The OpenBlock Labs (OBL) point system is designed with the following key principles:
The OBL point system heavily incorporates Total Value Locked (TVL) over time as a measure of useful liquidity. By combining the amount of liquidity provided with the duration it remains within the ecosystem, the system rewards sustained contributions. Liquidity is denominated in USD to provide incentives commensurate to the market value of assets deployed.
Not all liquidity is equal. The OBL point system emphasizes the importance of "useful liquidity," which refers to assets and liquidity positions that have a high impact on the ecosystem’s usability and growth. An objective function is used for each participating protocol to measure the useful liquidity supplied there.
OBL employs multiple measures to prevent the gamification of its incentive programs. Points are economically bonded to the quality of liquidity held, discouraging short-term or superficial contributions. Protocol-specific methodologies are in place to mitigate risks such as recursive borrowing and out-of-range liquidity provision, ensuring that only genuinely beneficial activities are rewarded
To ensure that the system remains adaptive and aligned with the ecosystem's goals, multipliers are applied to point calculations. These multipliers can emphasize or de-emphasize certain dimensions, such as the type of asset, protocol, or duration of liquidity provision. This allows the system to remain dynamic and responsive to the ecosystem's needs.
A point system is a non-liquid incentive mechanism designed to foster growth within an ecosystem. Points act as a flexible tool to reward participants without the need to immediately issue or distribute liquid tokens, which could affect ecosystem dynamics prematurely. In decentralized finance (DeFi), points can incentivize users to contribute to the ecosystem by providing liquidity, engaging in DeFi, or participating in other valuable activities.
The primary objective of a point system is to define and measure the alignment of participant's actions with the ecosystem's objectives. This involves creating metrics and methodologies that encourage behaviors beneficial to the ecosystem's long-term health. In the early stages of a DeFi ecosystem’s lifecycle, it is crucial to attract and retain liquidity that is "useful". This "useful liquidity" is often defined as the holding and active management of assets and positions that are integral to the ecosystem's operations, such as holding core tokens, stablecoins, or strategic partner assets, and supplying liquidity across DeFi verticals.
Using points as a basis for incentive allocation has become increasingly popular due to several key advantages they offer to ecosystem builders:
Points allow for the rewarding of early users and contributors without the immediate need to distribute liquid tokens. This helps to manage token supply and demand more effectively and prevents early price volatility.
Points can be distributed in a manner that aligns with the evolving goals of the ecosystem. For example, if increasing TVL across DeFi verticals becomes a priority, point allocations can be adjusted to reward productive LP behavior.
Points systems offer the flexibility to design token distributions that are based on meaningful participation rather than mere presence in the ecosystem. By rewarding points for specific behaviors, projects can ensure that token distributions are more likely to go to active and engaged users who have contributed to the ecosystem's growth. Further, the ecosystem is not committed at early stages to any particular point-to-token methodology and can adjust their distribution approach based on the measured behavior of participants.