Uniswap v3 Liquidity Mining on Polygon via Covenant Protocol
--
A brief post to convey a massive win that showcases the versatility of Covenant Protocol
A Brief History of Uniswap v3 Liquidity Mining on Polygon
In April 2022, the Uniswap v3 liquidity mining campaign on Polygon started with ArrakisFinance in which $3M was given out in incentives ending on the 30th of June 2022.
Starting in July 2022, liquidity mining would switch to a 100% KPI based model in which all dAPPs actively managing Uniswap v3 LPs are eligible to compete so rewards are distributed to the best performing dAPP.
What does this mean for Covenant?
We have always emphasised that our use cases extend way beyond the core utility of vote incentives for bribes and governance decisions. Covenant can be used to make any deterministic payment as long as the source of truth is open source and publicly verifiable.
Due to the massive success of Polygon’s KPI based LM 2.0 campaign, it was an obvious choice to continue future liquidity mining initiatives in a similar manner. Polygon’s partnership with Covenant would allow us to showcase the potential of our protocol.
How would the campaign work?
Mechanism:
The proposer of the reward, in this case Polygon, would set the KPI to be the highest fees / average TVL and specify the duration of the campaign for the wMATIC/wETH (0.05) pool and lock the required wMATIC in Covenant Protocol’s Optimistic Distributor (OD).
At “settlement,” there would be one merkle root proposed, that is verified through the Optimistic Oracle (OO), containing all of the ancillary data required by the price identifier. In this scenario, Covenant’s OD would have a specific price identifier(s) to find out the highest fee / average TVL and instruct disputers/voters on how to check proposed rewards distribution payouts and verify merkle root. The proposer can do so by posting a bond and if the proposal successfully passes the liveness period, the wMATIC rewards will get transferred to Covenant’s merkle distributor and will be available to be claimed by the whitelisted address of the active manager with the highest KPI.
The Optimistic Distributor (OD) contract will accept deposits from the sponsor, in this case Polygon, to propose input parameters on a MerkleDistributor contract (that is owned by the OD). This is verified through UMA’s OO with a new price identifier for Uniswap v3 liquidity mining where disputers/voters can check proposed rewards distribution payouts and verify merkle root against previously approved rewards payout rules (passed in ancillary data).
If OO resolves to 1, anyone can execute a proposal that moves the wMATIC rewards to the `MerkleDistributor` for the active manager to claim. If the OO resolves to 0, the rewards are kept at OD until the next valid proposal.
In the above scenario, there is no question of a clawback as there is always a guaranteed winner at the end of every month. The same process would apply for the remaining 9 pairs that are being incentivized as well.
The road ahead…
Covenant is close to completing its audit and will kick start operations on Polygon by allowing people to participate in the biweekly gauge vote “QiWars” of QiDao Protocol.
We have big plans in mind and would be launching on Ethereum and other L2s as well to fulfil our objective of becoming the de facto solution for all permissionless deterministic payments on all chains.
