Upgrading Aquarius SDEX rewards
Test results of SDEX rewards engine v2 and why we’re upgrading
Discord is a powerful way for the community to share ideas with fellow members and the Aquarius team. About two months ago, a community member came forward with an idea on how the SDEX rewards engine could be improved. We reviewed the concept and believed it a viable option to improve SDEX rewards, so we decided to implement it and test whether the idea worked as intended.
On February 11th, we started testing the new SDEX rewards engine v2 to see how it compared to the original v1 engine. We ran both versions simultaneously for the nine days of testing, allowing us to see the difference in reward distribution.
We used seven markets for testing. They were:
- XLM / AQUA
- BTC (ultrastellar.com) / USDC
- ETH (ultrastellar.com) / USDC
- AQUA / yXLM
- AQUA / USDC
- XLM / USDC
- XLM / yXLM
Once testing started on these markets we began analyzing the data and noticed an immediate improvement in SDEX reward distribution with v2. We saw some wallets, who have been taking advantage of the more simplistic formula for v1, immediately have their rewards reduced by up to 80% in some cases. We also saw an increase of available market liquidity on the test markets and an increased number of users receiving rewards for their contribution towards order books.
⚖️ How is v2 different from v1?
v1 used a simple formula to work out rewards by diving hourly rewards between users based on:
- Who has an AQUA trustline
- Has an offer been on the SDEX for at least 12 ledgers (~60 seconds)
- The volume created from eligible offers taken by others
All eligible users would then share the hourly reward based on the generated volume.
v2 uses a more complex formula to work out rewards for market makers on incentivized markets, taking into account:
- Who has an AQUA trustline
- The size of each offer on a market
- Duration of time an offer remains in the order book
- How close an offer is to an order books spread
- Offers fulfillment percentage
The main difference between these engines is the actions that lead to a reward. v1 mainly focused on volume created each hour by a user, meaning the more volume someone made, the higher their reward. v2 instead focuses on multiple combined factors contributing to useable liquidity on the order books. With volume in an offer, spread distance, duration, and fulfillment all main factors, v2 creates a fair distribution to those who make liquid markets.
There is no need for a user’s offer to be partially or fully filled to be eligible for rewards with the v2 engine. Just placing and holding offers on an eligible market’s order book allows users to receive SDEX rewards for contributing towards market liquidity. Any offer can earn a reward due to v2 accounting for an offers placement in the order books. Offers closer to a market’s spread get significantly more rewards than orders placed further away, meaning more users can receive rewards.
The 12 ledger minimum rule has also been removed. Those who place an order and have it quickly taken from the order book will see a lower reward naturally, so we don’t need this limitation anymore.
👀 What improvements did we see?
Reduction in wash traders receiving rewards.
Some users realized they could get more rewards purely by trading assets between their wallets, as v1 incentivized volume creation. This action led to these users taking most rewards even when not providing meaningful liquidity to markets.
These market makers may have provided liquidity for around 90% of the time due to the 12 ledger minimum, but the volume created was unrealistic and not aligned with the goal of creating market liquidity.
We followed around 20 Stellar wallets flagged as creating unrealistic volume during our tests to see how their rewards differed between the two engines.
We compared rewards they received from v1 & v2, distinguishable by the adjusted Memo text, and noticed similarities with these wallets. On average, they had a 70–80% reduction in rewards received via v2 compared to v1. The screenshot below shows one of these accounts as an example.
Increase in users receiving rewards.
We also saw v2 rewarded more genuine market makers who place and hold liquidity on markets, including many who hadn’t received rewards before. The inclusion of an offers placement in relation to the spread with v2 allows any offer in the order book to receive a reward, not just those taken.
Many new eligible wallets previously had offers in order books but received no reward due to little volume, even when close to the spread. It was great to see v2 allowed these users to receive rewards for their provided liquidity compared to v1.
The increase in reward distribution can be seen in the graph below. On February 17th, 11,638 payments were made to eligible receivers of v2 rewards vs. 4,149 payments to those eligible for v1.
Increase in market liquidity
All seven markets chosen for v2 tests received a considerable increase in offers being placed and held for others to take when markets moved.
For example, before SDEX rewards v2 testing BTC (ultrastellar.com) /USDC (centre.io) had an order book value of ~$30,000 for both assets near the spread. This figure increased to a value of $125,000 for both assets, with offers placed closer to the spread during testing.
These increases were also seen on other test markets, showing how v2 can significantly increase usable liquidity for SDEX users.
⚙️ Why are we upgrading & when?
After nine days of testing, the team and the community were pleased with the results. Its clear v2 is a fairer system, allowing users to place liquidity on markets for others to take with the opportunity to earn AQUA rewards for their contribution to markets. You can read more of the feedback in the #sdex-reward-discussions section of our official Discord.
We will permanently upgrade to the SDEX rewards engine v2 from March 4th, 2022.
There are no changes to the SDEX & AMM reward allocations, only the SDEX reward distribution engine will change. All markets within the reward zone will start earning SDEX rewards based on the v2 rewards engine, with v1 deprecated.
🗞 Subscribe & Follow
You can learn more and keep up to date with the team & community using the following links:
