Hello Centrifugians! We have had a fair bit of discussion and opinions regarding the recent proposal to update the parameters for Tinlake liquidity rewards. I thought it would be appropriate to consider the short-term and long-term implications of the various adjustments that could have been voted on. Our community had a large influx of new members through the Coinlist sale who may have recently started investing in Tinlake pools. Such investors may have found a smaller rate deduction more attractive due to higher yields in the short term, however may have not appreciated the degree of inflation associated with that option.
For many of our longer-term investors, this would have been the third proposal that’s been voted on to update Tinlake liquidity rewards parameters (the first 2 proposals resulted in no change to the rate of rewards or governance process).
The goal is to sustainably increase Tinlake TVL while maintaining a competitive APY compared to other DeFi protocols. In order to adapt to market demands it was proposed that Tinlake governance proposals take place every 2 weeks. In my opinion, implementing a higher rate of proposals is a good way to maintain the protocol without much extra effort from the team and community members. Currently, the parameter is set to monthly governance proposals, which may not be ideal during volatile market conditions.
In the June 2021 proposal, the reward rate was voted to be reduced by 52% to 0.002 CFG per $ per day for Liquidity Providers and by 82% to 0.0003 CFG per $ per day for Asset Originators. These parameters at our current TVL ($20 million) already put us well over the intended inflation rate of 3%. This inflation rate will continue to rise given Tinlake’s sustained growth. It wouldn’t be unlikely to see Tinlake TVL approach $30 million to $40 million by the end of June, and with TVL reaching these levels, I don’t believe the more attractive APY is worth the unhealthy inflation of over 10% to CFG supply.
As CFG is not currently listed on exchanges the true APY for a Tinlake investor may be difficult to calculate; however, at the new rate of 0.002 CFG per $ per day and a conservative price of $0.55 per CFG the APY for Liquidity Providers is significantly above other audited DeFi lending protocols.
I thought it would be a good idea to identify the effects of the recent proposal for those that may have not considered this and help newer Tinlake investors make an informed decision.
Spot on, Ash! Every investor needs to DYOR before investing in a project and the same weighs for voting on governance proposal. Even though higher rewards may be better in the short term for an individual investor the mid- to long term perspective needs to be considered as well. An inflation rate which is too high leads to more coins in circulation. If more coins are on the market, it makes in plain terms one coin less valuable. This is not good for the project too because by the time a project distributes more coins than it has actual value (TVL) it leads to overvaluation and a correction (in price) has to follow.
A healthy growth of the coin distribution with a moderate inflation rate is thus good for the individual investor and the project
Totally agree Ash. As this a solid long-term project with nice vision and future goals, long-term perspective should be leading the way to go forward. I guess every investor in the project should consider this too and being aware of the implications and effects on mid/long-term for an healthy sustainable growth.
Thanks for your hard work and contributions, guys! Excellent explanation from Ash!!
Such a good vibe in this growing community:)
I think it’s obvious we need to drop the cfg reward rates significantly in order to maintain and protect the amazing work of the team so far. It seems obvious from the chatrooms there is a huge number of short term investors onboarding since ido. Can’t blame people for seeing the value and potential of centrifuge, however, I definitely think with the right kind of information people will be more likely to see long term value in the project. I definitely think this post from Ash should be pinned in telegram chat to help people see we will only damage the value of the token at the current reward rate for investors.
I definitely agree with Ash on this! As Centrifuge is still growing and will have many more developments to come we need need to start thinking of a more long term sustainable future, rather than a more profit minded short term view. With the current high reward rate this will increase the token supply too early on have the negative effects mentioned by @Tjure07 . We want a slow and steady growth of supply limiting volatility to allow for a long and healthy future.
I have found the community within Centrifuge to be awesome and love how the team values our ideas. These governance proposals are a way of team allowing us to have a say in the future of Centrifuge, so we want to make a well informed decision on the implications of our decision. If your not really sure what it is your voting on, pop over to discord or telegram and ask, there will defiantly be lots of friendly people happy to help, myself included (Sam /Yugure).