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Allocation Points
Not all pools have incentivized gauges. In Osmosis, staked OSMO holders choose which pools to incentivize via on-chain governance proposals. To incentivize a pool, governance can assign “allocation points” to specific gauges. At the end of every daily epoch, 45% of the newly released OSMO (the portions designated for liquidity incentives) is distributed proportionally to the allocation points that each gauge has. The percent of the OSMO liquidity rewards that each gauge receives is calculated as its number of points divided by the total number of allocation points.
Take, for example, a scenario in which three gauges are incentivized:
  • Gauge #3 – 10 allocation points
  • Gauge #4 – 5 allocation points
  • Gauge #7 – 5 allocation points
20 total allocation points are assigned in this scenario. At the end of the daily epochs, Gauge #3 will receive 50% (10 out of 20) of the liquidity incentives minted. Gauges #4 and #7 will receive 25% each.
Governance can pass an UpdatePoolIncentives proposal to edit the existing allocation points of any gauge. By setting a gauge’s allocation to zero, it can remove it from the list of incentivized gauges entirely. Proposals can also set the allocation points of new gauges. When a new gauge is added, the total number of allocation points increases, thus diluting all the existing incentivized gauges.
Gauge #0 is a special gauge that sends its incentives directly to the chain community pool. Assigning allocation points to gauge #0 allows governance to save some of the current liquidity mining incentives to be spent at a later time.
At genesis, the only gauge that will be incentivized is Gauge #0, (the community pool gauge). However, a governance proposal can come immediately after launch to choose which gauges/pools to incentivize. Governance voting period at launch is only 3 days at launch, so liquidity incentives may be activated as soon as 3 days after genesis.
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