SIP-010: Investor Incentive Program

Problem Overview:
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 the hands of higher competency traders. Skilled managers are seasoned experts who have spent many years trading and honing their craft, oftentimes 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 are on board, 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 Solution:
The successful passing of SIP-009 has laid the groundwork for addressing the manager incentives program, which we believe will be paramount in attracting new TVLs and trade volumes. To maximize the efficiency of this program, we outlay a proposal to direct additional incentives towards the investor faction, compounding the flywheel effect.

We propose a 12-month parallel scheme, in which 10,000,000 STFX tokens (1% of supply) are distributed to the subscribers of the top 25 managers on the leaderboard at the termination of the program.

The investor leaderboard ranking will be a blended score of:

  1. How much capital the investor subscribed to the manager
  2. How early the investor subscribed to the manager (including per-subscriptions)
  3. “ve lock” bonus

Each investor score will be unique due to the described variables, and these investors will be competing among other eligible subscribers for a fixed slot reward. For example, if the reward prize for rank #1 is 500k tokens, and there are 500 eligible subscribers, all 500 will be competing for that 500k prize.

Our intuition is that the number of unique subscribers and the USD value of the average subscription will be skewed toward the top of the leaderboard. This isn’t a bad thing per say; if a manager is making more money for their investors than other managers, then naturally more capital will flow to them. While we expect raw PnLs to be the dominant decision factor behind where investors choose to allocate their capital, high-quality managers who are “under-subscribed” proportionally to other managers of similar performance will generate a premium for their investors, due to the incentives boost. This could help promote a “spread the wealth” effect where capital isn’t ultra-concentrated at the tail end of the leaderboard, but more smoothly distributed across the top 25.