RFC: Updating CFG Liquidity Provider & AO Rewards

To date, there have been three updates to the CFG rewards since launch in October and the protocol has awarded close to 5M CFG in rewards to users of the protocol. The program has performed quite well and we are nearing the most recent reward period that was discussed in a previous post.

There are two significant changes since we last updated the parameters and I believe the community should have a bigger discussion around how to move forward with the reward program:

  • As of now, most pools are oversubscribed and we are in a situation where the protocol does not need extra liquidity.
  • The Coinlist sale last week gave a much better idea for what the price of CFG could be once the token sees liquidity and it becomes available on exchanges.

With these changes I believe it’s prudent to significantly reduce rewards and start adjusting these parameters more frequently. This post should kick off the design of this new process and we will be discussing the rewards in our community call.

Proposal for a new reward governance process

We need to come up with a process for the community to follow when setting rates. I would suggest the following as an initial process that can also serve as a model for future adjustments.

  • RFC Phase: weigh in until 2021-06-03 in this thread with your proposals and ideas around parameter setting
  • Community Call (2021-06-03): discussing the reward parameters will be on the schedule for this week’s community call
  • Proposal Voting Period: based on the RFC phase and discussion in the community we will be asking the community to vote. The voting period will begin 2021-06-04 and end on 2021-06-07.
  • Council vote : based on the forum vote we will put forward an onchain vote for the council to ratify the community proposed.

How to set rates going forward?

With the upcoming events around token liquidity it’s in the community’s best interest to act quickly to adjust rewards based on the development of the price and any demand/supply imbalances in the protocol. We have in the past tried to allocate fix budgets to rewards which I believe is not the right way forward anymore as this is not flexible enough.

Instead I would propose we switch to adjusting rewards at least every 14 days. If a community member believes the reward rates are not appropriately set, the process to follow is to post an RFC in the forum outlining why and how they believe the rewards should be adjusted and asking community members to weigh in. If the community reaches a consensus on concrete proposal it will then be put forward for a vote by the council on chain. If the proposal passes, the rewards will be implemented.

On Coinlist $19M worth of CFG was sold for $0.55/CFG and I use this as a benchmark rate for proposing rewards. Based on this price, I would propose a reward rate of 0.30CFG/yr or 0.00075 CFG per $ per day.

What are your opinions and thoughts on how to structure the governance process and rewards?

10 Likes

Hello Friends,

The following are just the thoughts of a “smooth-brained” Centrifugian.

I still believe applying some type of multiplier to reward long-term investors would be a fair way to acknowledge those who have supported Centrifuge community. Maybe an airdrop bonus based on the age of funded wallet addresses and/or total Drop/Tin or locked Dai. This would reward those who have locked Dai into pools not just those with the most CFG.

Also,

… I do not object to this idea, but I believe there should be a minimum reward rate “Floor”, which will provide predictable minimum CFG to an investor.

Rough Math…
Example #1
Daily rewards with no lock or equivalent to the Coinlist $.55 offering would result in a $5000 investment rewarding 3.75 CFG or $2.06* per day.
Totaling, 1368 CFG or $752** annually.

Example #2
A two-year lock up equivalent to the $.38 Coinlist offering (adjusted by a factor of 1.44*** to represent the price difference - lock-up period), would result in a $5000 investment rewarding 5.4 CFG or $2.97**** per day
Totaling 1971 CFG or $1084***** annually.

Question.
Would a rate of 0.30CFG/yr be “fixed”?

I recognize this is oversimplified, as the price of CFG follow the market once listed.

there was an attempt… at Math,
the Wakandan

Show your work🧐

*5000X.00075= 3.75 CFG Per day
3.75X $.55= $2.06 Equivalent daily profit per day @$.55v
**3.75X365days= 1368 CFG annually
1368X $.55= $752 Annually @$.55
***.55/.38= 1.44 two year lock-up factor
.00075X1.44= .00108 Adjusted daily reward rate
.00108X5000= 5.4 CFG Per day @ the lock-up rate
****5.4X $.55= $2.97 Equivalent daily profit per day @$.55
*****5.4X365days= 1971 CFG Annually
1971X $.55= $1084 Annually @$.55

2 Likes

I think its a thought in the right direction for longevity of the project. Only so much inflation is good for the token.
My only suggestion is that to attract long term investors there should be a vesting coefficient, the longer you provide DAIs the higher your reward rate compared to those who just came in.

This will incentivise investors to stay in with their DAIs, also revolving pools means AOs have better access to funding.

Please refer to this article for - temporal vesting coefficient

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I think you need to take the yield and staking also into account for the bigger picture.

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Hi all!

I think the opinion of (almost?) every Centrifugian is that the reward rates should decrease over time to prevent high inflation of the CFG token. I ofcourse also agree with that.

To add to this discussion:

  • Some Centrifugians (including me) have a feeling that the long-term investors should be rewarded with a better rate then short-term investors. CFG rewards are currently daily, based on a ratio. Is it possible to include non-daily CFG rewards per X amount of days? That non-daily CFG reward is then based on the average amount invested in a specific pool for a certain amount of time. To give an example:
    “John” is currently investing in the New Silver Pool. After XX days (say 60 days) he receives an addition reward of XX CFG per XX DAI invested calculated as an average of the DAI invested in the past 60 days. That prevents people from manipulating the system and increasing their invested amount significantly around the time of the incentive. Using an average over the last 60 days should prevent that. The height of the CFG reward and the interval for those one-time CFG rewards is something to be calculated ofcourse. I can imagine that the CFG reward per average DAI invested could increase over time (CFG rewards over 120 days locked should be relatively higher then the CFG rewards you receive when you have locked the investments for 60 days… etc etc). @All: Please shoot on this, if you see any complications I didn’t think off…

The above suggestion is looking at the future long-term investors. I also have an idea how to incentivize the current long-term investors:

  • Like I said before, I think all of us agree on the fact that the reward rate should decrease. Considering the current pools are oversubscribed, the early-investors (=current long-term investors) can be rewarded by a higher reward rate from now until the 14th of July. I would suggest to decrease the reward rate linearly. Currently it is 42 CFG per 10k DAI, let’s gradually decrease that to let’s say 7,5 CFG per 10K DAI on the 14th of July. So instead of immediately decreasing at the beginning of June from 42 CFG to 7,5 CFG, let’s decrease it from 42 to 35, to 27, to 20, to 14 and ultimately on the 14th of July to 7,5 CFG per 10K DAI. I hope that the upcoming voting on chain can include this complete schedule at once, so we do not have to vote every 2 weeks on lowering the reward rates.

Ultimately, this linearly schedule rewards the current long-term investors the most, since they are the ones in the Tinlake pool and only a few can join since it’s oversubscribed. With the above two suggestions I think we can better meet the demand of the current and long-term investors of Tinlake and ultimately increase the involvement of the long-term-community to Tinlake.

@lucasvo what do you think about this?

Regards,
Roy

5 Likes

Thanks for your responses so far. I fully agree, incentivizing the long term investing is in our interest and it is something we’d love to implement but the reality is that doing so would add significant complexity that I don’t believe we should prioritize over developing other things (such as shipping our parachain for example :slight_smile: ). With the rewards expiring soon I would love to find a solution that will work without major rework of the mechanism itself.

@marvink, thanks for posting the PSWAP link, I will review this when thinking about future improvements.

A suggestion that I believe makes sense is to implement the change more gradually over several weeks to ensure that there isn’t a huge disruption to AOs and investors if it leads to changes. I believe the current rewards are significantly too high taking the current network valuation into consideration. I would therefore suggest we lower the rate to 0.002 CFG per $ per day and evaluating a further reduction once the new rewards have been live for a few days.

We will be discussing this more in tomorrow’s call in more detail. I will be sure to update this thread with a summary.

2 Likes

I think everyone agrees current emissions are too high and should be cut back.

At the same time, I would not cut APR’s too soon and too drastically. Better to evaluate once there is a market price established for CFG and ideally also a form of governance system to vote on these all-important issues. We’ll have the advantage of getting feedback from the market in terms of TVL, price and APR.

More importantly, there is a lot to be said for having eye-popping APRs to bootstrap attention. Ideally APR’s are “unreasonably” at TGE when an actual APR can be displayed. Even if these APR’s are not longterm sustainable.

High APR’s are the best thing to draw new people and eyes on your protocol. High APR’s are currenty by far the best marketing tool in the current DeFi landscape. Having elevated APR’s for a few weeks will put you on the radar of many crypto platforms and DeFi users. After this initial, short, period of elevated yields and attention we can cut back to normalized levels.

A portion of the new investors drawn by high yields will stick around for the normalized (still reasonably good) yields. The more mercenary yield farming portion of new investors that don’t stick, will still have a higher likelihood of returning at a later time. Since they are now familiar with the product and have the infrastructure set up. Setting up the infrastructure is the main point of friction with Centrifuge compared to other DeFi protocols. A high starting APR could serve as a good incentive to set up infrastructure, for (DeFi) people that otherwise wouldn’t bother.

Once we have more market feedback and a governance system I think something in line of what RoyCrypto11 proposed would be neat. Where long-term supporters are incentivized over short-term supporters.

Great discussion! Very excited about where this protocol is heading!

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Dear community,

to my mind Lucas is right with his proposal to significantly reduce the reward rate. The price of the CL sale for CFG has to be taken into consideration as well as the market and pool situation. I would even take it a step further and suggest even a lower reward rate of 0.0004 CFG per $ per day. This would also make a positive and confident impact (if investors to not redeem their capital) and I think this is the vision everybody could have. On 14th of July we will see how the market prices the token and make reasonable adjustments.

Thanks

Mario

2 Likes

Hello @lucasvo,

I think it’s a good idea to decrease the reward but as other people mentioned it, the long term investors (people who are invested in a pool since a long time without moving their funds) should be better rewarded than short term investors. And also people who are invested in the project/pools since a long time should be rewarded in some way (NFT, …).

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I think a combination of the below shall be applied based on several parameters (TVL/Price/Token Circulation/rewards/inflation) to already existing tinlake investor for staying vested in pool and providing liquidity along with new envisaged investors?

• Multiplier rate to be applied for investment longer than (6/9/12 months) – That’s means we start with lower rate of rewards and keep reserves for long term holders and increase in step functions.

• Increase or decrease rewards as step functional based on alternating parameters (every forthright or monthly basis). This shall synchronize with the concept of multiplier above and adjust along the way.

• Are we also planning for buyback or burn token model after few years (2 years) of token distribution/rewards? This can be an added incentive for long term investors and have an effect on current reward distribution?

Considering everything above, are we still within block reward of 3% (~12M Centrifuge tokens) per year going forward as indicated earlier? @lucasvo

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If we wanted to allocate 3% inflation to LP rewards that would result in a budget of ~1M CFG per month for AO and Investor rewards.

With an average TVL of $30M (50% increase over the present day) and the proposed reward rate of 0.002 CFG per $ per day we would arrive at an issuance of 21.9M CFG on 30M TVL or an inflation of 5.15% per year which would be in addition to staking rewards.

I believe a bigger reduction below 0.0002 CFG would make more sense.

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i think it’s better to just decrease the rewards in a flat and linear way. if the rewards end up decreasing from something like 42 CFG/day/10k DAI to 7 CFG for new investors, CLEARLY the older investors already received a massive reward, so I don’t think there’s much to complain about for the old heads, and much better to just keep it simple.

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I agree with the reduction in releases, as this must be priced into the market over a long period of time.In particular, we need to refer to the coinlist prices

Multiplier for longer periods of time sounds like a great idea.
I agree that reward rates are high at the moment. Cutting in half seems very reasonably and reviewing on a monthly basis.
A progressive multiplier for 120 days, 180 days, 360 days would be great to keep capital locked in the pools and incentivize investors to add more liquidity in the future.

1 Like