Lots of good input. I’ll start with two mechanism that were proposed and I’ve liked and then touch on personal view on platform and pairing asset.
Exponential rewards consideration is interesting. Instead of a linear bonus multiplier.
Early exit penalty is another thing we could consider. Like a cash-out with a bookmaker there should be a house (DAO) advantage. So the relative costs should exceed the time value that is unlocked.
ETH > USDC
I see most people favor USDC. Let me try and make the case for ETH. My argument for ETH (or WBTC) over USDC would be that with USDC you incur at least 2%, but more likely 5-10% inflation per year in the next years. Higher in a worst-case scenario. And that is on an understated CPI basis.
You would force everyone in the LP pool to take on this inflation. All fiat currencies trend to zero with almost 100% probability over a long timeframe. I think the probabilities and trajectory for WBTC and ETH are opposite. Obviously, all have risks.
Also, the correlation of WBTC and ETH to MC should on average be better, means less implied future IL. Lastly, people with staked MC LPs choose for crypto exposure. They chose for crypto risk with crypto upsides. They can have USD or non-crypto exposure in different buckets that are not affecting each other. And hedge this way, if they feel that need. In a USD-crypto LP setup you force LPs to mix risks of two assets with completely different risks. Totalling a higher risk-profile for the total position.
Of course both scenarios (IL and relative inflation loss) would be severely mitigated with a uneven pool in favor of MC.
An inflation protected, CPI adjusted, stablecoin might be best, but there are no good options for that yet.
It will also accommodate for the people that don’t want to incur any IL or don’t want any exposure to the pairing asset. USDC, ETH or WBTC.
Aside of chain, I think the inquiry is also about DEX. 1inch, Sushi etc.
I would favor Uniswap v3 at this point.