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.