Based on my proposal and the discussion in this RFC, I am moving this proposal forward so the community can vote in the polls.
There are three polls in total and they are all Yes/No.
Poll 1 is about whether you think the TIN/DROP ratio should be adjusted, in order to incentivize investors to invest in the DROP tranche, and thus make it more attractive.
Poll 2 is about whether you think that issuers should be able to earn CFG rewards from their own pools.
Poll 3 is about whether you think the Centrifuge team should look into giving higher CFG rewards to investors who lock up their funds (DAI) for a certain duration of time.
Please vote in all three polls below.
EDIT: Poll 1 seem to create some misinterpretation - the poll should have been phrased:
Change current CFG reward rate so it’s the same for TIN and DROP.
Poll 1:
Change current rewards so TIN equals DROP.
Yes
No
0voters
Poll 2:
Should issuers be able to collect CFG rewards from their own pool?
Yes
No
0voters
Poll 3:
The Centrifuge team should investigate giving higher CFG rewards based on duration of funds locked.
We have just back in March settled on a cfg rewards model based on TVL. We have also seen that none of the previous changes result in CFG price appreciation, price is driven by market and token utility (for which I believe there are some plans).
Its very difficult to operate a business, raise capital and tell investors what to expect, only to have it changed all the time. For this reason, I have voted No on 1 and Yes 2. Rewarding longer term investors makes sense, Yes on 3.
Thanks for comments. The TIN is higher risk yes, but also carries a much higher interest rate. The TIN is often funded by the pool issuers themselves and in my view is attractive based on the interest rate alone (typically 15-35%). The DROP carries a much lower interest rate (3-10%) and has been the limiting factor in growing many of the pools. We need external investors to see more value in investing in the DROP tranche and therefore reward rates should be higher in my view to be competitive with other protocol rates and attract new investors.
The point of this is to balance out the Tinlake market place more. We are seeing strong demand for new issuances, as issuers invest in their own TIN tranche earning rewards and bringing their cost of capital down a lot, while they try to finance off the DROP tranche to external investors. For the pools that have Maker credit lines the advantage is even more distinct to the issuers, as Maker finances the DROP at an even lower rate than through Tinlake, driving the issuers cost of capital down even further. The purpose here is to lower the incentives for issuers to seek rewards as part of their business model, this is not sustainble and has become too advantegous for issuers in my view. This leads to imblanace.
The Tinlake DAI TVL has been effectively static for 2 months. This is not particularly surprising. The failure of 1 stable coin means people are now are acutely aware that even a DAI investment carries risk. The massive drop in the cryptomarket has decimated the current value of the accumulated cfg rewards people are holding, along with the effective yield going forward. In addition for those of us not based in the US, the high value of the dollar means there is significant future exchange rate risk. Combine this with rampant inflation and as a smallish investor I feel the reward to risk ratio for investing in DROP is now far too low. Rather than considering investing more I am seriously pondering whether it is time to withdraw.
Got ya. Well, perhaps DROP tranche should have higher reward rate than it has now, but the poll question says “Change current rewards so TIN equals DROP.” I don’t think they should be equal.
Got ya. Makes sense. Again, a lot of this comes down to tokenomics. Perhaps there should be a cap on how much issuers can invest in either tranche? Limiting their exposure to the upside and allowing for outside investors to participate in the majority of each pool…??
Very good question! By reading the RFC, it seems like like the goal is to bring DROP up to TIN levels - the other way around does not make sense, if the goal is to incentivise people to invest in the DROP tranche.
Thus suggesting we should be incentivising the senior (DROP) more heavily going forward as this is the current pain point and will likely remain so going forward.
This is correct, DROP rates would be raised to current TIN rates. The overall reward rate is obviously subject to further governance and can be expected to likely continue to trend downward with the next proposal IMO.
Why I voted “No” on investigating higher CFG rewards based on duration of funds locked
I’ve wanted to explain my vote on the question “The Centrifuge team should investigate giving higher CFG rewards based on duration of funds locked.” - one of the few “No” votes:
The way Tinlake rewards work today this will only be possible at a very significant engineering expense. Given all of this will have to be completely reworked after the launch of Pools on Centrifuge Chain this works would mostly be wasted and take serious engineering resources away from working on Pools.
Why I voted “No” on raising the DROP rewards to the same rate as TIN rewards
Even though the community has voted for changing the overall reward model to a global fixed inflation per year for rewards which is then split up among all LPs (see the discussion here) this has not been implemented yet. Most of the developer attention went into fixing issues with The Graph. So the only way to raise DROP reward rate would be by increasing issuance of CFG. Setting them at the same rate would result in additional issuance of >2% of total supply per year bringing issuance for rewards above 5% annually. I don’t believe this a good idea for the protocol.
To add to my earlier response, I believe we should have a discussion around engineering priorities for rewards as both implementing reward rate changes to as discussed in my original proposal in December 2021 as well as the suggestion to investigate a reward rate dependent on the holding period of the tokens would be engineering efforts taken away from further developing pools functionality on Centrifuge chain. @cassidy and I are working on ideas of how to present priorities to token holders to provide input on the prioritization.
Thanks for the colour @lucasvo. I will be changing my vote to “no” on poll 1 and 3 after reflecting on your comments. I encourage others to have a second look at their votes and consider these comments as well. Thanks!
I wonder if there’s any interest EUROC based pool? Harbor’s assets are USD denominated. As we expand our footprint, we are seeing more and more euro assets. This may be a solution for us to support these clients and at the same time offer an alternative for investors concerned about dollar strength.
Is there something wrong with the underlying framework that explains why “most of the developer attention went into fixing issues with the graph” such that what seemed like a fairly simple change could not be implemented?
What is the alternate strategy for attracting/keeping investors in DROP? With an element of luck the crypto market may be near the bottom & gradual appreciation of the market that brings CFG with it is possible, in which case $ yields will rise, but it does not seem wise to depend on this.
Thank you for the update - I have also changed my vote, based on that.
However, Poll 1 and 3 are still important topics to address but I agree that in the short term, the focus should be on getting the pools up and running on Centrifuge.
