The LM rewards on stablepools are extended from 9th of March for another 4 weeks.
The LM rewards structure on the stablecoin pools is changed. The rewards emissions are halved, from 100k to 50k BNT per week, and the distribution of the rewards is proposed to be split evenly between either side of the pool (50% stablecoin, 50% BNT).
Discussion
Due to Bancor V2.1 single asset exposure and IL protection, and because the stablepools do not appreciate with the rest of the market, the current APY on the TKN side is stablepools are massive.
All 3 pools currently have around 15M stable assets each locked on the TKN side, which is entitled to 60,000 BNTs a month each (if 2x multiplier applied) providing around 100% APY on TKN and BNT side.
The rewards halving and rewards distribution to 50/50 will change APY to around 80% on TKN and around 70% on BNT side (ceteris paribus).
The above APY is still among the most profitable, risk free staking opportunities for stable assets in DeFi.
We anticipate that halving the rewards would not cause significant outflow of capital but would decrease the emission of tokens by 1,200,000 BNT, monthly.
Those tokens can be relocated to other parts of the ecosystem that currently requires incentives (e.g. ROOK, GRT, etc.)
Liquidity mining halving and rewards redistribution
Proposing halving LM rewards on stablepools.
Instead of 100,000 BNTs per week, 50,000 BNTs per week will be distributed to the tokens (2x more if considering multiplier logic)
The rewards distribution will be changed from 30% to TKN 70% to BNT, to an even split (50/50) distribution of LM rewards to each side.
The new rewards structure will commence from 9th of March, at the conclusion of the current program and will last for 4 weeks.
Pools considered in 30 days extension and rewards halving:
DAI (50% BNT, 50% DAI)
USDC (50% BNT, 50% USDC)
USDT (50% BNT, 50% USDT)
The Alternative is Not Economically Feasible
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.
Bancor is currently working on a Stabletokens dedicated solution that will significantly decrease the IL, and allow limitless single-assets deposits on stabletokens, therefore increasing the caps makes no sense.
Summary
Bancor should not lose the momentum and cut out the LM rewards on stabletokens.
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 behind the corner, therefore, the pools should be maintained until it is ready but in a different structure.
If the BNT side is lowered for stablecoin pairs, I believe the overall liquidity will inadvertently decrease. Since other non-stablecoin liquidity pools will have higher BNT APY, we can expect less BNT on these stablecoin pairs if this passes. This also means less space for stablecoin liquidity (since you need BNT to open up space) and therefore less liquidity altogether.
Also, these are among the most profitable liquidity pairs for the Bancor DAO in terms of fees. That’s why we should keep them as-is, because they have not captured nowhere close to the amount of market share among DEX’s as is possible.
The LM rewards on stablepools are extended from 9th of March for another 4 weeks.
Agree, an extension makes sense.
The LM rewards structure on the stablecoin pools is changed. The rewards emissions are halved, from 100k to 50k BNT per week, and the distribution of the rewards is proposed to be split evenly between either side of the pool (50% stablecoin, 50% BNT).
I partially disagree with the first point and vehemently disagree with the second. The 50K decrease might draw away liquidity from both sides. I propose decreased reward emissions to 75K per pool with a split of 50K to BNT stakers and 25K to stable coin stakers which I believe that the target rewards APY should be approx. 80-100% APY for BNT stakers and a 40-60% APY for stable coin stakers which is fair considering risk to capital. BNT stakers should receive the majority of rewards in general especially in the stable coin pools, because unlike other cryptos, stable coins, other than USD inflation, are subject to no real risk to capital… As a result of this minimal risk, stakers of stable coin should not receive as much APY. The evidence of the stable coin APY being excessive is the fact that the stable coin side of all 3 pools are consistently maxed out the vast majority of the time with only room on the BNT side.
Can you explain the reasoning for proposing the rewards to be evenly split? Per the comment above, I would have thought it should be higher to the BNT side than it has been.
I agree on this. Extension welcomed, reduction also pro, but I’d rather see a bigger split to BNT providers.
Would rather like either a higher reward pool or higher split for BNT holders.
I understand that 50/50 is probably more macro perferrable for the whole protocol, but reducing both, split AND reward pool is a bit drastic in the first step?
Maybe we consider this in the next rewards voting cycle? So people can also have time to evaluate the situation and move out or dont move out capital from the stable pools.
I am on board with everything proposed here. I note that the change in the stablecoin pool LM rewards structure will massively curtail the BNT emissions while maintaining a reasonably high APY for stablecoin LPs. Seems like a healthy compromise - drop the inflation, keep the liquidity incentives.
I can see that there is some misunderstanding within the community as to how the profitability of the stablecoins pools should be evaluated. I think this would make a good discussion topic if we were to host another community call sometime before the vote goes live.
@mbr
Would you care to explain what you meant by “…there is some misunderstanding within the community as to how the profitability of the stablecoin pools should be evaluated”? Please elaborate.
The main reason for evenly split is to avoid negative APY shock on the stable pools and avoid withdrawal of funds because of that.
TVL growth is essential to maintain the momentum for BNT network, therefore if we witness significant withdrawal of funds, we can meet with the fud from community, users and competition. I think @nhindman can elaborate on relevancy of this.
Even if BNTs are pulled from the BNT side and relocated somewhere else protocol will co-invest more BNTs and same TVL will be maintained.
Therefore for this particular pools, this SHORT TERM strategy should be more beneficial for the network.
In the long term, Bancor is working on a new design for stable pools that will significantly decrease the IL and trading efficiency. More details should be released soon.
Miracle is absolutely right, I’d love to dump my stable coins in at anything above 12% APR. Lack of BNT is the problem, let’s shift towards BNT holders so more stable coin space is opened up.
Essentially, the APR for the user and the IL cost to the platform are very different things. In the commentary above, and in our telegram groups, there have been frequent references to the high APR as being a reason why these pools are a credit to the system. Unfortunately, this is not the case. I think the conflation of these two concepts is where some of the misunderstandings arise.
Despite the high APR on these pools, they are the single greatest cost to the platform from an IL perspective. Of course, stablecoins are an important feature, and we want to support them - but we should be careful.
It is my understanding that we don’t want to drastically reduced the rewards for these pools until the new system is in place. This will make sure that these LPs don’t leave the platform so that we can capture them when the new design is ready. I agree with these points and support the proposal as it stands but would love to hear more about the new design (if you can share).
I think you have missed the largest player in this space Curve.
We can’t talk about the new design right now. However, I can tell you that your abstraction is 100% on the money here. We only want to keep the stablecoin LPs happy enough to stick round until we can get the new system built and deployed. After that, I expect there will be very little in the way of growing the stable pools, with or without LM on them.