A negative feedback loop for BALN with the bBALN curve?

Proposal Discussion
#1

I’d like to start by saying that I’m not a math person, and nothing could make me happier than being wrong about this. I’ve been chewing on this for a while, but I was unsure of how to frame the issue.

I feel like the proposed bBALN curve ratios are squeued in a way that might ruin the appeal of staking BALN for “the vast majority” of people, which would in turn hurt the growth of BALN in terms of price, both in BALN/bnUSD and BALN/ICX.

What’s the incentive to hold/stake BALN? Given the limited supply of BALN, its low long term inflation, and the expectation of BalancedDAO generating more fees via new Icon assets being added, as well as more liquidity from other networks being available via BTP, the reason to hold or stake BALN is the expectation that the average person will be better off “at some point in the future” with 1000 BALN tokens staked (both in terms of BALN price & fees accrued) rather than 1000 ICX tokens staked (which right now is a better deal on average).

However, if a significant enough chunk of BALN whales were to lock up their tokens for 4 years, 2 years, or 1 year, it takes a huge (ginormous) chunk of fees out of the fee sharing pie for normal people. The more people there are that stake for a longer period of time, the less incentive there is to jump in the BALN staker pool in the first place, which means that people who aren’t willing to stake BALN will just sell it and swap into ICX by default.

Boo hoo might be a valid response, but as someone with a fairly big chunk of BALN that I’m open to having staked for a long time, I’d rather a normal person had a reason to buy and stake BALN because the fees were spread less unevenly, than me and a few others just gobbling all the fees up and cannibalizing any incentive for someone with less BALN than us to accumulate BALN at all.

Another way to think about it is that the “Boost” for people who lock up for 4 years compared to how things are now is a “Reduction” for people who don’t stake for longer than 1 week. 1 Balanced staked gives everyone the same amount atm. In the new system, 1 BALN staked for 7 days will only give you a fraction of what you get today (Unless nobody opts to lock in for a period longer than 1 week in the new system). How unhappy would most BALN stakers be if a few big whales who are happy to lock for 4 years because they’re financially secure enough to do that ”cut” the fees everyone else gets by several orders of magnitude? I get that bBALN also boosts rewards for loans, but is that itself enough to incentivise accumulating BALN for the average person?

I hope I’m missing something, but if this is a valid potential problem, a solution might be to tighten the bBALN reward curve, so that the difference between one persons BALN staking outcome and another is closer to the difference between restaking ICX per day, per month and per year.

#2

I feel like the boost bBALN gives to LP and Borrower rewards will incentivize new users to take positions and stake earned BALN, maybe more so than earning network fees and voting weight.

#3

Sure, its a factor. I’m not sure how significant the reward boost for borrowers is though (relative to how much they borrow and how many BALN they stake). I’m down for creating incentives to attract more borrowers, and I’m not poo pooing the Curve strategy itself.

#4

I should add, that the nature of the equation for determining the “boost” to lp/borrower rewards takes into account the relative size of the users share of bBALN and reward pool.

So borrowers and liquidity providers with a small portion of the pool will not require the same amount of bBALN to gain 2.5x boost as someone with a large portion.

#5

Well that’s good.
I assumed it would have to be something like that, but I’m still not sure if staking BALN on its own (no loan) with the bBALN reward curve will make sense to newcomers.

#6

The conversation is good, questioning and figuring things out are important for the health of balanced.

#7

I’m going to back track a little here, because I think I might have misunderstood your point.

Problem:
Many large holders from times of high inflation will stake their BALN for the maximum time frame and this will lead to new users not wanting to stake BALN because the curve rewards longterm stakers.

Is that a decent summary?

#8

I feel bBALN and the curve is a way to gain a commitment to the longterm health of the DAO, as well as compensate that commitment, in one trustless package.

I don’t know if the goal should be on-ramping BALN stakers. Our goal should be creating great products people want to use ~ minting bnUSD for next to nothing, using the DEX, listing their tokens.

#9

Yes, but it doesn’t have to be many. Just a few big fish staking for a long time and the incentive to stake BALN instead of ICX or sICX diminishes for many people.

My concern for BALN here is in the same vein as my old concerns around rebalancing when that was an issue. Rebalancing as a mechanism to keep bnUSD stable was/is a great idea, but later on we had the issue of constant rebalancing on the user end once certain LP’s were added, which drove a decent chunk of people away, or to at least not borrow anymore.

This lead to the proposal for a stability fund to try and eliminate as much rebalancing on the user end as possible, which is great, but it’s in response to damage done. Once the bBALN schema gets locked in, “if” it causes the issues I’m talking about, how much time tweaking and re-jigging will it take to get things to a level where everyone is incentivized to stake and accumulate BALN again (including non borrowers), assuming it creates that negative feedback loop?

#10

I see where you are coming from and I disagree with it.

I’m not saying that everything will be smooth, but I do feel the health of the DAO will benefit from bBALN.

2 Likes
#11

Odds are good with my math skills that I’m wrong. I hope you’re right, not me.

1 Like
#12

Overall I don’t see this as a major concern given that this model has been used by Curve and has gained traction in other protocols as well. I was just listening to a Twitter Space with Andre Cronje and Daniele from $MIM. They’re starting a new project and implementing this from the start, with some small changes.

I don’t view this as a negative feedback loop, I view this as a way to reward those that are both:

1.) Actively participating in the platform by supplying liquidity or borrowing
2.) Locking BALN (taking it out of circulating supply) for a long period of time

If ICX had the option to lock it for 4 years instead of just the current 7-day unstaking period, I have a feeling that many people would support this. Even if, as you said, whales take up the lion’s share of rewards because they lock for 4 years, that’s 4 years that a whale is locked into the ICON/Balanced ecosystem and can’t sell any tokens, 4 years that this whale can’t have any impact at all on market price.

I expect most people, average people included, to be inclined to maximize their rewards as an LP/borrower by locking either a lot of BALN for a short period of time or a small amount of BALN for a long period of time.

3 Likes
#13

I have more faith in you than me. I’d benefit either way, but I’m happy that I’ve put my concerns out there in case others feel the same way. “If” the reward curve caused issues, could it be live tweaked in the same way that proposals can change reward distribution across the platform, or would that be impossible with the way the smart contracts work?

1 Like
#14

It could be tweaked for sure

1 Like