As the currently minted protocol rewards are running out, we at DeFi Capital Markets wanted to propose a new reward rate and structure going forward.
The previously proposed reward structure was unfortunately unable to be implemented by the team. We understand that the implementation of the proposed changes would/will cost significant engineering time that could/should be spent on building the mechanism to enable CFG rewards for pools on Cent Chain, the Centrifuge parachain.
The below formula is what was previously suggested:
This formula attempted to set a fixed Daily Global Reward rate that would be dynamically adjusted based on TVL. Lucas outlined in a response to the last poll on rewards what can and can’t be done for Tinlake Rewards. Therefore we propose only small changes to the currently used, and previously implemented reward mechanism: a fixed reward rate per DAI invested per day (independent of TVL).
The current reward rates are as follows:
|TIN Reward||CFG 0.00072|
|DROP Reward||CFG 0.00048|
|AO Reward||CFG 0.00004|
Finding senior investors has become difficult. The underlying interest rates are low for DeFi and the reward rate has come down materially. We believe that we need to more fairly incentivize senior investors vs junior investors if we want to attract financing into this tranche, which is by far the lionshare of pool TVLs. We therefore would propose that we make DROP and TIN CFG reward rate equal going forward. There is some more context in this post as well.
Furthermore, as the protocol grows it has become evident that it has a stronger value prop (at the moment) for AOs. As credit conditions tighten in traditional markets DeFi can be a great solution offering fairer rates. We understand that demand remains elevated at this time for new assets to finance and we don’t believe we need to incentivize them further by providing CFG rewards for asset origination.
In summary, we propose that DROP and TIN investors earn equal rewards on a per DAI basis and AO rewards are no longer provided for assets brought to the platform (as per this poll they can still earn rewards from investing in their own pool). Also, we would suggest lowering the CFG per DAI per day to 0.0003 (for both DROP and TIN), as shown below. Lowering the CFG reward rate is necessary as the protocol continues to grow and the rate we proposed would keep reward inflation around a reasonable 3% per year on a 12 month rolling basis.
|TIN Reward||CFG 0.0003|
|DROP Reward||CFG 0.0003|
|AO Reward||CFG 0.0000|
We would also propose to review and adjust these rates on a monthly basis or more frequently if TVL changes significantly.
We would lastly propose that protocol mint 1,800,000 new CFG to cover an estimated 2 months of protocol rewards. This assumes that the protocol will have an average TVL of DAI 100M over the next 60 days.