HXIP 02: Hxro Network Derivatives - Daily Volume Incentives Program

Hxro Improvement Proposals
1

The Basics

Allocate 45,000,000 HXRO to the esHXRO vault to activate a Hxro Network Derivatives Daily Volume/Trading Incentives Program.

Abstract

Hxro derivatives have been live in a whitelist beta since November 2022. The network currently has one primary market which is a USDC settled, BTC/USDC perp and futures curve. Contributing engineers feel that both Dexterity and Spandex (the network’s derivatives risk and margin protocol) are now at a point where they can comfortably handle more activity and a wider product set on a continuous basis. While there will no doubt be more improvements needed to the protocol over time, they feel it is important to begin to open the market up to a larger user-base.

Like any new market, in order to go live successfully, many participants need to be activated in order to create a fair and robust marketplace. This includes market makers, semi-institutional/professional trading desks and retail. The evolution of defi-based technology has opened the doors to creating proper incentives and bootstrapping mechanisms designed to increase the probability of success for network protocols. Hxro contributors have gone to great lengths to think through the best way to implement these mechanisms in a way that promote an ever growing number of network users to be properly incentivized to provide value to the network. and how to make sure that value created accrues back to its participants. As part of this network activation plan, we believe one important pillar is to implement a trading incentives program in addition to the many other network programs either soon to be proposed or already implemented.

Therefore, this proposal (HXIP 02) asks to have the treasury allocate 45,000,000 HXRO to this trading incentives program. Since HXRO-denominated rewards are always rewarded as esHXRO (which is locked and has a 1/365 unlocking feature if claimed), we would propose that the allocated HXRO is used to create esHXRO which in turn is used as the reward denomination.

Reason

It is quite common, both in defi and in traditional markets to see pilot programs designed to incentivize traders to participate early. This is not too different.

There is a significant opportunity right now for Hxro to become the preferred network for both traders and builders to access and create derivative markets on Solana. We feel it is important that the network move aggressively to attract both engineers and end users to the network. A robust incentives program is a foundational part of making this happen.

Last and most importantly, this program will ideally get esHXRO into the hands of many network participants thereby increasing the amount of wallets eligible to participate in future network building and decision making. This is a major tenant in the networks goal of progressively reaching a state of decentralization.

Overview

The implementation of the trading incentives would be based on a total program goal of $1,000,000,000,000.00 (1 trillion) in total USD notional trading volume over the life of the program. The program would be broken in 1,000 epochs with each epoch being $1 billion of notional trading volume.

Notional trading volume is defined as follows:

Instrument Price at time of transaction * # of contracts = Notional Value

An exponential decay function would be applied to each epoch to determine how much each esHXRO would be applied to each epoch.

The exponential decay function formula is as follows:

〖𝐻π‘₯π‘Ÿπ‘œπ‘ƒπ‘Žπ‘¦π‘œπ‘’π‘‘γ€—(π‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘, π‘π‘’π‘‘π‘€π‘œπ‘Ÿπ‘˜)=(〖𝐻π‘₯π‘Ÿπ‘œπ‘ƒπ‘Žπ‘¦π‘œπ‘’π‘‘γ€—(π‘‡π‘œπ‘‘π‘Žπ‘™, π‘π‘’π‘‘π‘€π‘œπ‘Ÿπ‘˜)βˆ—(π·π‘’π‘π‘Žπ‘¦πΉπ‘Žπ‘π‘‘π‘œπ‘Ÿ+1))/γ€–π‘π‘’π‘šπ‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘π‘ ^γ€—^((π·π‘’π‘π‘Žπ‘¦πΉπ‘Žπ‘π‘‘π‘œπ‘Ÿ+1)) βˆ—γ€–(π‘π‘’π‘šπ‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘π‘ βˆ’(π‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘ βˆ’1))^γ€—^((π·π‘’π‘π‘Žπ‘¦πΉπ‘Žπ‘π‘‘π‘œπ‘Ÿ))

γ€–π‘ˆπ‘ π‘‘π‘‰π‘Žπ‘™π‘’π‘’π‘‡π‘Ÿπ‘Žπ‘‘π‘’π‘‘γ€—(π‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘, π‘π‘’π‘‘π‘€π‘œπ‘Ÿπ‘˜)=γ€–π‘ˆπ‘ π‘‘π‘‰π‘Žπ‘™π‘’π‘’π‘‡π‘Ÿπ‘Žπ‘‘π‘’π‘‘γ€—(π‘‡π‘œπ‘‘π‘Žπ‘™, π‘π‘’π‘‘π‘€π‘œπ‘Ÿπ‘˜)/π‘π‘’π‘šπ‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘π‘ 

〖𝐻π‘₯π‘Ÿπ‘œπ‘ƒπ‘Žπ‘¦π‘œπ‘’π‘‘γ€—(π‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘, π‘ˆπ‘ π‘’π‘Ÿ)=(γ€–π‘ˆπ‘ π‘‘π‘‰π‘Žπ‘™π‘’π‘’π‘‡π‘Ÿπ‘Žπ‘‘π‘’π‘‘γ€—(π‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘, π‘ˆπ‘ π‘’π‘Ÿ)⁄2)/γ€–π‘ˆπ‘ π‘‘π‘‰π‘Žπ‘™π‘’π‘’π‘‡π‘Ÿπ‘Žπ‘‘π‘’π‘‘γ€—(π‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘, π‘π‘’π‘‘π‘€π‘œπ‘Ÿπ‘˜) βˆ— 〖𝐻π‘₯π‘Ÿπ‘œπ‘ƒπ‘Žπ‘¦π‘œπ‘’π‘‘γ€—(π‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘, π‘π‘’π‘‘π‘€π‘œπ‘Ÿπ‘˜)

wβ„Žπ‘’π‘Ÿπ‘’:
〖𝐻π‘₯π‘Ÿπ‘œπ‘ƒπ‘Žπ‘¦π‘œπ‘’π‘‘γ€—(π‘‡π‘œπ‘‘π‘Žπ‘™, π‘π‘’π‘‘π‘€π‘œπ‘Ÿπ‘˜) =π‘‡π‘œπ‘‘π‘Žπ‘™ 𝐻𝑋𝑅𝑂 π‘’π‘šπ‘–π‘ π‘ π‘–π‘œπ‘›π‘ 
γ€–π‘ˆπ‘ π‘‘π‘‰π‘Žπ‘™π‘’π‘’π‘‡π‘Ÿπ‘Žπ‘‘π‘’π‘‘γ€—(π‘‡π‘œπ‘‘π‘Žπ‘™, π‘π‘’π‘‘π‘€π‘œπ‘Ÿπ‘˜)=π·π‘’π‘Ÿπ‘Žπ‘‘π‘–π‘œπ‘› π‘œπ‘“ π‘‘β„Žπ‘’ π‘ƒπ‘Ÿπ‘œπ‘”π‘Ÿπ‘Žπ‘š 𝑖𝑛 π‘ˆπ‘†π· π‘£π‘œπ‘™π‘’π‘šπ‘’
π‘π‘’π‘šπ‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘π‘ =π‘‡π‘œπ‘‘π‘Žπ‘™ π‘π‘’π‘šπ‘π‘’π‘Ÿ π‘œπ‘“ π‘ƒπ‘’π‘Ÿπ‘–π‘œπ‘‘π‘ 
π·π‘’π‘π‘Žπ‘¦ πΉπ‘Žπ‘π‘‘π‘œπ‘Ÿ=5

We propose that the exponential decay function has a decay factor set at 5 (this is a variable that can be adjusted if the community feels it makes sense). This would mean that the first $1 billion epoch would emit 270,000 esHXRO.

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image1200Γ—661 119 KB

We estimate that if the network is successful in its derivatives endeavors, the life of the program would last between 2.5-3 years.

Specifications

We propose that the implementation of the program would work as follows:

  1. Notional volume from all derivatives trading activity across the network is aggregated to form a total notional value traded (denominated in USDC).
  2. Any wallet that contributed to the trading volume for that day, regardless of which contracts they interacted with, would be eligible to receive their pro-rata share of the network daily reward.
  3. Once the volume for the day is determined, the incentives contract would emit the appropriate amount of esHXRO to each eligible wallet. The amount emitted would be determined by the total notional amount traded and the current epoch the program was in.

Example:

On the first day there were 100 wallets that each traded $10 million of BTC/USDC perps and futures, then the total notional volume for the day would be $1,000,000,000.00. Because there are two participants in every transaction (a buyer and a seller), and because volume should never be double-counted, the reward that is created as a result of each transaction is split between each party equally. As this would be epoch 1, 270,000 esHXRO would be allocated pro-rata across the 100 wallets. Since each wallet did the same amount of volume, they would be equally allocated esHXRO. Since the $1,000,000,000.00 traded exhausted the entirety of the first epoch, the next day would be allocated from epoch 2 and so forth. Since we apply a simple exponential decay function to the esHXRO emissions curve, each consecutive epoch would have slightly less esHXRO to distribute.

A spreadsheet with a sample of the model and proposed emissions curve can be found here:

We look forward to hearing feedback from the community on this proposal.

(X, X)

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I would be in favor of a flatter reward curve so that there is less immediate dilution of the staking pool.

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I dont agree if you actually run rhe Numbers the volume needed for those rewards makes the esHXRO worth a ton. Its not acrually that steep

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Agreed, $1b in volume provides the network with $500k in revenue for the network. 270,000 esHXRO is paid out as a reward for this volume. The price of HXRO would have to be more than $1.85 for the network to be paying out more than it gains.

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