RFC: Updating Tinlake Rewards Allocation 2023-03

[ctcunning]

Retail investors pulled all their money out as the protocol reduced rewards rates.

[ctcunning]

Isn’t this totally different than the conversation at hand? We’re discussing whether or not Junior Tranche investors should continue to receive CFG rewards for invest in TIN

Right?

[ImdioR]

@ctcunning

Retail investors pulled all their money out as the protocol reduced rewards rates.

Good day @ctcunning
Just now approximately 28% of daily rewards were distributed to retail investors…
You suggest removing the rewards and this will mean that retail investors will withdraw their money from Tinlake.
Can you please describe how this will help Tinlake and how this is aligned with the mission of Centrifuge DAO?

[ImdioR]

This proposal was discussed here and the following were changed and added based on feedback received from the Community:

• • Mint approximately 1’900’000 CFG into the rewards account
• • Set rewards rate for TIN at 0.000225 CFG/DAI per day
• • Keep the same rewards rate for DROP at 0.0003 CFG/DAI per day

centrifuge/cps/blob/main/cps/CP40.md

The modified proposal has been submitted to the Proposal Repository on GitHub so it is now final.

Thanks, everyone for participating.

[ItsJake]

I believe I mentioned in the post about TIN investors. In general, I think we should keep the rewards. I believe lowering rewards is a common middle ground. I definitely do not think we should completely eliminate them. I would ask for guidance from the team about what % to drop them.

[ctcunning]

For everyone curious, I’ve brought forth some questions and counter thinking to this proposal that I think should be considered as people place votes:

Counter thinking to CP-40 - Tinlake Rewards Proposal to Mint 1.9M CFG

I’d like to do a public analysis of the current Tinlake rewards proposal with the community and just walk through this all together as this goes to vote this week. I’ve answered most where I can but i could some help from fellow community members. Once we get these answers, I think we’ll begin to be able to shape a collective counter argument to our current Tinlake Rewards proposal. What’s been the distribution of Tinlake rewards over the past 12 months (from Jan 1 2022 until now)? It look…

I need a little help with some of the questions and the math so welcome anyone in our community to help out.

[ctcunning]

That’s an important # – how did you get to 28%? How do you define retail?

My belief is that the amount of money that is coming from retail investors has decreased drastically over the last 12-15 months and that the majority of it is coming from other investors in the TIN tranche that is being raised by the Issuers.

The mission of Centrifuge, at least as I understand it, is to simply make traditional credit investments that were once only available to institutions more available to individuals…I think we and other RWA protocols are delivering on that at this moment in time.

The rewards rate for their investment is what we’re debating now, not the mission of Centrifuge itself.

[ctcunning]

@ImdioR I’d argue, at least based on what I’m reading here…you would have been better off just buying CFG a year ago on the open market rather than investing it.

Would you agree?

[sirj]

Hi all! Jumping in here as this thread has grown a lot. Initially I was all for continuing rewards but lowering the rate for TIN drasticly and keeping DROP rewards the same. But now after reading through and going through platform growrth, I agree with @ctcunning, we should consider removing rewards or pausing them until the next bull run.

Looking at the overall data I dont see much growth from the rewards as @ctcunning pointed out. If you look at TVL as main indicator of growth it may appear to be explosive but this is just the BT4 pool (100M as of today), which is private and not brining in new investors.

The BT4 pool launched December 15th 2022, at that time protocol TVL was around 80M. Today total TVL sits around 170M . As great as that is (>2x growth in 3 months, not bad ) it doesn’t highlight was is really going on. If you remove BT4 TVL from the equation as its a private pool, the overall TVL would be 69M which means other pools have decreased approx 11M which is an indicator to me that there is shrinking and a low influx of new investors and that current rewards are not enticing enough…

Additionally, given the amount of redemptions pending on various pools, these funds dont earn CFG, meaning its not even enticing enough to cause investors to wait to initiate redemption requests until liquidity becomes available.

[ImdioR]

@ctcunning

@ImdioR I’d argue, at least based on what I’m reading here…you would have been better off just buying CFG a year ago on the open market rather than investing it.

Would you agree?

Good day Ctcunning.
Can not agree with you. Because this is exactly the opposite on base of what i wrote here:

RFC: Updating Tinlake Rewards Allocation 2023-03

I can give you some numbers and feedback (thoughts) from my Tinlake experience as a community member: 10000 DAI invested, APY ~5.5%. 550$ earned Around 400$ in ETH fee paid (onboarding and withdrawal) - which is 4%. Don`t forget to TAX on top of this. Let me know please what you think will be retail investors interested to invest in Tinlake without CFG rewards and earn just 150$ (10000 $ deposit)? Or let me rephrase the sentence: Would you invest in any DeFI 10000 DAI with 365 days lock …

[ImdioR]

@sirj

If you remove BT4 TVL from the equation as its a private pool, the overall TVL would be 69M which means other pools have decreased approx 11M which is an indicator to me that there is shrinking and a low influx of new investors and that current rewards are not enticing enough…

Good day SirJ
Thank you for your comment.

@sirj

and a low influx of new investors and that current rewards are not enticing enough…

So you are confirming with your sentence that the actual rewards rate instead of lowering should be increased in a way to attract more capital?
Wow ! Thank you. But is this not the opposite of what @ctcunning proposed?
Even more, you said that the actual rewards are not enticing enough right now and by removing them we will provocate additional withdrawal.

Bring the world of credit on-chain
Connect borrowers and investors
Centrifuge unlock capital
Centrifuge is the home for RWA DeFi

Looks like cutting the rewards and additional withdrawal will do exactly the opposite of what is written above.
So instead of rethinking and making Centrifuge more attractive and enticing enough for Retail investors we are going to cut the rewards?
Hm… Interesting.

[ctcunning]

How much cfg token did you earn on that 10K DAI investment?

[FortunaFi]

Fortunafi would be opposed to any proposal that removes CFG rewards to pool investors. Furthermore, we would assert that the impact of modest supply increases is significantly less important than creating actual utility/supply sinks for the CFG token. Given the strong utility and value for the centrifuge protocol in the RWA ecosystem, we feel there is an imbalance between the value of the ecosystem and the incentive structure behind the CFG token. At this point in time there is no requirement to utilize CFG within the system and not a strong enough incentive for existing or future ecosystem participants to acquire CFG and hold it long term. Centrifuge is positioned to become a top RWA protocol, and we would love nothing more than to play our part in building that. We believe there are some strong and proven token incentives that can be implemented to fortify the robustness of the Centrifuge protocol, and provide additional protection mechanisms for both pool investors and governance token holders.

Token rewards and utility have the ability to align the incentives of all members of the community if done properly. We do not have a perfect proposal for this, but we would like to start the discussion and contribute a few starting ideas:

1. Require pool managers to acquire and stake a minimum CFG balance (in terms of tvl) in order for investors in their pools to earn future rewards. This aligns incentives of the pool managers with the protocol, and also could act as an insurance backstop in the case of defaults.
2. Cap yields for investors that don’t stake CFG into the pool. In order to exceed the cap, investors must stake additional CFG to maximize rewards, dependent upon their contributions to the pool. IPOR has pioneered an approach called “power tokens” that we believe could be adapted for CFG as well. (Power Tokens: Incentives, Done Better | by Dimitar Dinev | IPOR Labs)
3. Require vesting for newly earned CFG to make deposits stickier and align incentives over a longer period of time.

On the topic of whether to emphasize Tin vs. Drop., we believe that stronger incentives for Drop are necessary in this environment. The CFG rewards make a material difference in incentivizing participation when short term treasury rates are almost equal to the sr. tranches of most pools. Personally we have experienced a significantly higher demand for Tin as compared to Drop. At current CFG reward rates, the increase in annual supply is ~2.5%. Currently, about 60% of rewards are going to TIN and 40% to DROP, due to only 30% of outstanding DROP being non-Maker holdings. If the community is comfortable with the 2.5% supply increase from rewards, then we could allocate all of it to DROP with a reward rate of 0.00075, creating a return enhancement of over 8% at current CFG price. That’s very material, and would put most pools’ total DROP return in the double digits which would help attract investors.

[ImdioR]

Good day FortunaFi

This RFC was already moved to off-chain voting on OpenSquare.

You can already vote at your earliest convenience here: CP40(GI): Updating Tinlake Rewards Allocation 2023-03

I think that the most appropriate place for your feedback is here Counter Thinking to CP-40 which would like to propose removing any rewards from Tinlake. So I would like to invite you to repost your message here:

Counter thinking to CP-40 - Tinlake Rewards Proposal to Mint 1.9M CFG

Yes, it does make a bit hard to follow. However, if Colin’s intention is to create a new proposal to remove the rewards but wants some more discussion around it first, I think it is ok to create this discussion post for more input from the community. This post would have been relevant to make in the RFC while it still was active but CP40 has already moved on to an off-chain vote and submitted to GitHub and cannot be changed anymore so maybe better to start a new discussion from here.

Thank you in advance.