Poll: Restructuring of Tinlake LP Rewards

The rewards working group has discussed how to improve the efficacy of liqudity provider rewards. This poll talks about implementing one aspect of it: optimizing issuer as well as TIN & DROP rewards. Please read the general summary for more information. The first step towards implementing these changes was done in the poll to enable LP rewards for Aave markets.

Reward Allocation to Issuers, DROP & TIN investors

Based on discussions on Discord as well as in the most recent community call there is an overall sentiment that lowering the rewards is prudent in the current climate. With the recent market cooldown liquidity to Centrifuge has actually increased and the protocol is in good shape. As a simple comparison Terra stablecoin rewards are at around 20%.

The original proposal was (note that the yield numbers are not comparable as the CFG price has changed since this graphic was created) - only look at the CFG numbers:

The revised proposal lowers the rewards by 30% but reduces the issuer rewards less significantly:

Do you agree with the proposed reward changes, specifically setting different rates for TIN & DROP?
  • Yes
  • No (please comment on what you’d like to see instead)

0 voters

Should the overall reward rates be lowered by 30% according to the above proposal?
  • Yes
  • No (please comment on what you’d like to see instead)

0 voters

Mint CFG 2M in rewards to be distributed along the above rules

The current reward account is depleted and any rewards currently accrued by the system need to be funded to continue to be able to be paid out by the protocol. The current deficit is about 750’000 CFG. Therefore I propose that we mint a total of 2M CFG instead of the usual 1M CFG for payout of future rewards.

Should the chain mint CFG 2M in rewards to be distributed along the rules outlined above?
  • Yes
  • No

0 voters

These polls run for 3 days until 2022-01-15T00:00:00.000Z. Should the voting turnout be a clear result the council should proceed to propose a motion for a democracy vote.


Thanks @lucasvo. I am going to do a deeper dive on this, but my initial view is that this proposal is a 50% increase in reduction from the previous proposal overall, and I am not certain of the thinking behind it. If token price appreciation was clear after previous reductions, this would be a no-brainer, but we have not seen it.

In my opinion, the current yield on TIN, aside from the rewards, is already very good and attractive to institutional and individual investors, so increasing TIN reward may not be necessary. I have had many conversations with investors and have never heard that they are not investing because the TIN rewards are too low.

However, the main goal should be to grow TVL, and all good things will follow. In order to do that, the protocol needs to attract quality originators, and those originators have options on where they get their capital. TradFi capital is cheap, at least for now. There are multiple hoops to jump through for originators coming from the TradFi world in order to start using Tinlake or other DeFi effectively, so they will only make the move if cost of capital is much more attractive compared to what they pay today. Those same, high quality originators, can bring TIN and help grow the overall TVL.

So to sum up:

  1. I am not sure why any reduction is needed at this time
  2. But if there is a valid reason, it should be much less drastic (and hopefully even less drastic in the future)
  3. Subsidizing the cost of capital for high quality originators is essential to growing TVL
  4. Not certain if increasing rewards for TIN is needed

For these reasons, I will vote against the current proposal, and will provide another proposal later today. I would also very much like to see comments from AOs, and of course, this is a democracy, so will accept whatever outcome the majority will go with.


And separately, would it not be fair to have “interested parties” like team members from Centrifuge abstain from voting in these signal requests?

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I wanted to add one comment on the overall 30% reduction in rewards: since the last adjustment our TVL has grown by close to 100% (in October it was at around 34M). This means we with these rates we are still issuing more than we have in October and will likely reduce the rewards more in the near future if we don’t want to significantly increase the issuance. I think the above proposal is the absolute minimum we should do but should seriously consider a more drastic change.

The current reward rate would see us issue 3.97% of the total supply per year on the current TVL of $60M. The current reward was issuing tokens at 2.25% at $34M in TVL.

Current reward rate at current TVL (60M): 3.97% annualized
New reward rate at current TVL (60M): 2.87%

If we try to stick to the 3% target issuance for rewards we are already very close to reaching that at the current size with the current TVL. This would put us at >5% issuance annualized in no time. I believe this to be unsustainable in the long run and would advocate either to adjust within the next month or possibly adjust the current proposal. I’d be curious to hear what others think.

So far only one member of our development team has voted on this poll. I believe as long as it’s not an outsize amount I would hold off on outright banning team members. A lot of them have personally acquired CFG and are significant holders and community members themselves and are free to voice their own personal opinions here.

The goal in the mid- to long term has to be to keep inflation (aka. new token issuance) at around 3%. In this matter the poll makes clearly sense.

Can we have an update which influence the crowdloan rewards will have on the inflation plus an approximate preview on the staking rewards after the parachain win?

Because 15% of the total supply for the crowdloan rewards is a big amount and the changed parameters for staking need to be taken into consideration for future polls

1 Like

Agree 100%, don’t see any clear reason to increase TIN rewards. If more TIN investors are needed then consider reducing barrier to entry which is high at $50K.