RFC: Renewal RWA Market rewards proposal 2022-12

Centrifuge Governance Proposals
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Hello Centrifuge and Aave Community :raised_hand:
Proposal type: CP-4
Authors: Governance and Coordination Group (@ImdioR @Rhano)
Contributors: Governance and Coordination Group (@ImdioR @Rhano)
Technical/non-technical proposal: technical proposal
Date proposed: 2022-12-08

Short Summary

  • Renewal of incentive rewards for the RWA Market on AAVE

High-level objective

  • This proposal is for minting 100,000 CFG to be distributed as rewards for the RWA Market on Aave. These rewards will last for the following 90 days when the current rewards run out on the 5th January 2023.

Background

The Governance and Coordination Group would like to request comments on the proposed renewal incentive rewards for RWA Market.

The RWA Market is the first venture of Aave and Centrifuge and with a total market size of $8,089,000.

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The current market conditions and the economic situation in the world have led to a lot of withdrawals, and ongoing instability in both crypto in general as well as the DeFi sector. As a result, the total value locked (TVL) in DeFi dropped by 66% (data from August 2022) in the last 9 months. Despite such a significant drop, the RWA narrative is still strong and there is an interest to invest in assets, uncorrelated to crypto, and earn a stable yield.

Previous RWA Market rewards covered reward distributions up to the 5th of January 2023. In order for incentive rewards to continue for the RWA market on AAVE they must be renewed before the end of the year to ensure they are ready for the 5th of January 2023…

We believe that the RWA Market and AAVE have a significant impact and role in the future of RWAs along with Centrifuge. In addition, the latest results show that the community supports and strongly believes in RWAs.

In order to guarantee the correct and uninterrupted work of RWA Market, incentives should be extended.

Detailed description of proposal

The proposal is to:

  1. Extend incentives reward for RWA market keeping the same incentives liquidity for the Aave RWA Market from the previous vote.
  2. Minting an additional 100,000 CFG incentivizes to keep earning a stable yield and also gives current and new users the chance to participate in the Centrifuge Governance.

Please keep in mind that this is a fixed rate, so naturally, the overall reward percentage decreases as TVL increases, and vice versa.

The original post regarding RWA Market rewards adjustments and describing the original proposal in more detail can be found here.

Change or improvement 

1. Mint an additional 100,000 CFG for the next 90 days starting 05-01-2023 and deposit these into the Aave Rewards Distributor Contract.
2. Distribute 1111 CFG per day as rewards across the AAVE Centrifuge market
  • Responsible
    • Governance and Coordination Group (@ImdioR @rhano)
  • Alignment to the mission of Centrifuge DAO
    • Minting the 100,000 CFG tokens as rewards will ensure that lenders on RWA Market are incentivized for providing liquidity to pools, which in turn will ensure that borrowers can still access capital transparently and cost-effectively.

If this proposal passes all steps, it will take around 28 days for it to pass and the rewards will be minted shortly after.

If you have any questions or comments, please reply to this post.
Thank you for your attention.

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Thanks for sharing this @ImdioR. I think this is very important to help us further our connection with the AAVE community. Is this also shared with the AAVE community? If so how is it received by the community?

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Good day SirJ
Yes, we informed also Aave Community as always on their forum in the Governance section.

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Thanks for sharing this @ImdioR , definitely agreed that we should continue to have CFG rewards on the RWA Market. I would suggest minting CFG for a longer time period though. The overhead on the team to extend the CFG rewards is not insignificant, so it would be great if we have to do this less often. What do you think about minting 200,000 CFG for 180 days?

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Good day Jeroen
Thank you for your feedback.

This is an RFC and not a final proposal. So this is mean that could be changed before submitting it to Opensquare voting. If the community, other token holders, Aave see a benefit in extending these rewards up to 180 days, the proposal could definitely be changed.
I can not comment on the financial/economic part, maybe @ctcunning @annamehr @roollie and of course Issuer, @prankstr25 @Stu @Fabien could provide feedback from their side.

Talking about the amount of rewards 100.000CFG ~ 0.02% of the total supply, so 200.000CFG ~0.04% (3 90 days) or 0.02% (180 days)
[add after] If the duration will be extended over 6 months, the inflation will be the same.
With these numbers, the total annual inflation will be under 3-4%.

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Just to clarify, I’m proposing to mint 200k CFG for 180 days as opposed to 100k CFG for 90 days. This is the exact same amount of inflation, just for twice as long as a period, so we don’t have to renew the rewards again 3 months from now.

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Yes, sorry. You are right. I calculated always for a duration of 3 months.
Thank you. I just edit my prev. post.

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It will not make any difference for Centrifuge in terms of inflation - the only issue could be if the TVL on RWA Market changes significantly (either up or down), it would affect the rewards rate for the lenders, given the daily rewards is set to 1111 CFG/day, regardless of TVL.

By making the proposal every 3 months, we can mitigate this better. I think maybe asking the Aave community would be a good idea too.

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@jeroen @Rhano @ImdioR perhaps it is worth waiting to see how these 3 months go and to see if there is any growth. I think in the future it may be worth reassessing the amount of rewards allocated to RWAMarket if any at all.

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A compromise would be the following: we mint 6mo worth of rewards and already deposit them in the market. If there is no further vote to adjust the rewards 3mo from now they would automatically extend by another 3mo. @jeroen, is that technically possible?

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I browsed through the initial proposal and for my understanding it means, that 1111 CFG will be distributed EVERY day for the aforementioned period (90 days) to all users of the RWAmarket, nonetheless if the TVL drops or increases significantly?

If this is the case, I personally wouldn’t agree to extend the minting to a longer period and the proposed 90 days should be fine because the change of the TVL in a bear market can be quite unpredictable

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There wasn’t a lot of change in TVL over the last 3 months and the market did not have a lot of new investments neither withdrawels. I agree with @jeroen that it’s always an overhead to extend and support the idea to mint 200,000 CFG for 6 months.

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This proposal was discussed in the RFC here and has been submitted to the Proposal Repository on Github so it is now final.

Link to proposal on GitHub: cps/CP23.md at main · centrifuge/cps · GitHub

Based on the feedback received in the RFC, the following change is made to this proposal:

  • Mint 200,000 CFG for 180 days (instead of 100,000 CFG for 90 days)

The proposal has now moved on to an OpenSquare Snapshot.

:ballot_box: Please vote here: CP23: Renewal RWA Market rewards proposal (2023-01-05)

The OpenSquare Snapshot will start 11:00 CET today and be open for 7 days (until 28/12/2022 11:00 CET)

If passed, we will keep you updated when this proposal moves to an on-chain vote.

Thank everyone for participating and for the feedback provided.

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Hello Community! :raised_hand:
The snapshot vote for this proposal has passed.

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Results:
Voted: 5.29M CFG
Voters: 26

We will keep the community updated on the progress here in this post.
Thank everyone for voting and for participating.