[DRC] Launch Incentives Season 1 - Distribution Proposal

Simple Summary

A proposal to distribute $5M in DYDX tokens from the dYdX Chain Community Treasury to qualified users in trading season 1 of the dYdX Chain Launch Incentives Program.

Motivation

In line with the initial proposal shared with the community regarding the Launch Incentives Program, Chaos Labs will provide recommendations on the distribution of incentives to individual accounts.

These recommendations are derived following detailed analysis of the season’s trading data, specifically looking to identify and address any artificial or wash trading. Our aim in this is to maintain the integrity and effectiveness of the program, ensuring that the incentives are fairly given to those participating in genuine trading activities on the platform. For a deeper understanding of how Chaos Labs identifies wash trading, please refer to our detailed blog post here.

The recommendations, along with the end-of-season report and relevant data, are openly published on the dYdX Chaos Labs Risk Portal. This transparency allows community members to see that accounts receiving substantial rewards are contributing significant volume and generating actual fees on the platform. Those in the community who wish to verify this data independently can do so as all information is verifiable on-chain.

The recommendations are posted publicly, along with the end of season report and supporting data on the dYdX Chaos Labs Risk Portal for community members to observe. Utilzing these, communty members should be able to easily confirm that accounts receiving significant rewards drive significant volume and accrue real fees on the platform. In addition, for any community member preferring to verify the data independently, everything can be confirmed on-chain.

Specification

In this allocation, $5M in DYDX tokens are proposed to be distributed across 2,006 accounts.

The value of DYDX in USD for this allocation is based on a 7-day Time-Weighted Average Price (TWAP) as of the last day of trading season 1 (01/04/23), where 1 DYDX is equal to 2.942 USD.

The complete list of accounts and their respective proposed incentive allocations is available here.

To view the trading data for each account, please visit the Chaos Labs portal here.

DIP doc can be found here

Test Cases and Implementation

The implementation script used to generate the proposal can be found here.

A proposal was submitted on the current dYdX Testnet to test the script and execution of the distribution. Two proposals were submitted (Proposal 1, Proposal 2), since the first proposal did not meet voting quorum requirements to be executed. The second proposal was executed successfully.

Next Steps

The DGP will sponsor a dYdX Chain on-chain proposal for the community to vote on the proposed incentive distribution.

Copyright

Copyright and related rights waived via CC0.

Disclaimer

This post is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by Chaos Labs. No reference to any specific security constitutes a recommendation to buy, sell, or hold that security or any additional security. Nothing in this report shall be considered a solicitation or offer to buy or sell any security, future, option, or other financial instrument or offer or provide investment advice or service to any person in any jurisdiction. Nothing contained in this report constitutes investment advice or offers any opinion with respect to the suitability of any security, and the views expressed in this report should not be taken as advice to buy, sell, or hold any security. The information in this report should not be relied upon for investing. In preparing the information in this report, we have not considered any particular investor’s investment needs, objectives, and financial circumstances. This information has no regard for the specific investment objectives, financial situation, and particular needs of any specific recipient of this information, and the investments discussed may not be suitable for all investors. Any views expressed in this report were prepared based on the data available when such views were written. Changed or additional information could cause such views to change. All information is subject to possible correction. Information may quickly become unreliable, including market or economic changes.

Throughout the program, Chaos Labs’ role is confined to providing recommendations regarding the allocation of rewards. The actual implementation and distribution of said rewards are subject to the formal approval process of the dYdX Chain governance votes. Any actions pertaining to reward distribution shall only be executed following affirmative governance votes within the dYdX Chain framework.

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Hey, @chaoslabs
Didn’t really get from your post. Have you identified any wash traders?
If so what percentage of the trading volume was made by wash traders?

~Vladimir

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Correct me if I am wrong. “The Points” represent all the activity of the account based on undisclosed formula.

If we assume that 80% of distribution are for trading rewards and 20% are for marketmaker rewards. We can calculate the “Adjusted points” = Trading points x 0,8 + MM points * 0.2.

In my head in this case the number of points per dydx distributed should be more or less the same per each account but it’s not the case

And the last question. Can you provide the list of accounts that were involved in wash trading?

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This is fantastic – really like how user friendly the dashboard is.

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Hello @RealVovochka, the conversion from points appears to be incorrect as the methods for determining trading points and MM points are distinct and operate on separate scales. Furthermore, the reduction in points following the wash trading analysis, as well as the separate awards of taker and maker incentives to certain users, may affect the conversion of points back into dollar incentives.

In terms of the wash trading analysis, our goal is to strike a balance between being transparent and preventing the manipulation of our algorithm. To this end, for the first season’s analysis, we’ve provided a broad summary and outcomes, but have chosen not to disclose finer details regarding the identified accounts and their trading volumes.

Thank you for the explanation regarding the points system. I have a few additional suggestions and inquiries.

  1. I would like to propose that you introduce the capability to download Points data in CSV format from the website.

  2. As I understand, you have not excluded any accounts from the reward distribution; rather, you have simply eliminated the volume that your algorithm identifies as wash trading from the calculations. Having reviewed your definition and methodology for identifying wash trading, it is evident that such volume is highly unlikely to arise inadvertently or by mistake. The specific case of wash trading in question was carried out deliberately, which negatively affects other traders who end up receiving fewer rewards. Therefore, I suggest removing not just the wash trading volume from the calculations, but perhaps a volume multiplied by five or completely nullifying rewards if such volume exceeds a certain threshold.

  3. By concealing the accounts involved in wash trading, you achieve little; these accounts are aware that they have received fewer rewards and will consequently take measures to avoid detection in the future. However, no one from outside can verify your distribution; we must take your word that some volume was indeed removed from the calculations.

I do not question your allocation, but if we are to vote on something, the distribution must be verifiable. You have written that the program will take into account the wishes of users, but in order to suggest something rational a detailed understanding of how the program operates is necessary.

I saw my points of season 1 on website UI, but not sure why it reset to 0 few days ago, and now dont see my address on your google sheet file.

Not sure about qualified users criteria because I did some trade in season 1 and of course its not wash-trading, my dydx history is still there with list of trades.

Anyone can double check on it please, my dydx address is dydx1jrx0vqs6x38rxrzyhxvey4eez7d9py3hl7x66f.

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Hey @nguyenhd2107

I haven’t found any trading activity for this wallet. Are you sure thats the address of the wallet where you traded?

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My bad, wrong wallet, thanks @RealVovochka .

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When will I receive the reward? It has been a long time!!!!!!

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The on-chain vote for reward distribution is expected to be live early next week.

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I would like to pose a serious question regarding the authenticity of the trading volume on dydxV4.

@chaoslabs has declined to provide us with a list of accounts that were involved in wash trading, and I have failed to understand the rationale behind this decision when the points table includes a distribution that has not had “wash trading” subtracted from it.

Consequently, it is not difficult to identify those accounts for which a portion of their trading volume was either wash or cycle trading. Therefore, I will provide the community with a list of these accounts.

account SUM Rewards ($) Incentives ($) Difference
dydx1g6vlujs2fw7c4886uc8g092474d54uhcf2swrg 643582.357 575284 68298.35703
dydx100l9m6g70j28g2tk3jj4plmge8vsmj6jdrlzhk 639588.3176 606497 33091.31761
dydx1dax7t2529z8996579zuqdatv62wpsw89lv3apc 255600.5942 233923 21677.59419
dydx1q869gyjwanxhw5xdgfg67pg3y8gjeuzth6u6zl 206883.6053 188948 17935.60527
dydx15u3dtsf4twdxttvy7850dkex7tcf3ps2y8wcuf 315679.8519 300049 15630.85192
dydx1ncxtg3lycfwg8w9f2ymrjzjzx30hjmtrmrccny 123039.5145 109787 13252.51454
dydx1ph7ek4yk82gdaw0r4yzluuchxwe96yrjdjq9wr 487569.1406 476450 11119.14059
dydx1kdnpxc367gudlsfqnelmpwf4wlt7rumhfdyfqd 56877.5097 50203 6674.509698
dydx1x5nmvykeef5qldr4y9gsggm9ylp8el4y443a8h 24843.59357 21197 3646.593569
dydx1cgvzfkwqhlsszkf4ep9zdullqgtepuvt7rcz3v 65845.77832 63867 1978.778317
dydx1wz7a2ehjq0n6q7fpqkakp9928kjjhh6wzskhhe 97464.53114 95660 1804.531136

These accounts have collectively received $2,721,865, which constitutes 54.44% of all rewards.

The mechanics of the wash trading evaluation remain unclear to me. If the wash trading occurred inadvertently, should it be deducted from the rewards? But if it’s a deliberate act to gain additional rewards, then shouldn’t there be a social slashing of rewards, with a fair redistribution to honest users?

I propose we discuss this matter thoroughly and draw conclusions that reflect the best interests of our community.

Looking forward to your thoughts and insights.

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Upon a cursory review of the data source for account funds, I have concluded that a portion of these accounts are controlled by the same individuals.

Specifically, I have identified two pairs of accounts that are interconnected and one cluster of three accounts. Monitoring the on-chain activity of the accounts will allow for a more precise determination of whether this was “random” cycle trading or if there was a premeditated intent.

I am prepared to assist @chaoslabs with such identification to ensure a fair distribution of rewards.

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@RealVovochka In scenarios where trading rewards surpass the transaction fees, traders are inherently incentivized to generate volume while concurrently minimizing losses due to market fluctuations and spreads. It is vital to distinguish between legitimate trading activity aimed at maximizing rewards and any potentially malicious actions. This differentiation is essential to uphold confidence in the reward program. The effectiveness of the program relies on ensuring that genuine trades are appropriately rewarded, and simultaneously, it is imperative to prevent dilution of these rewards by activities like wash trading.

Our team conducts a series of analytical tests to distinguish between what might appear as “random” trading cycles and activities with deliberate intent. The wash trading detection module in our system is specifically designed to identify patterns of wash trading that involve multiple accounts. Rest assured, clusters of three accounts that exhibit signs of collusion will get flagged.

To continually enhance the accuracy and efficiency of our trading volume classification, we welcome insights and information from external sources. If you possess any relevant data or suggestions that could refine our process, we encourage you to reach out to us at dydx@chaoslabs.xyz.

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Hello, @chaoslabs
I will send you information regarding the connections between the accounts from the provided list.

In the meantime, you have not addressed a fundamental question: if some of the accounts on this list have more than 10% of their volume marked by your system as wash trading, not random cycle trading, but such that you deducted rewards from them, why do these accounts receive any rewards at all? Simply subtracting wash trading from calculations is an entirely insufficient measure. Perhaps stripping rewards entirely would be too extreme, but the deducted wash trading should at least be multiplied by a coefficient of 5.

When you proposed your program, you deliberately concealed the formula to avoid gamification of the rewards; however, your program does not differentiate between activity associated with maximizing rewards and regular trading activity. This distinction should be taken into account. Otherwise, the program will only be effective in the short term. I recall there were suggestions to incentivize trading through the UI and other recommendations.

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For the inaugural season, our reward distribution recommendations exclude the volume stemming from suspected wash trading activities from reward eligibility, without imposing additional penalties on users engaged in these trades. As detailed in our blog post on wash trading, we are committed to continuously enhancing our reward strategy and bolstering our ability to identify wash trading irregularities. With more data being gathered and our models becoming increasingly calibrated, we anticipate a rise in their precision, aiming to progressively perfect the reward distribution process. To that end, we will consider applying stricter measures against users engaged in wash trading in the coming seasons.

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Regrettably, I am at a loss to understand why Chaos Labs is unwilling to penalize the accounts involved in wash trading. Their mechanism has detected wash trading, and I have provided them with a link to evidence of connections between these accounts by email.

No one has even responded to me, so I am posting the link to the evidence here:

Proofs

For those interested, you can verify it on-chain yourselves. The accounts listed continue to dominate the leaderboard. Given Chaos Labs’ disregard for constructive feedback, I am convinced that nothing will change in the upcoming season.

On the other hand, I think it’s just criminal to delay rewards for users when the season ended on January 4th. I believe the parties in the discussion have heard each other out and drawn their conclusions. So, we’re waiting on the proposal

I am concerned about delays in remuneration reward. They promised to put it up for voting, but another week has passed and there is no result.

On the marketing side, your approach is terrible; such methods will not attract new customers to DYDX. The leaderboards and design are terrible. This is a step back from V3.

I assume that in next seasons this will be repeated, as in the part “reward competition for results”
V3 DYDX worked smoothly and rewards were issued quickly.