Startups don't run the same growth marketing promotion for multiple years, and DeFi projects shouldn't either

0/ https://twitter.com/Rewkang/status/1287416370242650113

1/ Startups run aggressive promotions during various points in their lifecycle, but these are strategically designed with each promotion having specific:

- Time Periods
- Size of subsidy/discount
- Growth targets
- etc.

2/ Why? Because promotions are capital intensive and startups have a limited set of resources to use. Designers of these programs want to ensure that the value gained from the program exceeds the cost of running it.

3/ This can be hard to evaluate, but you will never see a food delivery company offer a 80% discount for 5 years straight. This would be an obvious waste of limited cash.

In the same sense, DeFi projects shouldn't be running the same LM program for multi year periods

4/ It seems as if the aggressive liquidity mining programs started by some DeFi projects have kicked off an "incentive war" where projects need to battle each other for a limited set of liquidity by offering yields that are higher than the others

5/ Every token minted for liquidity mining are essentially taxes on token holders paid via dilution.

These tokens can go into the hands of new tokenholders who become long time holders, but right now we are seeing most go to non-long term aligned traders just here for yield

6/ This is akin to if UberEats rebated 100% of their customers' deliveries in Uber stock. Sure, you would build some network effects and the increased orders would attract more restaurants/customers, but some people would abuse this and suck more value than they provide to Uber

7/ The secondary effect would be Uber stock price falling from the power ordering customers selling their shares.

This is similar to what is happening to $COMP right now. The slow erosion from yield farmers is quite apparent.

8/ DeFi projects can improve through a growth marketing mindset and taking a more adaptive approach to LM

Instead of 1 program, why not many?
Instead of 3-5 years, why not 3-5 months?
Instead of rewarding all liquidity, why not only some forms?
Locked instead of unlockd rewards?

9/ @BalancerLabs has already started the process of refining their LM program to be more precise about the liquidity they reward and how they do it. Examples:

- Adding wrapfactor for softpegged pairs
- Creating a whitelist of tokens
- Adding a fee factor
- Adding a weight factor

10/ By doing this, they are spending less token holder value on wasteful liquidity and further incentivizing more useful liquidity.

Projects that are launching LM programs should be thinking through this ahead of time to be more efficient on how they use tokenholder value

11/ Just like startups will need to run new promotions as they launch new products/services or expand to new markets, DeFi projects will as well.

It's unnecessary to commit to a multiyear program, because it's impossible to know your future marketing needs upfront.

12/ @synthetix_io has provided a great example of a project that has adaptively deployed and decommissioned various incentive programs depending on the need for them. https://twitter.com/Rewkang/status/1289695948700975104

13/ A good question that comes up is - how do you fit in an adaptive LM strategy with supply schedule design?

@synthetix_io is able to be very adaptive with their LM programs because they have a massive treasury and inflation to play with. Other's may not have those.

14/ There are a few approaches that can be considered:

1. Set your Long term LM budget from the start and allocate part of the supply towards that
2. Set your quarterly/annual LM budget and mint supply on a quarterly/annual budget basis
3. Mint on a per-program basis

15/ #1 Probably leads to high over/under allocation of supply

#3 involves the most flexible & adaptive approach, but this maybe difficult to execute with distributed governance.

#2 maybe a reasonable midpoint.

16/ There's no apparent perfect answer here, but further research and experimentation can help us get closer.

Many soon-to-launch DeFi tokens/projects are facing these decisions right now, so we will have a better sense very soon

H/T @AndreCronjeTech @im_manderson

17/ We are used to thinking in the mental model of fixed supply schedules for eternity. This is a meme taken from Bitcoin & Layer 1s which are completely different asset classes.

It's like using a jet blueprint to design a boat

18/ There are multiple projects now that have pivoted to DeFi and realized they need to redesign their supply schedule or mint more tokens because they don't have enough tokens in their original supply to pay for protocol development or incentive programs

19/ If we know that there will be uncertainty, we should accept this and build monetary policy around this rather than ignore it and hope for the best

20/ If projects implement a multiyear liquidity mining program from day 1, it will be difficult to decipher whether you've achieved strong product market fit or if people are just there for the yield.

Thinking long term, breaks are healthy. Short term decreases in TLV are OK