What’s the goal of our LP rewards?
Centrifuge is a decentralized network that requires stakeholders to hold CFG and use it to participate in the network by voting in Governance proposals and performing other work. To seed this community of token holders the protocol mints rewards to early users to give them tokens for them to use and become long term incentivized token holders.
CFG liquidity rewards program
Below are a few updates to the CFG Rewards program that the community has discussed in an effort to overhaul the rewards in the coming weeks. We’d love to hear what you think about these ideas and would like to have an open discussion before starting a snapshot vote for these proposals.
Based on Lucas’ post about the protocol roadmap, the launch of pools on Centrifuge Chain is both a major milestone and a pivotal moment for the CFG token. The ideas mentioned are just some that will strengthen the utility of CFG.
To increase the token utility of CFG token one of the steps is proposed today:
1. Rewards to incentivize users of the protocol
As we build out a community of token holders, they can perform important functions in the protocol. The protocol can offer incentives not just to liquidity providers as is the case today with Tinlake, but also in the future to other actors such as underwriters and oracles.
How does it work? (technical background)
Currently the CFG rewards are given on the Centrifuge Chain in the native token but based on metric data of the Tinlake Pools that live on Ethereum. This brings a few challenges:
- Ensure that the data fetched from different sources is coherent
- Verifiable way of updating rewards by the use of complex Merkle Tree Proofs
With the launch of Pools on the Centrifuge Chain we have to implement a similar way of rewarding tokens but with the advantage of having these pools defined in the same contextual environment.
This means that we will not have to implement a shared trust between two systems and hence moving away from the challenges described above.
Updated CFG Rewards Proposal
This proposal aims to implement a Substrate Module that issues rewards in an automated form at the end of every epoch with the following requirements:
- Fixed amount of rewards given per epoch
- Achieve complexity O(1) for most operations
- Rewards are accumulative, and can be claimed at any time
- Ability to define different reward rates for different tranche tokens
- Establish a minimum holding period before rewards can be claimed
The first requirement is the key change to how CFG rewards on Tinlake work today.
This is based on the discussion in this proposal.
By giving out a fixed amount of rewards per epoch, rewards per investor automatically goes down as the TVL of the protocol increases, thus reducing governance overhead.
This is similar to how rewards in most external protocols work today, such as the rewards in the Aave protocol.
This RFC is gauging support for the rewards to incentivize users of the protocol.