiliate System: Please provide detailed information regarding the affiliate system’s funding source and how the $1,500 monthly cap is structured. Ensuring this cap does not limit potential earnings based on trading volume would be beneficial.

Lastly, I wish to commend the professionalism of Chaos Labs and the functionality of the dashboard. However, the delay in reward distribution post-season is a notable area for improvement. Aiming for a maximum one-week delay would significantly enhance user satisfaction.

Thank you for considering these insights. I am hopeful that these suggestions will contribute to a more equitable and engaging trading environment on dYdX.

Sincerely,

RetailTrader

[CipherLabs]

We have some serious concerns about renewing the program in its current form. While we support the idea of an incentive program, we don’t believe it has been as successful as claimed. We’d like to address a few major points:

Autonomy and Decentralization: The reliance on a third party to run this program is unnecessary, given that we already have a native, autonomous, instant, and decentralized system in place. Trading Inc should have built this system correctly from the start to function without the need for centralised third parties. If additional incentives are required, they should be distributed through the native rewards system. Should the current rewards formula fail to effectively promote volume on assets that need it, it must be updated with a community-approved formula. If possible, this updated formula should also seamlessly incorporate mechanisms for detecting and preventing wash trading, ensuring a fair and efficient distribution of rewards.

Incentives for Liquid Markets: We question the rationale behind incentivizing trading in markets that already have ample liquidity, such as BTC, ETH, and SOL. These markets do not require additional incentives, and focusing on them detracts from supporting the assets that actually need liquidity.

Program Results and Data Comparison: To evaluate the program’s impact, let’s examine the trading volumes on both DYDX and Vertex—two exchanges with similar timelines. Despite DYDX having an existing customer base from its v3 days, Vertex, though at a disadvantage, shows significantly higher 24-hour trading volumes for the coins both platforms share, excluding BTC, ETH, and SOL. This comparison suggests that the current incentive program has not achieved its intended results. While the program has been managed well, the strategies and methods implemented have not effectively boosted volume in the markets where it is most needed.

Past 24 hour volume comparison:

	Vertex Arbitrum	Vertex Mantle	Vertex Total	DYDX v4
ADA	$1,239,145	$433,546	$1,672,691	$411,000
APE	$180,742	$95,967	$276,709	$47,800
APT	$743,611	$307,185	$1,050,796	$875,000
ARB	$975,006	$312,396	$1,287,402	$271,000
ATOM	$328,264	$129,962	$458,226	$1,180,000
AVAX	$944,708	$151,404	$1,096,112	$1,090,000
BCH	$405,552	$99,559	$505,111	$380,000
BLAST	$164,775	$18,183	$182,958	$2,190
BLUR	$449,720	$89,129	$538,849	$19,600
BNB	$741,292	$165,502	$906,794	$444,000
COMP	$363,772	$173,796	$537,568	$84,100
CRV	$1,490,438	$90,304	$1,580,742	$308,000
DOGE	$1,218,243	$225,196	$1,443,439	$834,000
DOT	$169,621	$92,822	$262,443	$698,000
DYDX	$483,185	$124,743	$607,928	$118,000
ENA	$90,534	$21,225	$111,759	$541,000
FIL	$165,179	$49,661	$214,840	$791,000
FTM	$1,300,967	$308,912	$1,609,879	$277,000
GALA	$677,359	$125,680	$803,039	$340,000
ICP	$452,019	$170,405	$622,424	$21,800
IMX	$272,172	$81,821	$353,993	$28,400
INJ	$581,029	$126,126	$707,155	$132,000
LDO	$366,018	$85,866	$451,884	$58,700
LINK	$836,976	$50,468	$887,444	$3,550,000
LTC	$437,073	$189,714	$626,787	$731,000
MATIC	$499,537	$151,446	$650,983	$778,000
MKR	$1,446,613	$279,813	$1,726,426	$108,000
MNT	$11,462	$4,176	$15,638	$4,980
NEAR	$404,320	$143,372	$547,692	$1,750,000
ONDO	$691,301	$221,436	$912,737	$276,000
OP	$1,160,229	$471,867	$1,632,096	$354,000
PYTH	$705,673	$205,161	$910,834	$17,000
SEI	$429,930	$165,711	$595,641	$191,000
SNX	$228,032	$106,865	$334,897	$103,000
STX	$438,374	$254,662	$693,036	$136,000
SUI	$1,284,371	$339,584	$1,623,955	$1,320,000
TON	$2,345,914	$1,162,441	$3,508,355	$476,000
TRX	$175,344	$52,824	$228,168	$579,000
WIF	$1,558,991	$468,810	$2,027,801	$308,000
WLD	$908,295	$134,998	$1,043,293	$30,800
XRP	$1,256,942	$246,315	$1,503,257	$1,910,000
Total Volume			$36,751,781	$21,575,370

Recommendations for Improvement:

In-House Trading Competitions: Implement in-house trading competitions based on a percentage of fees generated from the previous week. These should be integrated directly into the DYDX site, ensuring that the entire process remains autonomous, decentralized, and sustainable.

Daily and Weekly Competitions: Reintroduce daily competitions, as the current six-week formats become monotonous and uninteresting. Daily competitions should focus on assets with the lowest liquidity, while weekly competitions could target the ten assets with the lowest liquidity from the prior week. This approach will ensure ongoing engagement and support for the markets that need it most.

Adjust Native Rewards Formula: To ensure fair and efficient distribution of incentives, we recommend adjusting the native rewards formula. This formula should handle all incentives, besides those from competitions, and must include wash trading detection mechanisms as part of its core functionality.

Separate Competitions for Front-End vs. API Trades: Establish separate competitions for trades placed through the front end versus those placed via API. This distinction will help ensure that normal users trading through the front end aren’t unfairly disadvantaged by bots and automated trading strategies that can run 24/7.

Verification System for Fair Participation: To further enhance fairness and prevent exploitation, we need to implement a verification system. Only verified accounts should be eligible to receive trading rewards, affiliate commissions, and participate in competitions. While this may seem to go against the ethos of DeFi, it’s necessary to maintain the platform’s integrity. Without such measures, the affiliate program will continue to be vulnerable to self-referral loopholes, and competitions will remain unfair, potentially being dominated by bots and the abuse of multiple entries.

[chaoslabs]

Hey @RealVovochka @RetailTrader @olegas @nguyenhd2107

As mentioned in the original post we value community feedback highly and appreciate these thoughtful responses.

The proposal is to continue structuring the program into seasons, but with a comprehensive redesign to optimize its impact in alignment with the dYdX Unlimited release. As with previous iterations, the new design will be communicated in advance, accompanied by a detailed analysis that explains each element using theory and data.

As we have done over the past 9 months, we will fully consider all community feedback when designing the relaunched program. To address some of the general comments in this thread about rewards aimed at retail traders, this remains a top priority for the program. For example, the recent introduction of a trading boost through one of the user interfaces was an initiative specifically designed to increase retail traders’ participation. To our knowledge, this is a first in DeFi and, while challenging to implement, has proven to be worth the effort. We welcome any additional ideas on this theme and will carefully consider them all should this proposal pass.

[cryptoplaza]

We’re sharing our perspective on the incentive program that has been implemented over the past few months. I think it’s important to start with graphs that can provide an initial overview of the volume data, which is one of the main indicators of the project.

One of the first conclusions is that the project has been losing market share and has not managed to capitalize on the increase in volume in the sector, especially in 2024. Additionally, there doesn’t seem to be any significant effect that would suggest this program has been a success, as it doesn’t appear to have generated any growth. If anything, it may have only prevented a decline.

In this regard, I believe the project should be ambitious, aiming not only to grow in line with the market but ideally to surpass that growth. I don’t think we should define the program’s outcome as a success, because that would lead us to believe that repeating these results is a scenario we want to maintain.

The ranking on many days, even on high-activity days like the significant drop we had on Sunday, showed that dYdX did not lead the activity that day. However, I believe we have a strong base of activity and brand recognition that allows us to change this momentum. But to do so, we need to face the reality of the effectiveness of the actions we’ve been taking and focus on making necessary changes.

I think the feedback from the comments of @RetailTrader @CipherLabs is excellent. We’ll also try to provide our feedback.

First, it’s important to highlight that competitions tend to generate artificial trading rather than long-term activity. I believe there are real ways to support long-term profitable traders, especially those with limited capital. This can allow talent to emerge that could dedicate themselves full-time to this economic activity. For this to happen, they not only need to be profitable, but they also need sufficient capital to avoid taking excessive risks that would place them at a high probability of ruin. I don’t think competitions truly help in finding sustainable traders; on the contrary, they encourage a type of trading that is particularly risky in an attempt to rank high.

We wrote an article on this topic in the forum, and here’s the link to it.

Trading Competitions vs. Funding Talented Traders

I believe it is important to understand the differences between these types of strategies and the contribution of such strategies as a lever for growth and long-term value creation for derivatives brokers. Let’s start by defining what each initiative entails. A trading competition usually consists of initiatives that set prizes for the best traders over a period of time. Each competition typically defines specific criteria to rank the results of all traders, with profitability often being one …

Another approach worth exploring is leveraging our community to better communicate about dYdX. I think it would be interesting to explore ways to reward users with dYdX for comments on social media platforms like Farcaster or Lens, which could significantly increase visibility within the crypto investor community. It would also be beneficial to implement this on Telegram. This could be limited to users who are active on the platform. We’re talking about $20 million, which is a tremendous incentive to develop strategies that could even foster communities within these social networks.

On a platform like Farcaster, the dYdX group has very little activity. We’ve published some articles, and there are over 500,000 users with wallets on this network who are now very active with tokens. These users could even use dYdX to hedge their positions in such tokens. A small success in this area could have a significant impact.

Lastly, I want to emphasize a strategy that I believe would have a significant impact on TVL: incorporating other assets as collateral. Here’s the article we wrote on this topic some time ago.

ETH Collateral in dYdX

I don’t think it’s productive to label the current incentive program as a success. Being objective with the statistics, doing so would mean settling for results that I believe are far from the scenario we envision for our project.

[olegas]

The program started when the decline in trading began.
If there was an active global growth of interest in cryptocurrencies, it would have shown its effect.
When season 6 ends. We will see statistics with and without the program, the decline in both trading volume and active accounts.

Let’s wait 2-4 weeks.

[cryptoplaza]

These are the statistics for all trading in Derivatives over the past 9 months. I think it’s better to look at the daily statistics rather than the cumulative ones because it’s easier to analyze growth. If you’re referring to the last month, the activity in the first few weeks was higher, although it has decreased in the last weeks. I believe seasonality is also important to take into account.

My reflections, in any case, were referring to the last 9 months.

[CipherLabs]

We’re enthusiastic about the concept of introducing a funded account system. It could be a valuable initiative to explore, where traders, for instance, pay a $500 fee to participate in a challenge with the opportunity to earn a funded account. The profits generated could then be split, with 80% going to the trader and 20% contributing to the community treasury. This is just one of many possible approaches, but it holds significant potential and could be a brilliant idea to develop further.

[RealVovochka]

I completely agree with the @RetailTrader . The majority of the volume is dominated by a few large professional market participants whose algorithms should yield a positive expected value (EV) against retail traders even without huge rewards. I think we need to stop “buying” artificial trading volume through treasury spending. This negatively impacts its price because most accounts with large volumes sell almost immediately. We’ve spent $30M, and what have we achieved in the end? I tried to visualize the statistics a bit.

The source: dYdX Chain Top Level Metrics | Mode

This picture focused on a Web user type aka retail

It’s an obvious down trend

Lets examine the number of active daily users of Web type

Same with the number of daily active user. Obvious down trend

Are we calling it success?

Who is getting most of the rewards? top10 got 55% of rewards from Chaos Labs program, and I’d like to remind everyone that we have a native rewards program that directly depends on the amount of fees paid.

I found that accounts marked in yellow with a high possibility can be controlled by the same entity , same with accounts marked in green (another entity)

If we don’t shift our focus to retail and building a cohesive community of traders, we’ll just end up burning through the entire treasury on rewards for professional market participants.

[RetailTrader]

Thank you for your ongoing commitment to fostering an open dialogue with the community regarding the development and enhancement of the DYDX platform.

To provide clarity, my engagement with your platform involved executing trades solely through the desktop application on a 15-inch MacBook. This activity led to the generation of considerable transaction fees, simply through the act of trading. It is in your strategic interest to identify and engage with retail traders like myself, as we represent a significant revenue stream for your platform.

However, after the initial enthusiasm, I ceased using dYdX after being a daily user for the last 18 months. This decision was primarily due to the demotivating realization that the incentive program seemed to disproportionately favor bot operations, which, despite often losing money before incentives, were able to accumulate rewards due to their capacity for high-frequency trading. This perceived imbalance has significantly impacted my engagement with the platform.

Current Program Analysis

Upon reviewing the data from the past year, it is evident that the rewards program, while ambitious, has not met its intended objectives. Specifically:

Reward Distribution: A disproportionate share of the $30 million allocated has been distributed to market makers, particularly Wintermute, which has a vested interest in Chaos Labs. This has not only led to a significant drain on the treasury but also appears to have facilitated the dumping of DYDX tokens, contributing to a 70% decline in token value against a backdrop of market growth.

User Growth: Despite the substantial financial investment, there has been no net increase in daily active users from February to July. Specifically, February 19 saw 623 daily active users, while the 8th of July saw only 610 active users. In between those dates, approximately $20 million has been spent on the incentive program, whose top priority was to acquire new users. This indicates a complete and utter failure in achieving the core objective of user acquisition.

Poor Communications: For instance, it remains ambiguous whether the multiplier for using the desktop or mobile app can be stacked with trading in non-major markets. Is the combined effect a 3x bonus? The communication on this matter is woefully inadequate, leaving even those who have meticulously reviewed every post multiple times in the dark.

Here are now my recommendations based on the current state of affairs and potential improvements.

Open Dialogue and Pre-Proposal Discussion

Immediate Action: Initiate a pre-proposal discussion immediately. This will allow for community input before finalizing the proposal, ensuring that the final version reflects a broader consensus and addresses potential concerns from the outset. The engagement on this topic suggests a significant interest in discussing and refining the proposal.

Reevaluation of Incentive Structures:

Retail Focus: Shift the incentive model to stronger favor retail users. Implement a more transparent and user-friendly system where new users are immediately aware of the benefits they receive upon joining.

Trading Leagues Critique

Impact Assessment: There is a need for empirical data to justify the effectiveness of trading leagues in promoting healthy trading behaviors. The current structure might inadvertently encourage risky or abusive trading strategies, where participants execute trades in both directions to neutralize PnL but qualify for rewards.

Reward Allocation: The allocation of nearly 20% of the rewards to trading leagues seems disproportionate, especially when considering that new users are unlikely to participate, and existing profitable traders are already engaged. A reevaluation of this allocation is warranted.

User Retention via Streak System

Reinstatement: If the data from Chaos Labs indicating high retention rates after 6 weeks of continuous platform use is accurate, then reinstating or enhancing the streak system could significantly boost user retention. The previous decision to cancel this system appears counterproductive to these findings.

Market Maker Incentives

Proportionality: The current 20% allocation to market maker incentives, particularly when many are already receiving rewards through the regular system, seems excessive. There has been no noticeable improvement in liquidity or execution prices, suggesting these incentives might not be effectively used.

Proposed New User Onboarding System (general)

Tiered Incentives: Implement a tiered onboarding system that includes:

First Depositor Bonus: Encourage initial deposits with bonuses that require certain volume or activity milestones to unlock.

Volume Milestones: Offer additional rewards for reaching significant trading volumes (e.g. $1M, $5M, $10M) with conditions for withdrawal linked to further trading activity. This not only incentivizes trading but also ensures long-term engagement.

Anti-Abuse Measures: Bonuses should be structured in such a way that they are only fully accessible after meeting specific conditions, reducing the likelihood of system abuse (cf. casino platforms and their bonus systems).

Communication Strategy: Ensure that all new users are made aware of these incentives through prominent communication channels, not buried in lengthy documentation. Highlighting the multiplier for non-major markets and desktop/app users should be part of this strategy.

Pilot Program for New User Acquisition (specific)

Duration: Propose a 3-week intensive acquisition phase within the next season, followed by a 3-week evaluation period to assess the retention and engagement of new users.

Incentive Design: Develop tiered incentives that reward not just volume but also engagement with educational content and community activities. This could include:

Educational Resources: Offer guides on basic trading strategies, risk management, and profitable trading techniques like delta neutral farming.

Onboarding Journey: Create a structured onboarding process where new users can learn together in a community setting, enhancing retention through peer support (Discord).

Anti-Gaming Measures: The proposed new user acquisition program should include strong anti-gaming features to ensure that the incentives are genuinely benefiting new retail users and not being exploited by existing users or bots.

Community and Communication Revitalization

Discord and Social Media: Revitalize the Discord community by integrating it into the onboarding process, making it a hub for learning and interaction. Address the issue of scam bots aggressively.

Clear Communication: Ensure that all new users are fully aware of how they can benefit from the platform’s features and incentives through clear, concise communication.

Performance Metrics and KPIs

Establish clear Key Performance Indicators (KPIs) to measure the success of the new user acquisition strategy. These should include user retention rates, trading volume from new users, and the conversion rate of new users to power users.

The current trajectory of the platform suggests a slow but steady decline in vitality if current strategies persist. A bold shift towards genuine retail user acquisition, supported by robust educational and community initiatives, is imperative. This shift, combined with a comprehensive overhaul of the incentive structures, could not only halt this decline but potentially reverse it, aligning with the goals of user acquisition, retention, and platform health. By adopting these recommendations, DYDX can potentially increase user engagement, improve retention rates, and ensure that rewards are distributed in a manner that benefits the platform’s long-term sustainability.

I am prepared to share a more detailed plan for this pilot program, drawing from my background in profitable user acquisition in the e-commerce sector. I am eager to see how these ideas resonate with the community and the team, and I am available for further discussion or to provide more detailed plans on any of these points.

Thank you for your attention to this critical matter.

Best regards,

RetailTrader

[olegas]

You can exclude market makers from this program and limit the maximum number of tokens, reduce the accrual of points when certain volumes are reached.

Add full statistics to the interface, rather than using third-party sites. The client in the barge interface should see what reward he will receive. I notice that many clients do not see how much they are entitled to, nor how much they have received.

There is no usability in this program at all.

[CipherLabs]

@RealVovochka

If we don’t shift our focus to retail and building a cohesive community of traders, we’ll just end up burning through the entire treasury on rewards for professional market participants.

I think we can all agree this has basically been their plan all along though. We know who’s behind this too.

[CipherLabs]

@RetailTrader

Reward Distribution: A disproportionate share of the $30 million allocated has been distributed to market makers, particularly Wintermute, which has a vested interest in Chaos Labs. This has not only led to a significant drain on the treasury but also appears to have facilitated the dumping of DYDX tokens, contributing to a 70% decline in token value against a backdrop of market growth.

This outcome was entirely predictable. The cartel has been remarkably effective at siphoning off the community treasury. It’s baffling that, despite having a perfectly decentralized system with a native rewards program, we’ve allowed a third party to manage a centralized rewards scheme, where only they and their close associates have access to the rewards formula. This reeks of corruption and greed, and it’s no wonder the project is faltering as a result.

[shuo]

I completely agree with this.

@RealVovochka

Most of the rewards are distributed to professional market players who dump these rewards almost immediately, which negatively affects the token price

@RealVovochka

I have no problem with Chaos Labs being the operators of the program in the future, but the program itself should definitely be revised

[shuo]

@chaoslabs

To address some of the general comments in this thread about rewards aimed at retail traders, this remains a top priority for the program. For example, the recent introduction of a trading boost through one of the user interfaces was an initiative specifically designed to increase retail traders’ participation. To our knowledge, this is a first in DeFi and, while challenging to implement, has proven to be worth the effort.

Yes, I think it’s a good innovation based on community’s comments.

[chaoslabs]

The caliber of thought that has gone into the posts in this thread reflects the passion and thoughtfulness of the dYdX community. There are too many good ideas on the program structure here to respond to each one individually, but we can assure the community that they are heard and will be carefully considered over the coming months should the program continue.

To further facilitate tracking of ideas and discussions, we’ve created this thread for community input on the program design, should the decision be made to continue. The ideation thread will be a key space for open brainstorming, where we will actively participate to help develop the best incentive structure for dYdX Unlimited. The community can expect Chaos Labs to closely monitor all feedback and suggestions related to distributing incentives to traders on the dYdX Chain.

This DRC proposal solely aims to decide whether to continue the launch incentive program by Chaos Labs and, if so, whether $20 million over 6 months is an appropriate budget.

The program complements the existing native reward system, which is entirely fee-based. The launch incentive program improves upon this by allowing targeted incentives for retail traders and specific segments when appropriate. The incentive design governing this program is open for revision, and the ideation thread will be crucial in shaping any necessary changes.

If this proposal passes there are two further levels of program governance:

We will share an overview of the revamped program on the forums for community discussion in the weeks leading-up to the re-launch with dYdX Unlimited. As always, community feedback will play a crucial role in shaping the final design.

The dYdX community will also vote on the distribution of each season’s incentives providing a second layer of oversight on the program. Each season will be accompanied by our usual in-depth reporting to ensure transparency and so the community is adequately informed.

This is an extremely important decision for the community with significant repercussions for dYdX Chain growth. Once activity and attention is lost it can be difficult and more costly to win back. We urge the community to take the time to consider the merits of trader incentives before deciding on the best path forward.

[RealVovochka]

I don’t really understand why we need to make a proposal for 6 months and $20M. A new program based on community feedback might require a smaller budget, or maybe even a larger one. Chaos Labs might not be able to deliver visible improvements next season, and the community might decide to discontinue your services. A lot can happen.

@chaoslabs

Once activity and attention is lost it can be difficult and more costly to win back.

Attention is already lost. Revised program in a new format can return the attention.

Aside from a couple of people, no one really examines the distribution proposals in detail, but the discussion around changes to the program has sparked an interesting debate.

Over the course of 6 seasons, the changes made by Chaos Labs have been purely cosmetic, and there’s a non-zero chance that significant changes won’t happen if a 6-month program is secured and Chaos Labs will be in a certain comfort zone without any real deadline.

All the statistics show that we are not growing and have lost momentum. I don’t think a loss in volume from stopping additional rewards is something to be afraid of. The example of V3 shows that we can still achieve good stats even without rewards.

In my opinion, we can pause the program until a new one is developed, but there is also a compromise:

We extend the Chaos Labs program for one season with a $5M budget. During this time, Chaos Labs, taking into account community feedback, proposes a revised version and then puts it to a vote for a somewhat longer-term commitment.

At the same time, other teams can propose their own programs, and the community will have the flexibility to make decisions. Extending the commitment for 6 months is an anchor that won’t allow the protocol to quickly adapt its strategy