This proposal is expected to appear on Snapshot for voting on 2021-06-21T12:00:00Z
TL;DR
- The LM rewards structure on the stablecoin pools is proposed to be changed. The rewards emissions are halved, from 50k to 25k BNT per week
- The distribution of the rewards remains the same (70% to the BNT side, 30% to TKN side)
- The change is being made in order to gradually decrease rewards on pools with stable tokens.
- The change is now possible, due to low gas cost.
Discussion
Due to Bancor V2.1 single asset exposure and IL protection, and because the stable pools do not appreciate with the rest of the market, the current APY on the TKN side of the stable pools is unsustainably high.
- The 3 stablecoin pools currently have around 15M stable assets each locked on the TKN side, which is entitled to 30,000 BNTs a month each (if 2x multiplier applied), providing around 50% APY on TKN and 70% on the BNT side.
- The emissions change would reduce APY to around 20-30% on TKN and around 35-40% on BNT side (all else held equal).
- The above APY is still among the most profitable, risk-minimised staking yield for stable assets in DeFi on the Ehtereum network.
- The reason for the change is stablecoin pools incur a higher than normal impermanent loss cost on the network due to the inherent divergence between the price of USD and BNT.
- The change is being made in anticipation of a Bancor V3.
- Until the new solution is live, we anticipate the gradual reduction of rewards will not cause significant outflow of capital and will decrease the emission of BNT tokens by 600K BNT, monthly.
Liquidity mining halving and rewards re-distribution:
- Proposing halving LM rewards on stable pools.
- Instead of 50,000 BNTs per week, 25,000 BNTs per week will be distributed to each pool (2x more if considering multiplier logic)
Pools considered for 30 days extension and rewards halving:
- DAI
- USDC
- USDT
The Alternative is Not Economically Sound
The alternative approach would be to increase the investment caps on stable tokens; however:
- Stablecoin pools are, at present, the single greatest cost to the protocol in terms of IL expenses. Increasing the caps would only exacerbate the problem.
- Decreasing the emissions gradually over time poses high gas costs to the network in terms of contract upgrades.
Summary
- Bancor should not lose the momentum and cut out the LM rewards on stablecoins.
- Considering the change in the rewards redistribution, the APY should still be maintained on a highly competitive level.
- The new solution for stable tokens is around the corner. Therefore, the maintenance of stablecoin liquidity incentives is a temporary problem.