To continue to incentivize liquidity for the Aave RWA Market we are proposing to extend the CFG rewards program for RWA Market participants for an additional 90 days to help reach our goal of reaching 50M TVL on the platform.
The proposal is to:
Mint an additional CFG 833,333 for the next 90 days of the protocol launch and
deposit these into the Aave Rewards Distributor Contract.
Distribute 9250 CFG per day as rewards across all AAVE Centrifuge markets.
Please keep in mind that this is a fixed rate, so naturally the overall reward percentage decreases as TVL increases. We feel this is a fair rate to continue to kickstart growth on the platform.
Please leave any comments or questions below, so we can discuss before moving onto a poll.
The original post regarding rewards adjustments and describing the original proposal in more detail can be found here.
The poll will remain open for one week, and will pass with a simple majority “yes”.
Do you support the proposal to mint an additional CFG 833,333 for rewards in Aave Market for RWA?
While the incentive is there for attracting liquidity to pool, there is this continuous selling pressure on Centrifuge token in the market. The emissions are something that keep coming even if the rewards are reduced or kind of related to TVL locked. Difficult to find the right balance for any protocol.
Rewards, unless paired with a clear narrative (advertised and made easily available the AAVE market participants) will only be farmed and will lead to mercenary capital coming in and then selling the rewarded tokens. CFG TVL growth, the reduction of supply, and the further TVL growth virtuous cycle must be implicated. Otherwise, my concerns is we reach the round number goal and then loose it along with more market cap. Unless we clearly signal reduction of emissions is tied to growing adoption, this initiative can be a short-term boost at a high cost.
thanks Sam. i think we can probably do something to signal that there will be a reduction. this can perhaps be viewed as something similar to when the pools on Tinlake first opened up, and there were somewhat generous fixed rate rewards for those early participants until we eventually adapted the rewards to be a simple equation based on TVL. i imagine we’ll do something similar with this program and opt to make rewards variable based on TVL at a certain point - after we reach that round number target that was based on capital projections.
The Request For Comments (RFC) has been open for about a week now, so it’s time to add a poll to the post. Please feel free to vote in the poll, and add more comments if needed.
What is the plan for distributing the capital to AOs? At the moment it seems only ~7mm of the ~19mm is disbursed to AOs, it seems that disbursements are lagging behind somewhat, and does that mean that rewards are being paid out on funds that are not disbursed to AOs and thus, not used in the ecosystem?
Hey @prankstr25,
I can reply to your question on the utilization of the RWA Market. The utilization rate of the market is at 63% right now. Here is how:
11.2M USDC was deposited into the market, 7.8M USD worth of DROP tokens have been deposited into the market. Sum of this is 19M USD.
Using the 7.8M USD worth of DROP tokens as collateral, 7M USDC have been borrowed. The additional 0.8M USD worth of DROP is the overcollateralization.
The remaining 11.2 - 7 = 3.8M is liquidity. This leads to a utilization rate of 7/11.2 = ~63%
Rewards are paid out on the USDC that are deposited in the market.
Excerpt from the RWA Market executive summary: The RWA Market’s optimal UR is 90%. This means that when 90% of the USDC within the RWA Market is drawn down by the Issuer for financing, the target borrower interest rate of 4.00% will be achieved. The interest rate will decrease below optimal UR and increase above. The proposed interest rates are displayed numerically below. Investors in the RWA Market will earn an interest rate calculated by subtracting the Aave protocol revenue from the borrower interest rate. Please refer to the deposit APY section of Aave’s documentation:
Utilization Rate
Borrow Interest Rate
0.00%
1.00%
10.00%
1.33%
20.00%
1.67%
30.00%
2.00%
40.00%
2.33%
50.00%
2.67%
60.00%
3.00%
70.00%
3.33%
80.00%
3.67%
90.00%
4.00%
95.00%
49.00%
100.00%
94.00%
The associated interest rate curve for the RWA Market has been visualized below.
Aave’s interest rate strategy is calibrated to manage liquidity risk and optimise utilisation. The borrow interest rates come from the Utilisation Rate U.
U is an indicator of the availability of capital in the pool. The interest rate model is used to manage liquidity risk through user incentivises to support liquidity:
When capital is available: low interest rates to encourage loans.
When capital is scarce: high interest rates to encourage repayments of loans and additional deposits.
