[1IP-1XX] Aqua LP Incentive Program — Season 2
Simple Summary
Re-allocates the undistributed Season 1 balance of the [1IP-105] budget, returned to the Treasury and capped at 500,000 USDC, to a 13-week Season 2 of Aqua maker incentives on 20 Ethereum pairs, paid in USDC on eligible LP fees. Season 1 safeguards and reporting carry over. This has been written incorporating feedback from Anode.
Abstract
Season 1 of the Aqua maker incentive program, approved under [1IP-105], ran as a three-month program and ended on 27 October 2026. Under its terms, any undistributed budget returns to the DAO Treasury at campaign end, and rewards were authorized only for 1INCH-paired markets, paid on processed volume.
This proposal amends those terms in one governance action: with the undistributed Season 1 balance returned to the Treasury as [1IP-105] requires, it re-allocates an equal amount to Season 2 under updated terms — a market scope no longer limited to 1INCH-paired markets, a reward basis of eligible LP fees rather than volume, and a new 13-week term from 10 November 2026 to 9 February 2027. Administration, claim rails, safeguards, the unspent-funds rule, and reporting all carry over from Season 1.
Motivation
Season 1 bootstrapped maker liquidity on 1INCH-paired markets with volume-based rewards. Two lessons shape Season 2.
First, pay where the Treasury earns. Protocol fees activated under the Aqua Launch Framework [1IP-103] are taken as a share of the LP fee on each trade. Paying rewards on eligible LP fees ties every reward dollar directly to the fee base on which the Treasury’s own share accrues — the tightest possible coupling between incentive spend and Treasury revenue, and a stricter standard than volume, since rewards flow only where trades actually pay fees.
Second, go where the flow is. The 20 selected Ethereum pairs together carry roughly 76% of Ethereum DEX volume. Restricting incentives to 1INCH-paired markets directed depth toward markets that takers rarely route; Season 2 puts maker depth on the routes where 1inch aggregation flow already executes, so incentivized liquidity competes for real order flow from day one.
Specification
1. Amendments to 1IP-105
| Term | Season 1 ([1IP-105]) | Season 2 (this proposal) |
|---|---|---|
| Market scope | Curated set of 1INCH-paired markets across networks | 20 Ethereum pairs selected by traded share; no 1INCH leg required |
| Reward basis | Processed volume | Eligible LP fees (Section 3) |
| Term | Three months from Aqua production launch; ended 27 Oct 2026 | 13 weekly epochs, 10 Nov 2026 – 9 Feb 2027 |
| Undistributed Season 1 funds | Return to the DAO Treasury at campaign end | Returned to the Treasury under 1IP-105; an equal amount, capped at 500,000 USDC, is re-allocated as the Season 2 budget and transferred to the campaign address through SafeSnap |
All other 1IP-105 terms — operator, safeguards, exclusion and suspension rights, unspent-funds return at season end, and reporting — remain in force and apply to Season 2 as set out below. This proposal changes no protocol fee parameters: LP fee presets and the DAO fee share set under [1IP-103] are untouched.
2. Program parameters
| Parameter | Value |
|---|---|
| Start | 10 November 2026 (two weeks after Season 1 ended on 27 October 2026), or the first epoch boundary after the SafeSnap transfer executes, if later (the Start Date). Dates in this proposal assume a 10 November start and move with the Start Date |
| Duration | 13 weekly epochs, to 9 February 2027 |
| Budget | An amount equal to the undistributed Season 1 balance; returned to the Treasury under [1IP-105] ([X] USDC, return transaction [hash]), capped at 500,000 USDC and split equally across the 13 epochs (about $38.5k per epoch at the cap). No spending beyond the [1IP-105] allocation |
| Chain | Ethereum only |
| Markets | 20 pairs in one reward group (Section 6); pairs do not need a 1INCH leg |
| Reward basis | Eligible LP fees (Section 3) |
| Distribution | One Merkl campaign; makers claim through Merkl’s standard claim mechanism. Rewards are paid in USDC |
3. Eligibility
Rewards are paid on LP fees from all flows on incentivized pairs, except two kinds of trade:
| Excluded trade | Definition | Legs excluded |
|---|---|---|
| Self-trade | Within one transaction, the same maker’s positions on the same pair trade in opposite directions | Only those legs |
| Fresh cross-maker trade | Within one transaction, different makers’ positions on the same pair trade in opposite directions, and the two positions were created within 1 hour of each other | Both legs |
Subject to the conditions below, everything else is eligible: order flow (Fusion, aggregator, CoW, UniswapX, limit orders), one-way arbitrage, cross-maker trades between positions created more than 1 hour apart, direct SwapVM fills, and arbitrage between one maker’s positions on different pairs. A position’s creation time is its latest creation (ship) event before the trade.
Conditions. Eligibility is subject to the program terms published at 1inch and to Merkl’s terms. Rewards accrue only to positions created through strategies that include the access-token gate. Users of a third-party platform are eligible only if the program operator approved that platform in writing before it took part. A trade on which the DAO fee was not collected is not eligible, so every rewarded dollar of fees also paid the Treasury its share.
4. Payout
Every weekly epoch carries the same budget, approximately $38.5k. Each epoch’s budget is split pro-rata to each maker’s eligible LP fees across all 20 pairs. There are no group weights: one dollar of eligible fees earns the same reward on every pair. The budget is set in USD.
5. Performance gates
| Gate | Date (approx.) | Rule | Share of weekly rewards |
|---|---|---|---|
| Day 30 | 10 Dec 2026 | Pause if eligible fees in weeks 1–4 average under ~$3,400 per week | 8.8% |
| Day 60 | 9 Jan 2027 | Continue only if eligible fees in weeks 5–8 average at least ~$6,300 per week | 16.4% |
Fees counted: external LPs’ gross fees (LP fee plus the DAO’s share) on incentivized pairs, with the excluded trades of Section 3 removed. Each gate uses a four-week average, not a single week. The gates are fixed in dollars, so the DAO’s continue-or-stop decision is anchored to absolute fee generation; if the budget changes, the dollar thresholds stay and the percentages move. A paused or ended program returns its remaining budget to the Treasury under Section 9.
A failed gate ends Season 2; it does not resume without a new DAO vote. The program operator posts each gate result, with the four-week figures, on the governance forum within 3 days of the gate date. Gate dates follow the Start Date, and the percentages in the table assume the full 500,000 USDC budget.
6. Markets — 20 Ethereum pairs
| # | Pair | Type | Median monthly share |
|---|---|---|---|
| 1 | USDC/USDT | Stablecoin | 31.1% |
| 2 | USDC/WETH | Volatile | 12.1% |
| 3 | USDT/WETH | Volatile | 9.2% |
| 4 | USDS/USDT | Stablecoin | 2.7% |
| 5 | PYUSD/USDC | Stablecoin | 1.8% |
| 6 | stETH/WETH | Correlated | 1.7% |
| 7 | DAI/USDT | Stablecoin | 1.6% |
| 8 | WBTC/WETH | Volatile | 1.6% |
| 9 | USDe/USDT | Stablecoin | 1.6% |
| 10 | weETH/WETH | Correlated | 1.3% |
| 11 | USDT/WBTC | Volatile | 1.3% |
| 12 | wstETH/WETH | Correlated | 1.2% |
| 13 | USDC/USDe | Stablecoin | 1.2% |
| 14 | RLUSD/USDC | Stablecoin | 1.1% |
| 15 | USDC/WBTC | Volatile | 1.0% |
| 16 | DAI/WETH | Volatile | 1.0% |
| 17 | DAI/USDC | Stablecoin | 1.0% |
| 18 | USDC/USDG | Stablecoin | 0.8% |
| 19 | cbBTC/WBTC | Correlated | 0.8% |
| 20 | stETH/USDT | Volatile | 0.14% (added for growth) |
The list holds 9 stablecoin, 7 volatile, and 4 correlated pairs (ETH/LST and BTC/BTC), together carrying about 76% of Ethereum DEX volume.
Selection methodology: six 30-day months (15 April – 11 October 2026), Ethereum only. A pair’s monthly score is the average of its share of Ethereum DEX volume and its share of 1inch Ethereum volume. Pairs qualify with a median monthly score of 0.8% or more, at least 0.1% combined share in every one of the six months, and breadth of at least 2,000 DEX traders or 100 1inch users. One exception: stETH/USDT fails the steadiness test but is added because its 1inch volume accelerated in September and no direct DEX pool above $10M serves it; it is reviewed at the day-30 gate.
Season 1 markets not on this list no longer receive rewards. That covers the 1INCH-paired markets, the tokenized-stock, credit, and DeFi-token markets, and every market on chains other than Ethereum.
7. Administration & disbursement
Degensoft continues as program operator, consistent with its administration of Season 1 and of the Foundation-funded base campaigns. On approval, the Season 2 budget is transferred from the DAO Treasury to the dedicated campaign address 0x7c24E3049F46d59114908dB0C3eccd4695f7A8e4 through SafeSnap, after the reality.eth escalation period and the 72-hour Timelock. The budget is held only at that address and leaves it only to fund the Merkl campaign or to return to the Treasury; it is never held in the program operator’s own wallets. Degensoft receives no compensation from this budget. Because a delegate submits this proposal, Degensoft Ltd (BVI) confirms in the forum thread, before the temperature check, that it accepts the operator role and its obligations under Sections 7 to 10; those obligations bind Degensoft through that confirmation.
8. Safeguards & abuse monitoring
Season 1’s safeguards carry over: address blacklists (router, resolvers, treasury and team addresses, sanctioned addresses), per-wallet caps, and wash-trading filters, in addition to the trade-level exclusions of Section 3. An on-chain review runs before each weekly payout. Each review separately reports single-maker loops across pairs (for example USDC → WETH → USDT → USDC through one maker’s own positions) and flags any maker whose rewards derive mostly from such loops, as well as makers timing trades around the 1-hour window and clusters of wallets persistently trading with each other. Under the authority carried over from [1IP-105], addresses can be excluded and markets suspended after a review, before payout.
9. Unspent funds
Any budget undistributed at the end of Season 2 — including the remainder after a gate-triggered pause or early end — returns to the DAO Treasury.
10. Reporting
The Season 1 program report remains due on the governance forum within 60 days of Season 1’s end (by late December 2026), per [1IP-105], and will state the exact undistributed balance returned to the Treasury. Degensoft will publish a Season 2 report within 60 days of program end, covering distribution totals, eligible fees generated, gate outcomes, safeguard actions taken, and confirmation of unspent-fund returns. Until SwapVM 1.2 (expected around the end of November 2026) makes DAO-fee collection mandatory, skipped DAO fees are tracked and included in weekly monitoring. Trades that skipped the DAO fee are excluded from eligible fees under Section 3.
Before the temperature check, the program operator posts in this thread a short Season 1 results summary: rewards distributed, volume and fees generated, and the balance returned with its transaction hash. Delegates then vote with Season 1 results in hand.
11. Sequencing
No Season 2 rewards accrue for any period before Snapshot approval; the program applies prospectively from activation. Upon approval, the single Merkl campaign is configured for the Start Date (Section 2). If approval lands after 10 November, the start shifts accordingly and the 13-epoch term runs from the actual start date.
Rationale
Season 2 tightens the flywheel the DAO endorsed in [1IP-93] and funded in [1IP-105]. Rewards are paid on the same LP fees from which the Treasury’s protocol-fee share is taken under [1IP-103], so incentive spend tracks Treasury accrual by construction, not by proxy. The market set follows observed flow — 76% of Ethereum DEX volume — rather than a token pairing rule, so incentivized depth competes for order flow that already routes through 1inch aggregation. The dollar-fixed gates put a hard floor under the program: if fee generation does not materialize, at most one month of budget is exposed before the pause, and unspent funds return to the Treasury. Re-allocating the returned Season 1 balance keeps total program spending within the [1IP-105] allocation.
Considerations
Security. The program introduces no new smart contracts. It runs as one Merkl campaign on Ethereum against audited Aqua/SwapVM deployments, and reward computation applies the published eligibility rules of Section 3. Protocol fee parameters are unchanged. If SwapVM 1.2 goes live during Season 2, positions on it earn rewards only once its audit report is published.
Legal & risk management. As a Treasury-resource decision, this proposal falls within the risk-review triggers of Guidelines Section 5.6.2, and the review contemplated there is being completed before the temperature check. Rewards compensate makers for eligible fee generation; they are not distributions to tokenholders, and none are proposed. Program parameters, market eligibility, and suspension rights remain under DAO governance and the published campaign configuration.
Conflict of interest. This proposal is submitted by Anode, who received no compensation for authoring it. It was developed with technical input from the Degensoft team, disclosed here for transparency. Degensoft Ltd (BVI) is the administrator of this program, the developer of Aqua and SwapVM, and the operator of the official Aqua interface under the Aqua Launch Framework. Mitigants: rewards flow to makers through Merkl’s claim mechanism under the published methodology; Degensoft takes no compensation from this budget; the campaign address is dedicated and published; eligible-fee accrual and payouts are on-chain and independently verifiable; unspent funds return to the Treasury; and Degensoft reports within 60 days of program end.
Summary
Season 2 redeploys the returned Season 1 balance, capped at 500,000 USDC and within the [1IP-105] allocation — into a 13-week, fee-based maker incentive program on the 20 Ethereum pairs that carry about 76% of Ethereum DEX volume. Rewards are paid pro-rata to eligible LP fees, the same fees on which the Treasury’s protocol share accrues, with wash-resistant exclusions, weekly abuse reviews, dollar-fixed gates at days 30 and 60, and return of anything unspent. The DAO’s capital keeps working where the flywheel actually turns: fees.