Nice to meet you as well , your proposal has some good components to it with the tiers though I suppose with v4 on the horizon there is less desire by the protocol to work on these tier upgrades. We are aligned on the idea of different books different gauges though.
I think apart from BTC and ETH there will be an issue bootstrapping alts on v4- outside of ETH and BTC a rebate will not be enough, especially with the new threat of MEV I expect this to be a major issue. Into the unknown we go 
Hey @Jordi you have clearly thought about this and I agree with your diagnosis that liquidity will probably flow from alts to more active markets. I believe this is an efficiency improvement driven by market forces though.
This is a debate around whether (and how much) liquidity providers need their incentives directed by governance vs letting the free market decide. What I mean is that the total size of MM incentives is effectively unchanged by this. What this proposal changes is that half of governance defined (by the LP reward formula) token emissions are being replaced by rebates which depend on volumes.
Rebates shift the incentives to where the most trading is happening. This is where liquidity is most useful.
My belief is that the free market will solve problems a lot better than DAO governance can. For instance if liquidity is needed deeper in the book, Iâm sure that liquidity will appear there as that is effectively charging a wider spread (more profitable) vs the index. Similarly, if alts need more liquidity I believe that profit focused MMâs will satisfy this need to profit from the spread + rebates. This allows much more nuance and fluidity in what is incentivised than solely relying on tokenholders voting on proposed improvements to the LP reward formula.
Iâm sure there are going to be some traders who focus on a tiny long tail market that will be frustrated by less liquidity. Overall however the average âliquidityâ experienced on dYdX should improve. To me this is an efficiency benefit.
I concede that some targeted token incentives are probably needed to keep longer tail markets viable and safe. New markets could also need additional incentives while bootstrapping so some emissions do make sense. Keeping half of current incentives for this will hopefully do that job, if not then that can always be adjusted.
Definitely agree, maybe enhanced rebates with the ongoing rewards/tiered distribution may work while considering to sunset certain markets
excited for the MEV and latency war ahead 
Hey! I agree about liquidity deep in the book appearing if needed- that is not the issue I see (and I definitely as have said support squaring the distance term to avoid incentivizing useless far-out liquidity).
The free market cannot fix the start/stop problem for a market though. I agree we dont need small long tail books to be incentivized as much as important ones- I would put a gauge that tracks volume on legitimate volume markets as an oracle and put more rewards to those that are âhotâ at the moment. This would make the trading experience better for everyone.
Iâll also point out that 0.85bp maker vs 2bp taker is NOT a competitive fee rate, ie the -1.15bp gap for crossing an order NET is below most serious exchanges (which have -1bp or 0.5bp/less in the case of binance).
You will also see that it is not net neutral, because it is assuming volumes stay constant. I expect volumes to decrease about ~10-15% once the changes wash through the system.
Lets see again I understand that v4 will bring breaking changes to many of these things and we will be dealing with a very different product so there are lots of uncertainties at the same time and hard to foresee where things are post migration.
I donât understand why these changes are necessary in V3 if V4 mainnet is launching in a couple of months. Itâs unclear how this will affect liquidity. Also, the reward and rebate system in V4 is unclear, in my opinion, changes should be made with the launch of V4 in mind.
I also donât quite understand another point. Right now, all the profit goes to dydx trading, but after the launch of V4, the profit from fees will go to validators and those who stake their tokens. The proposal assumes that the $15M yearly emission savings will be paid by dydx trading (during the V3 period), but when V4 is launched, the protocol will miss out on $13.6M per year in rebates for market makers. If we take the latest epochs and estimate the protocolâs income at $5M per epoch or ~$65M annually, the reduction in profit will be ~21%.
However, if we consider the increase in emissions by 7.5M dydx tokens per year and the total unlocked supply, then due to the increased supply, stakersâ profits will decrease significantly less. ~2-2.5%
For people planning to profit from staking, this proposal is extremely unprofitable. Correct me if I am wrong
Keep in mind that Iâm just evaluating this assumption from the perspective of a dydx staker, Iâm not an expert in market making and liquidity.
Hey, @max-holloway could you add âImpact to dydx stakersâ in the proposal
Itâs all with assumption that v4 will inherit parameters from V3 from the start
dYdXâs last epoch wasnât the best one, but itâs nice to see you are here to improve it. In my opinion, itâs kind of difficult to be an LP provider, so their incentives shouldnât be decreased. However, itâs clear that we need more trading fee rebates to incentivize traders and attract market makers to dYdX. We know that high trading fees and approval transactions are the primary reasons why decentralized dexes are used less by traders.We should simplify the interface and keep the fee low for traders who can trade more easily since trade is easier and cheaper in the main cexes.
I think this quote is misleading. The proposal doesnât mention any timeframe.
This means that LP rewards will be reduced until the next proposal.
So before launching V4, weâll need another proposal to bring back the rewards to their initial values; otherwise, market makers wonât be able to provide liquidity. Therefore, my conclusion is that the rebate parameters as proposed in this text will remain the same in the initial version of V4
We know that total trading volumes on dYdX have dropped in recent epochs. We think the reason for this drop is due to the inactivity of the market and the inappropriate use of the dYdX incentives. The market maker rebate program, which was proposed in February, is presently running well.
As it is mentioned in the proposal, market makers profit through LP incentives and trading fee rebates. While LP incentives are important, we think there is no risk in decreasing them. Market makers earning a trading fee rebate will both reward a larger audience and incentivize traders with big budgets to use dYdX. Market makers that provide LP will earn a reduced reward but charge lower trading fees. If the proposal passes, we believe that the work will improve the platform in the future dYdX era as trading volume increases and more active users join. We have chosen to support this proposal in hopes of widening the incentives and providing a reward structure that would be suitable to market makers in general. We would like an update on how the new epoch has passed since the incentives were cut with proposal acceptance.
I have voted yes for the proposal to shift from LP rewards toward market maker rebates. I think this proposal is a positive step to improve the liquidity and efficiency of the dYdX protocol. I also think that this proposal aligns with the vision and values of dYdX, which are to create a decentralized, scalable, and transparent perpetual contract exchange.
However, I also acknowledge that this proposal is not perfect and that there are some valid concerns and questions raised by community members. For example, @RealVovochka asked about the necessity and impact of these changes in V3, especially considering the upcoming launch of V4. He also raised some issues about how the rebates will affect the protocolâs income and the profits of stakerâs. @Jordi pointed out that the current fee rate is not competitive and that the volumes might decrease as a result of the changes. These are important issues that need to be addressed and clarified.
Since this proposal has passed, we should see how it goes with the V3 version and monitor its effects on the protocolâs performance and the LPâs behavior. We should also collect feedback from the LPâs and the traders on their experience with the rebates. If we find any problems or drawbacks with this proposal, we should vote again to review the changes before V4 is released.
404 DAO voted FOR this proposal.
First, we would like to highlight that we view this as a great governance proposal in terms of size, scope, and simplicity. The proposal is not overreaching or unnecessarily complex, and it specifically considers just v3 with the intention to reevaluate rebates and rewards with subsequent proposals for v4. In the spirit of well-crafted governance proposals, weâre in favor of this proposal at a high-level in principle because it follows best practices of how governance should be approached.
We also support this proposal for a few specific objective reasons:
@Jordi you make excellent points. Thank you for bringing this up for discussion among the members of the community.