In the past weeks, we have seen significant volatility in both sUSD price and the size/liquidity of the sUSD pool. Much of this can likely be attributed to other yield farming opportunities popping up with substantially higher rewards such as YFI, MTA, YFII, etc. It is not likely possible for us to outbid all short term yield farming rates without incurring substantial dilution for SNX holders.
In my view, these situations are likely to continue to occur even more often in the future. More YFI copycats will appear, and more opportunistic farmers will constantly rotate between the various protocols in search of the best yield. Once automated farming systems become more widespread, we may even see very short term rotation going on based on small deviations in yield.
This is probably undesirable for our goals of liquidity and synth peg maintenance.
I believe we should implement additional rewards based on how long one remains staked in a liquidity pool. This will incentivize farmers to stay in the pool rather than chasing short term opportunities elsewhere. It will also tend to produce a more stable configuration of pool size and synth demand that makes it easier to set other parameters (such as c-ratio, total reward payouts, etc.)
Some possibilities would be gradually ramping up rewards (up to a cap) or a hard cutoff (e.g., withdraw within 7 days after staking and you forfeit your rewards).
Should we implement such a system of incentives?
If so, what specific incentives should be chosen to maximize stability?