CP61: Pool Rewards Parameters

Good day Community ! :raised_hands:

Uses component: CP4
Author(s): Imdior
Contributor(s): Cassidy, Luis
Technical/non-technical proposal: Technical
Date proposed: 2023-08-16

Short Summary

An overview of the parameters to be proposed and decided on by CFG holders on how to update rewards for existing pools on Ethereum and how to implement rewards for Centrifuge pools once they go live on Centrifuge chain. This proposal activates pool rewards on Centrifuge Chain and changes the reward rate for existing pools on Tinlake, and also sets an end date for those rewards as we transition to more and more pools launching on Centrifuge Chain.

Background

Currently, Tinlake holds a Total Value Locked (TVL) of 235,664,441 USD. The protocol currently distributes approximately 23,160 CFG rewards daily, representing an annual issuance rate of around 1.72%. With the activation of CP6 - Block Rewards, the total token issuance of block rewards and CFG rewards together now brings the current issuance rate of CFG to approximately 4.72% yearly.

Some additional research was made previously in order to understand the general situation with Tinlake rewards here and here.

With this proposal, if passed, the total issuance of CFG would decrease to <4%.

High Level Objective

CFG rewards have some of the most discussion of any topic in Centrifuge governance calls and on the forum, with discussions primarily focused on adjusting the rewards rate or potentially removing rewards altogether.

The objective of this proposal is to set rewards at a rate that is sustainable for the protocol to both continue its growth and also move closer to a stable token supply. With more and more pools launching on Centrifuge Chain and moving off of Tinlake, it is also important to activate the rewards on Centrifuge Chain and create a plan to end rewards on Tinlake. For this reason, this proposal focuses only on these two reward rates and setting initial reward parameters for Centrifuge Chain - and does not introduce new discussion or possible new implementations for rewards.

Description of Activity

Reward Rate

The most recent rate of rewards issuance on Tinlake has been 700k CFG/ month (~1.72%). This proposal will set the reward rate of 1% of the CFG supply / year to be available for rewards for both existing pools on Ethereum and new pools on Centrifuge Chain combined. However, we propose to phase out rewards for existing pools on Ethereum over the 3 months following this proposal (if it passes). This means rewards will stop being issued on Tinlake 3 months after the date this proposal passes (if it passes).

Existing pools on Ethereum

This proposal sets the following reward rates:

  • Senior (DROP): 1.25 CFG / 10k DAI
  • Junior (TIN): 1.25 CFG / 10k DAI

These reward rates effectively reduce the previous rewards up to 58% for DROP rewards and up to ~45% for TIN rewards and bring the issuance rate close to 1% annually, which is in line with the proposed reward rate above as we transition to more and more pools launching on Centrifuge Chain.

Pools on Centrifuge Chain

Eligibility

Investors in pools that are staked for a minimum of 1 reward epoch are eligible to earn CFG rewards. This proposal is to set the reward epoch to roughly 30 days.

Reward Groups

With pools on Centrifuge Chain it is possible to set different reward rates for different pools. This can be implemented as weights for these different pools.

This will be implemented as pool rewards = weight_pool_x / total_weight

By default, the weight_pool_x parameter is set to 0.

These weights can be voted on at any time through governance. This can include a lower weight for different types of assets. On launching a pool, the proposal to launch a pool must include which reward group the pool will be put in.

At this time, this proposal does not create any reward groups. This means that senior and junior investors across all pools will receive rewards at the same rate proportional to their funds in the pool (no change to how this works today).

Rewards Lock-Up

Rewards will be subject to the same unstaking time period that applies to pool investments withdrawals. Rewards can still be claimed separately from the withdrawal of pool investments (no change to how this works today).

Source of CFG for rewards

CFG for rewards has historically been minted on demand. CFG used for these rewards will be minted in addition to the current supply.

This means that for rewards on Ethereum this proposal is to mint 2,000,000 CFG to cover existing rewards (~978,000 CFG accrued to date, plus roughly 350,000 CFG monthly for the next 3 months) as well as rewards over the next 3 months following this proposal. For rewards on Centrifuge Chain the minting of CFG rewards will be implemented onchain.

Summary of Proposal Parameters:

The proposal being put forward is the following:

  1. Activate Pool Rewards on Centrifuge Chain with equal pool weights and at a rate of 1% of the CFG supply yearly
  2. Set the same rewards rate for TIN, DROP at 0.000125 CFG/DAI per day
  3. Set reward rate for Asset Originator rewards at 0.0000 CFG/DAI per day
  4. Mint 2,000,000 CFG into the Tinlake rewards wallet (4dpEcgqJNczMyoTnUuFTyTLSe5RuoSSoGZMqu3L6fvc8jBbd )
  5. Set the weight_pool_x parameter to 0 by default.
  6. Discontinue rewards on Tinlake 3 months after the date this proposal passes (if it is passed)

Responsible

The Governance and Coordination Group (ImdioR, Rhano) will be responsible to ensure this proposal is implemented onchain appropriately, if it passes.

This proposal also sets initial reward parameters for pools on Centrifuge Chain. If this vote passes, these parameters will be set through CFG vote onchain. They can be changed by voting through CFG governance.

Alignment to the mission of Centrifuge DAO

The goal of this rewards proposal is to balance an incentive for users of Centrifuge pools as well as the long term token supply. These rewards should support Centrifuge to reach its long term goal to be a self-sustaining ecosystem. This means the rewards should support sustainable growth: both incentivizing issuers to bring credit on-chain as well as investors to provide those assets financing. Rewards should also support a stable long-term token supply.


The RFC will be open for a minimum of 7 days.

Looking forward to any feedback and any concerns that you might have with this proposal. If you have any questions or comments, please reply to this post.
Thank you for your attention.


** UPDATE 24th August **

This proposal has been submitted to the proposal repository on GitHub as CP61 so it is now final.

Link to proposal on GitHub: https://github.com/centrifuge/cps/blob/main/cps/CP61.md


The Council Motion 70 has passed and became a Public Referendum 39 that is live now.

The vote for Referendum 39 is now open for 28,800 blocks (~4 days with an average block time of 12 seconds) so you can use your CFG tokens to vote on it.

  • See Referendum 39 in the Polkadot portal here
  • See Referendum 39 on Subsquare here .
  • See Referendum 39 on Subscan here.

Pre-image hash 0x9442f02e7aa6c8698cb10068faa45a6e71f596f966a9aa0fdbffd52400f2a9b3

6 Likes

TL;DR

This is a short summary of changes if this proposal passes:
image

The rewards will stop being distributed on Tinlake once the rewards will be over (that approximately will happen in the next 3 months):

Some additional information that could be useful:

4 Likes

Im wondering why Tinlake rewards are being wound down? We are actually exapnding thr Tinlake AUM, and there is no possibility of moving to the Centrifugue chain at the moment.

1 Like

Good day Prankstr25
Thank you for your comment.
I can just highlight some of the reasons why the rewards on Tinlake in this proposal proposed to wind down:

  1. Increasing TVL on Tinlake provocate drastically increasing of daily rewards that should be distributed. In comparison with Centrifuge Pools rewards the rewards on Tinlake are distributed based on investments in pools which causes the increase in rewards issuance.

This proposal is trying to lower the rewards issuance and not increase them.
2. Tinlake continues to work, but all new pools could be launched only on Centrifuge Chain via the Centrifuge app. In this way continuing to incentivize rewards on Tinlake does not make any sense. Imho.
3. Continue to distribute rewards on both chains (Eth and Centrifuge) will have the opposite effect on Total Issuance that this proposal tries to achieve and will have a double effect of 1.72% + 1% on the Centrifuge chain…
4. The discussion about the removal of rewards was already in the air for 6-9 months if I’m not wrong, so i would say that this is an expected action that firstly or after would be proposed by someone in the DAO.

Our pool, and perhaps others, can’t be launched on the Centrifuge chain because there is no integration with Maker. We continue to need investors in Tinlake and rewards are an important part of that.

Good day @prankstr25
I think this is definitely something that K/F is working on for the next release of pools.
Which will support Ethereum natively ( which will allow integrations with Maker).


New information was added to this proposal:

Reward Groups

By default, the weight_pool_x parameter is set to 0.

Thank you for sharing the proposal. I think this proposal is positive for the community in order to prevent a high issuance and inflation of CFG.

If the reward epoch is set to 30 days, will investors be eligible to earn CFG rewards after 30 days?

  • Once pools are released in Centrifuge App and the pools has differents reward rates with different weight configuration, Does this rewards may change the total inssuance of CFG to >4%?

  • Is this setting to set the initial configuration of pool rewards to 0 before the POP?

  • If the weight_pool_x parameter is set to 0 by default, the total_weight is the sum of the weights of the pools. It will be 0 as well?

  • Max reserve amount will remain set by issuer in order to reduce cash drag?

Thanks again for sharing the proposal, I try to understand the updates.

Good day LuisG

Yes, definitely.

The Rewards Issuance on Centrifuge Chain will be set to 1% and the total issuance will be 1%+3% block rewards* (After the transition period).

Yes. This setting will set the weight_pool to 0.

weight_pool = 0
In this way: pool rewards will be = 0/ total_weight = > Result = 0 CFG for a specific pool.

Not sure, that i understood your question correctly.
This proposal is about the CFG Rewards on Tinlake and on Centrifuge Chain and not about the regulation of cash drag, or reserve of any of the pools.

Good day, Community!
Thanks everyone for comment and participation.

This proposal was now submitted on Github as CP61 - https://github.com/centrifuge/cps/blob/main/cps/CP61.md

First time, long time.

Regarding handing out CFG rewards.

What’s the dilution here for CFG tokenholders? (if any)

Any considerations from the Credit Committee of the current state of the RE market?

Current market dynamics, coupled with high interest rates, low purchasing power of USD, makes buying a home look a bit insane; IMO.

Suggestion to err on the side of caution.

Otherwise, if CFG dilution is minimal and DC is kept low, the recommendation from Synchrotron here is to approve this proposal.

The Council Motion 70 has passed and became a Public Referendum 39 that is live now.

The vote for Referendum 39 is now open for 28,800 blocks (~4 days with an average block time of 12 seconds) so you can use your CFG tokens to vote on it.

  • See Referendum 39 in the Polkadot portal here
  • See Referendum 39 on Subsquare here .
  • See Referendum 39 on Subscan here.

Pre-image hash 0x9442f02e7aa6c8698cb10068faa45a6e71f596f966a9aa0fdbffd52400f2a9b3

Referendum 39 for CP61 has passed and was executed at block #3709454.

image

Thank you for voting everyone!

Good day everyone
The rewards in the Tinlake wallet have ended.
In accordance with this proposal the rewards rate eas changed to:

  • DROP 0.0 CFG/ dai
  • TIN 0.0 CFG/Dai

Tx: Ethereum Transaction Hash (Txhash) Details | Etherscan

1 Like