Since the inception of the CFG rewards program, a total of 8’489’780 CFG have been awarded to both AOs and LPs. The protocol allocated 8.6M CFG to rewards to date. This means that the CFG allocated to rewards will run out in the next 24hrs and the council needs to vote to mint more. Today we are proposing to mint another 1 Million CFG and decrease the reward rate for LPs by 50% and for AOs by 33%. Given the urgency of the situation, we will be working to propose these changes in the council today. While this does not allow for direct communitnd stay within the target rate of no more than 3%.y feedback, the community will have the option to vote yes or no on the proposal once the council approves it. I strongly encourage continuing the discussion on future adjustments to the program in the coming weeks before the rewards run out again.
We are suggesting another 50% decrease in rewards for both AO & LPs. The proposal I want to put forward to the council is the following:
- Mint 1’000’000 CFG into the rewards account
- Lower the Liquidity Provider rewards from 0.002 to 0.001 CFG per $ invested per day
- Lower the Asset Originator rewards from 0.0003 to 0.0002 CFG per $ invested per day
At the current TVL the supply growth would be 2.5% per year giving us room to grow TVL at these rates.
The proposal hash is: QmPpXRU41kLSkByhDE7RJQq892cFp6PvhUUcVjGcyEJiGj
As a community, it is important for us to be agile in responding to prevailing market conditions. For more context, I would suggest reading the forum thread that @Ash started on informed decisions in future governance proposals. Even though Tinlake AO & Investor rewards have been reduced significantly in the most recent reward discussion, they are still too high because:
- DeFi yields have come down significantly and the fixed yield of Tinlake assets have become significantly more attractive
- A big reason for not lowering rewards more drastically in the last adjustment was because of the concern of large withdrawals happening when lowering the rewards. This has not occurred.
- At the current reward rate the supply growth is quite significant (north of 10% by end of this month) which I believe is bad for the long term sustainability of the project.
This is the fourth proposal that’s been voted on to update Tinlake liquidity rewards parameters (CFG rewards), the first 2 proposals resulted in no change to the rate of rewards or governance process, the 3rd can be found here.
Forum polls serve to inform the chain council about the preferences of the community which are then put forward as proposals to be voted on. If the council strongly disagrees with a poll outcome, in the interests of the health of the ecosystem it can modify and pass a different proposal. In this instance because of the time sensitive nature of it, we will be putting this in front of the council immediately (Information on how council governance works can be found here).
When governing a token supply the mid to long term view needs to be taken into consideration. Even though higher rewards may seem better in the short term for an individual investor, a high CFG mint rate leads to more tokens in circulation and if more tokens are in circulation, a single token becomes less valuable if there is not an equal rise in the value of the network (Learn more: Understanding Inflation in token networks) This is not good for the project because if more tokens are minted and distributed than it has accrued value, it leads to overvaluation and a price correction follows.
In the last poll, the reward rate was voted to be reduced to 0.002 CFG per $ per day for Liquidity Providers and to 0.001 CFG per $ per day for Asset Originators. At our current TVL (~$25 million) these parameters put us over the intended CFG mint rate of 3% and this mint rate would continue to rise given Tinlake’s sustained growth.
With the market correction DeFi yields have gone down significantly in the past weeks. Rates across all major lending protocols have come down for stablecoins.
One concern that came up in our last adjustment of the rate was that it would lead to a significant decrease in investor demand. Since the last adjustment the market has contracted significantly and many DeFi protocols have seen a huge decrease in TVL. Tinlake has seen a small increase in redemptions but it has not led to a decrease in TVL and we are still growing day over day.