Good day Community !
Uses component: CP4
Contributor(s): Cassidy, Luis
Technical/non-technical proposal: Technical
Date proposed: 2023-08-16
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.
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.
With this proposal, if passed, the total issuance of CFG would decrease to <4%.
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.
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).
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.
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.
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 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).
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.
The proposal being put forward is the following:
- Activate Pool Rewards on Centrifuge Chain with equal pool weights and at a rate of 1% of the CFG supply yearly
- Set the same rewards rate for TIN, DROP at 0.000125 CFG/DAI per day
- Set reward rate for Asset Originator rewards at 0.0000 CFG/DAI per day
- Mint 2,000,000 CFG into the Tinlake rewards wallet (4dpEcgqJNczMyoTnUuFTyTLSe5RuoSSoGZMqu3L6fvc8jBbd )
- Set the weight_pool_x parameter to 0 by default.
- Discontinue rewards on Tinlake 3 months after the date this proposal passes (if it is passed)
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.
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 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.