Really strong points, we would definitely need to consider looking into automation if this is a route to be explored, managing L1 distribution is a relatively mundane process and expanding this further should ideally be done at the smart contract level if it was to be implemented.
I’m not well versed in the cross-chain DEX liquidity issues, would fragmented LP potentially cause a stronger price impact and more AMM/arbitrage opportunities? I assume that increasing transaction volume could be beneficial overall to LP holders due to fee structures, however if price impact is stronger this might be a negative depending on which direction the market movement is at the time.
Also do you think the most likely path/effect would be L1 liquidity being moved to L2, or majority new liquidity will be established in L2 and have low impact to L1 liquidity? Personally I was thinking the latter due to the incentivization may not be as appealing as mainnet, therefore making participation lower, which I assume would actually cause a competitive APY as more rewards will be available to a smaller audience.
Protocol bootstrapped LP should definitely be in the interest of Alchemist in terms of an investment and risk management should be considered - maybe we can make another topic on this as there could be a lot of missed opportunities. Getting the community to add to the liquidity in a chain would certainly support our products usability (if the utility incorporates MIST) but there is a strong argument about the ‘fair’ aspect as you raised.
Initially it may appear to be a fair solution as the cost to establish liquidity on an L2 might be considerably less, therefore less incentivization, however if an L2 starts yielding strong revenues then I wonder what the social effect will be (will users start to migrate their LP, acquire more or remain passive and do nothing?), will their activity balance any unfair advantage to L2 if any exists? I see L1 liquidity overall being at an advantage due to inflation distribution, would this make it more acceptable if new contributors to L2 are opting in knowing they may be at a potential disadvantage as it’s a new enterprise?
Loads of difficult questions to answer I suppose 