- The LM rewards on stablecoin pools (DAI, USDC, USDT) are extended from 9th of March until the 6th April (another 4 weeks), and can continue being extended by the DAO.
- The LM rewards structure on the stablecoin pools is proposed to be changed. The rewards emissions are halved, from 100k to 50k 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 anticipation of a new stable pool design.
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 60,000 BNTs a month each (if 2x multiplier applied), providing around 100% APY on TKN and BNT side.
- The emissions change would reduce APY to around 40-50% on TKN and around 40-50% 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.
- 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 new stable pool design that is uncapped (doesn’t require co-investment limits) and vastly minimizes IL cost to the network.
- Until the new solution is live, we anticipate the reduction of rewards will not cause significant outflow of capital and will decrease the emission of BNT tokens by 1.2M BNT, monthly.
- These tokens can be re-allocated to other pools in the ecosystem that currently require incentives, including new DeFi tokens voted into liquidity mining & existing high-volume rewards pools like YFI, SNX, REN, ROOK, GRT, etc.
Liquidity mining halving and rewards re-distribution:
- Proposing halving LM rewards on stable pools.
- Instead of 100,000 BNTs per week, 50,000 BNTs per week will be distributed to each pool (2x more if considering multiplier logic)
- The new rewards structure will commence from 9th of March, at the conclusion of the current program, and will continue to 6th April (formal 4 week extension).
Pools considered for 30 days extension and rewards halving:
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 stablecoin dedicated solution that will significantly decrease the IL, and allow limitless single-assets deposits of stable tokens, therefore increasing the caps is at ends with the vision for sustainable stablecoin liquidity.
- Decreasing the emissions gradually over time poses high gas costs to the network in terms of contract upgrades.
- 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.