LIP3 - LUA reward bases on liquidity contribution

The value of LuaSwap depends on a few following factors:

  • Total value locked (TVL): this creates liquidity needed for trading
  • Total fees earned: this is the real revenue going to the system
  • Number of active users: this potentially translates to more trading and higher total fees earned

This proposes a change in the current reward plan divided equally to pools (allocation point can be adjusted) to a system where LUA reward is earned depending on the amount of liquidity provision regardless of pools. There are pro and cons for either plan, however we can consider which one is better at raising TVL, fees earned etc.

We plan to use one version of this proposal when launching LuaSwap in late October.

I am very much against this proposal on grounds that

  1. Risk profile of projects are vastly different which is clearly reflected on current APYs.
  2. It would beat the purpose of bringing liquidity to low cap defi projects because folks would rather have TOMO/ETH pair than LUA/Others pairs in order to protect them from $LUA downside while enjoying $LUA rewards.
  3. By having exposure to $LUA and newer Defi projects with speculative value rather than real utility, LP providers deserve to have more APY rather than equal to everybody.
    Having equal reward sounds nice and all but then it would not be fair just like socialism was not fair for everybody involved.

This proposal will destroy incentives to buy/hold LUA. Think about the past week and what the volatility has been in LUA vs. a pair like TOMO-ETH or TOMO-USDT.

If this passes it would take away the ability for the market to properly reward risk and discover price since the rewards would be the same for a low volatility product and a high volatility product.

As a result, nobody would want to hold the high volatility product which would result in a death spiral as people leave LUA to hold more stable pairs instead. This proposal would be a disaster for LUA holders and investors.

I oppose the proposal for unrestricted TVL rewards. This would allow people to supply liquidity in “useless pairs” just to mine LUA. Rewards need to incentivize liquidity that is profitable, for the platform and for LUA holders.


  1. I think rewards should be staggered for different pools to incentivize liquidity in pairs that the community and team determines would attract the most volume. And obviously Lua can’t compete with high liquidity Uniswap, Sushiswap, or even DODO pairs, with a 0.5% fee.

  2. The addition of rewards to non-LUA pairs should be rather limited until launch of the LuaSafe to avoid incentivizing further dumping of LUA.

This proposal would make perfect sense if we separate the TVL of those non-lua pools from TVL of lua pools, and have a good ratio to say how much LUA rewards should be given for non-lua pools and how much portion for LUA holders and LUA LP.

This serves the purpose of increasing the TVL, and asserting the needs of adding non-lua pools to provide better offerings and coverage of luaswap with popular coins that traders and arbitrageurs have on hand. Yet limitting the risk of apportioning too much LUA for those non LUA mission believer that came in just for profit. The non lua pools we have right now is TOMOE pairs (for good reason we know), we shall add BTC, and stable coins pairs, and other most popular coin that traders hold.

A suggestion of good is 30% / 70% where 30% for non-lua pools based on TVL regardless whichever pool, and 70% for lua pools based on TVL of whichever lua pool.

I will supply some calculation later to support why I think 30%/70% is good ratio to be considered. But in general more rewards should be given long term LUA holders, LUA loyal LP, and LUA believers than to those whales holding huge caps in BTC, stable coins, and even TOMOE.