EIP-11: Increase Treasury Rewards & Establish Liquidity Incentive Fund


A treasury for ESD has recently been established with 2.5% of all supply expansion rewards going to the treasury. During expansions when coupons are cleared, the split is 77.5%/20%/2.5% (DAO/LP/Treasury)

The treasury is meant to cover costs for all aspects of protocol development & growth ranging from operations, research, development, design, ecosystem grants, liquidity mining incentives, etc.

The current rate of treasury growth is sufficient to cover continued operations & development, but not meaningful liquidity mining rewards to encourage adoption of ESD In other protocols.


Change the supply expansion distribution to:

  • When No Coupons: 75% / 15% / 10% (DAO/LP/Treasury)
  • When Coupons Active: 80% / 15% / 5% (Coupons/LP/Treasury)

Allocate 75% of treasury to liquidity mining reward programs. Many of which can be performed in conjunction with strategic partners that are currently helping with future or current integrations (i.e. Curve, Sushiswap, Bancor, Saffron, CREAM, etc.)


For expansions where coupons are not active, 2.5% & 5% rewards are taken from DAO and LP respectively. Currently, Uniswap LPs are being overpaid and the marginal utility of having more liquidity is flattening. As an example, DAI in Uniswap has two times more liquidity than ESD, but DAI has six times the market cap. Even with the inefficient XY=K style AMM, trades can be easily be executed in size with only minor slippage.

These rewards can be used to seed liquidity among other trading pairs and in other DeFi venues.

Currently, the amount of effort required to clear coupons is quite extensive. Therefore, it is recommended for the treasury to get slightly less rewards when coupons are still active.

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First, the analysis that Uniswap ESD/USDC is “overpaid” with a decreasing marginal utility is a great observation. Liquidity, as it currently stands, is strong there, and the community should rightfully ask what the “point” of scaling incentives to one destination is.

That being said, I have several concerns with this proposal in its current form;

  1. You simultaneously state that the current treasury is sufficiently funded, while asking for a massive (3-4x) increase in treasury funding
  2. Funding liquidity incentives during a contractionary period (Coupon active state) might create additional sell-side pressure, and make returning to a target price more difficult (if not impossible). This would be a serious change and should be wargamed out carefully, since there are meaningful consequences of this shift.
  3. The community should actively question whether the operations/research/development funding should really be coupled & combined with ecosystem incentives, or whether this should be an independent fund with its own goals & metrics.

I could see an alternate approach, in which another dedicated fund is created, for ecosystem incentives, during pure expansions.


I like this line of thought a lot. I think a separate fund for comm dev would be a nice way to segment funds and keep things focused.


Thanks for the feedback. My thoughts:

  1. I state treasury is sufficiently funded for development and operations, but not for adequate liquidity mining incentives outside of UNI ESD-USDC. The amount of areas where we can bootstrap ESD usage in DeFi is quite extensive but worthwhile to invest in.
  2. My initial reaction here is that rewards will only be given to liquidity provisioning where ESD is used so the additional supply could be counterbalanced with the demand created for ESD via LM yield. Also, those farming ESD with ESD are less likely to sell ESD. It would be helpful to grow ESD utility even during contractions as that could grow demand itself to get us out of the contraction. Should pressure test this a bit more though.I think we can test this out with some short term discretionary programs and see how it goes.
  3. I’m thinking that we shouldn’t have every LM initiative voted on by governance but rather managed by an elected council of (3?) experts in the field

Thanks for putting this together! I’ve also been thinking that LP rewards could be trimmed down in favor of treasury, so I’m generally in support, but have a few thoughts on this:


Code-wise it’s simpler if we can maintain symmetry between coupon and DAO reward epochs. For example doing something like:

  • When No Coupons: 80% / 15% / 5% (DAO/LP/Treasury)
  • When Coupons Active: 80% / 15% / 5% (Coupons/LP/Treasury)

This part of the code is very high-risk, so the less complexity we add here the better. Not a blocker, but just flagging that this makes a difference in the proposal implementation.


Personally I’d prefer if we kept rules on how the treasury can spend its funds out of the EIP process. We will have a separate treasury proposal process through snapshot.page where we can make judgements like these. Overall though more treasury funds will mean more funds that can be allocated towards integration programs, I don’t think it’s crucial that that be part of increasing the treasury’s allocation immediately.


Thank you very much Andrew for this proposal. Here are a few comments:

  1. I overall agree on the fact that allocating more rewards for liquidity incentive programs in partnership with other protocols makes a lot of sense, and that for this purpose we could trim a bit DAO and LP rewards (see @eqparenthesis comment on keeping the code simple by aligning figures in redemption and expansion periods)

  2. One thing I would be wary of is de-incentivizing LP during redemption period. We witnessed what happens when the first coupon holders manager to redeem: they sell a part of their token either to take profit or to LP. This has a side effect of dropping the price and gets amplified if liquidity is low. Hence I believe there is an interest of keeping a good liquidity available during coupon redemption so as to stabilize the price that may fluctuate due to various strategies. To go further in that direction, we could argue that our one-token algo stablecoin could be helped in keeping its peg by adjusting the incentives for LP in various part of a cycle so as to allow more volatility (e.g. when off peg, low liquidity would help bringing ESD back to peg more easily) or less volatility (e.g. during redemption period, high liquidity helps keeping price stable).

  3. Regarding the management of LM initiatives by an elected council of experts, this could be setup further down the line but we are still at an experimental phase and I would rather have such initiative debated as much as possible among the community

  4. I also like @lesh idea to get a fund dedicated to LM incentives but this might be a bit too much complication for now while the treasury should be able to handle the first such experimentations


Great proposal @rewkang. Like @lesh, I have a few concerns in it’s current form for you to comment on.

I could be misunderstanding here, but the current expansion reward scheme already awards 20% towards LPs.

  • If the idea is to create an additional liquidity incentive fund, why have the redundancy of the 15% LP rewards, plus as addtiional fund for LM incentives? It seems like a simpler approach to just increase the LP reward % and siphon this allocation to a separate LM fund as alluded to by @lesh.

  • A portion of this fund could in turn be bonded for additional rewards if necessary.

  • Per your response to @lesh you could have a council of experts (voted on via governance) decide how to allocate the LM fund per integrations etc.

  • Keeping the LM incentive fund outside the purview of the treasury has a few advantages, 1) there is no direct conflict of interest between the treasury/protocol development and other protocols, 2) governance burden is less on the treasury, and 3) it makes the treasury funds solely focused on development and to act as a backstop.

In light of these comments, an alternative allocation model could be something like:

  • When No Coupons: 75% / 22.5% / 2.5% (DAO/LM Fund/Treasury)
  • When Coupons Active: 80% / 17.5% / 2.5% (Coupons/LM Fund/Treasury)

To update everyone, Mike is helping with the code for rewards update based on the following allocation split:

When No Coupons: 77.5% / 12.5% / 10% (DAO/LP/Treasury)
When Coupons Active: 77.5% / 12.5% / 10% (Coupons/LP/Treasury)

In terms of how we determine management of funds for liquidity mining programs - whether its via a seperate fund or not - we can leave that for a separate TIP