The cold start problem in marketplaces refers to the challenge of attracting both buyers and sellers to a new platform. Marketplaces need to overcome the initial hurdle of having enough supply and demand to create a viable ecosystem. Various strategies exist to overcome the cold-start problem; such as offering incentives, building critical mass in a specific niche, or leveraging existing networks.
When analyzing these constraining forces in the context of STFX, we can identify 2 distinct factions:
Investors- entities allocating capital into vaults. We liken them to the demand side
Managers- entities raising capital and deploying trades. We liken them to the supply side
What’s important to highlight is the differential composition of the two factions. Investors by nature tend to be unsophisticated retail participants, looking to delegate their capital into hands of higher competency traders. Skilled managers are seasoned experts that have spent many years trading and honing their craft, often times stemming from some institutional or professional background.
The two factions display a symbiotic relationship: the more investors on the platform, the more capital for managers to raise vaults against, corresponding to higher PnL (and by extension, higher carry fees) they can generate on their vaults. Simultaneously, the greater the number of skilled traders present on the platform, the more incentives for new signups to join and existing users to increase their TVL deposits, given the diverse selection to delegate capital.
A unique benefit of STFX is that the service being provisioned is not constrained by physical resources. With Uber, as more riders onboard, the company must recruit a linear number of new drivers to scale demand. In STFX, the supply side scales nonlinearly; so long as underlying liquidity is present, one manager could be servicing 5 investors or 500. It makes no structural difference from an operational standpoint.
A natural incentive exists for investors to participate in the platform during the cold start/illiquid phase, so long as 1 premier manager is present. But the same is not necessarily true for the supply side. The opportunity cost of a highly skilled trader, already managing a 6-8 figure book, to deviate their focus towards a new venue where they only gain an additional few thousand in trading margin, simply isn’t worth the time in most instances.
The team has a host of economic incentive programs in works to kickstart the investor side of the marketplace, which we believe will be effective at attracting new capital inflows. However, we believe that mirroring these programs on the manager side will be insufficient at moving the needle. Therefore, we propose the following program to incentivize new manager onboarding:
We propose a 12-month incentive scheme, in which 30,000,000 STFX tokens (3% of total supply) are distributed to the top 25 managers that finish at the top of the leaderboard at the termination of the program.
Leaderboard ranking will be blended score of:
- Raw PnL generated by the manager
- The number of unique investors subscribed to the manager
- Aggregate capital raised across all deployed vaults
The exact quantitative scoring algorithm will be refined in collaboration with the community, but will skew towards #1 the heaviest
We illustrated a proposed framework of reward distribution across the top 25 accounts. Note that these are not binding figures, but are subject to further iteration
Given the relatively immature phase of STFX growth, the upside potential if the protocol were to hit critical mass, and the infancy of the broader crypto macro cycle, there is a non-trivial chance that some of these payouts could be in the mid/high 6 figure, if not 7 figure range by the termination of the campaign.
The compounding effect of this program could prove highly reflexive. First, the lucrative incentives of this program are sufficiently high to entice high caliber managers to partake. The influx of premier traders in such an environment will hopefully attract more competition from the supply side. Because of the structuring of the leaderboard rankings, these managers will also have an incentive to promote their vaults (via twitter, advertising in their private trading channels etc.) in order to attract a larger subscription base. This will drive additional investors to the platform that want to point their capital at these traders. As the base of sophisticated traders rises, TVL deposits grows, and public virality expands, this should correspond to a linear impact on token price. As token price appreciates, the notional USD payout increases making the stakes higher, corresponding to further influx of competition from the supply side.
Meshing this with the CEX mirroring feature (assuming it is technically viable), it becomes compelling for top Binance/Bybit/Okex traders to participate: click a single button to give API read-only access to STFX, continue trading your CEX book, and we’ll mirror your trades onchain. This gives them a free call option on 6 figures of $STFX tokens without having to deviate their focus away from their primary trading book.
We believe that 25 high caliber traders on the STFX platform is ample supply to overcome the coldstart dilemma. Early managers who are driving extreme value to the protocol deserve proportional compensation for their efforts, especially during the bootstrapping phases of the network where they are incurring a lot of risk. We believe that this proposal aligns those incentive structures well, while simultaneously seeding the groundwork for continued growth and expansion of the protocol, until it can reach critical mass on pure network effect alone.