BALN Reward Allocation Adjustments - DAO Fund increase

I too think that it would be good to increase the rewards for BALN stakers somewhat. Currently it does seem a bit underwhelming and if our longterm goal is to encourage BALN staking, in my view this is something we should do.
As a related topic, it would be great if the current staking APY was visible in the Wallet → Stake view next to the Balance and Value rows. It’s a biy hazy at the moment what current APY’a are.
Thank you for listening Benny!

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Based on the network fee split more than 50% of the fees seems to come from people paying to borrow against their collateral. Benny would have the exact split/numbers as a % here over the last 30days. If the rewards for Borrowing is cut I’m afraid this will lead to a lot of people moving their tokens elsewhere or away from ICX and it will hurt the BALN valuation even more if we start cutting into the biggest revenue stream for the BALN token.

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If demand for the stable coin is high, there is less reason to incentivise borrowing.
Other than that, from previous dicussions, there is quite a strong consensus then that the reward rate for borrowing is too high. The risk of rebalancing is now much lower given its 5% bonus.

Additionally with regards to the ICX/sICX pool, at risk of repeating myself, the reward rate will change itself to match the current reward rate, even when we reduce it, because some people will pull out and the reward rate will rise again.
If the end pool is still large enough to serve the needs of users, then its enough. Additionally unlike liquidity pools, it doesn’t even offer a superior trading experience at a larger size, “enough” will be enough, without hurting the network fees received from sICX>ICX.

To BALN Stakers
I want to remind all stakers, “we own the DAO fund.”

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Just want to hop in and say I’m loving the back & forth, constructive discussion of the community. I read every post and don’t necessarily feel the need to jump in just yet, I want to see how the community goes.

So far, I’ll share that adding a reward for BALN stakers in this current proposal would delay it considerably, because it’s not an existing reward bucket. Adding new reward buckets is not easy right now (except for additional LPs because it’s already built into the DEX), but we are working on smart contract architecture enhancements to make it easier going forward. It seems overall the community is ok with what has been done (moving borrowers over to DAO fund) with some mild resistance. Overall, please do keep in mind that this is flexible and that community-submitted proposals are coming soon. At the very least, it would be good to see the tangible effects of lowering borrower rewards to gather data points. This is all about experimentation, these changes are by no means permanent

So for BALN Staking - I would ask that we hold off on this until we move to the continuous rewards architecture which is currently in implementation stages. I am open to a small reward for BALN stakers, but I don’t agree with it longer-term as I personally believe BIP4 is enough to incentivize staking by our users. Either way, I would be open to maybe 2.5% - 5% as a minimal reward for locking BALN, and we would base that reward on bBALN balance.

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Problem: We are “giving” out a large proportion of newly minted BALN to reward pools which may be over incentivized and to an emergency fund that may be “overstocked”. Basically losing the opportunity to get more value for that BALN (and network fees earned?) funds at a later date.

Solution: Reallocate those rewards to the DAO fund.

I feel the first point about “over incentivized pools” is true, and that this decrease will not effect income from loans or the stability of the sICX/ICX pool. Further, if the market reacts adversely, we can readjust in a timely manner.

The easy reasoning:

  • Borrowers can make their initial 1.1% in fees back in like 84 days just by holding a debt. When you compound into a BnUSD pool, then that becomes much shorter.
  • The sICX/ICX pool has a huge amount of TVL.

Is the emergency fund ”overstocked?”
I honestly don’t know. I also don’t know how to tell the validity of anyone’s arguments for or against this being the case. I also don’t have a clue how to come up with an idea of how much capital should be there. The amount needed to guard against bad debt (my assumed reasoning for the fund), might be a tenth of what we currently hold, or it could dwarf our current holdings.

If we have a metric for deciding the level of the emergency fund, then we should know it, and tout it. ”The $X bnUSD in circulation are backed by X ICX, and further protected by a X dollar amount emergency fund.”

If it’s not a marketable number/idea, that’s fine, but I believe we should have some type of metric for managing that fund.

As well, I feel we should have some of the rewards “float” between those funds, that can be adjusted by the DEV team to meet the goal of the fund (so it doesn’t require a vote to change allocation between these 2 funds on the fly maybe just an announcement edit/addition).

If we have that metric already, we could change the wording to allow for that, and eliminate a need for a vote for managing the fluidity of rewards between these two funds in the future. The initial %5 rewards for the emergency fund become flexible to meet the goal of the Emergency Fund, with excess rewards being allocated to the DAO fund by development team (or it could be the total initial 10% of rewards for both the emergency fund and the DAO fund, that becomes flexible edit/addition).

I don’t know if that make sense. My only concerns with this proposal is my lack of understanding of what our metric is for the emergency fund. And also, If the emergency fund is extremely overstocked, then maybe we should be more aggressive on the reward reallocation.

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Scott, Is it possible to have 2-3 option in a vote?

Example

Option 1 DAO rewards 10%

Option 2 DAO rewards 15%

Option 3 DAO rewards 20%

Obviously other allocations of emissions need to be adjusted for this.

In the future we can have stuff like that but for now just yes/no votes

Thanks for the detailed response, much appreciated.

This is a great point that I felt worth highlighting. Thanks for putting it so clearly, something I will try to do moving forward.

For what it’s worth, here is how you find the values of these funds:

Emergency Reserve

DAO Fund

Look at “getBalanced”, then use this hex-to-decimal converter, then divide the output by 10^18th and that’s how much is in there of each asset.

Now as for if it’s over-stocked, here is the use-case of the fund from the white paper:

“In extreme circumstances where the value of bad debt of a particular pegged asset is greater than the value of the forced liquidation pool, an emergency reserve fund will be made available for outside traders to be compensated for paying off bad debt. 5% of Balance Tokens mined on a daily basis are sent to the emergency reserve fund, along with leftover collateral from liquidations.”

In practice, this would happen if there was a 34% drop in ICX price just after somebody was liquidated and before somebody paid off their paid debt using bnUSD. I personally agree that this edge case doesn’t need 5% of the network to prepare for. The more I think about it, we can essentially think of the Emergency Reserve Fund as part of the DAO Fund. There needs to always be some money there in case of the aforementioned scenario, but we can always move money there from the DAO Fund if we find it to be necessary.

Having said that, I will count them as essentially the same thing, so I don’t think moving inflation allocation from the ERF to the DAO Fund is something we should think too hard about. They can easily shift to and from each other, let’s just move more to the DAO Fund for now.

What this proposal boils down to is - do we want to move some of the borrower rewards to the DAO Fund? So far, it seems that most of the community is open to doing that.

As mentioned in a previous post above, I am happy to consider adding a basic-level of BALN rewards to stakers to appease the psychological benefit to users, though economically it doesn’t do that much for us. We can always remove this reward later if/when people realize this.

We just need to wait until we migrate to a reward system similar to OMM, where it’s a constant reward payout rather than the snapshot we currently have. It would duplicate work if we developed BALN staking rewards with our current setup then needed to change it to continuous.

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Vote a BIG NO on this. It only has been a few months and already we want to make a big change of 5% DAO fund to 20% and taking incentivised rewards away from people using the platform. I don’t believe this is the way. Let original tokenomics run for a year or until the value of BALN is so high that it deserves such a change. Ever since voting has released I feel the community is just money hungry trying to take rewards away from borrowers and people using the platform.

This is all too soon and i dont support it. Think about users coming in, let the incentive run HIGH during this bull run. You can do tons of tokenomics changes when new crypto users stop existing (bear market) or when BALN price moons again. Think about this carefully. A 124082147 user base is better than 5000. Take advantage of the high interest in crypto atm.

Please and thank you. Share the rewards, this bank is for everyone not just the DAO or day 1 participants.

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Thank you for sharing your feedback - all perspectives are appreciated.

This project is meant to be nimble which is important to highlight. If Balanced indeed loses income/users from this decision then it can be easily reversed. It’s important to be flexible and willing to test different strategies. We can’t know for certain how something would effect our income/user base without first giving it a try. Even with the cut to rewards for borrowing, borrowers still earn over 20% simply for borrowing money and holding onto it, which is higher than Anchor Protocol on LUNA. There are still many borrowers on Anchor with a 12.3% reward for borrowing.

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Agreed to reduce the allocation of the borrower, we should see the market rate. Since anchor only offer merely 13%. Balanced have the advancetage even reduce the reward rate for borrower.

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The bank is for BALN voters.

The borrowers provide a service, and receive a service, if they do not feel the exchange is equitable, they can stop the exchange at any time.

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I agree in principal… but a 5% → 20% jump seems like quite a lot.

Perhaps just a 100% increase to 10%?

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All of the increase goes to stakers technically, either directly (hopefully not) or spending on improving the value of their holdings.

Also while it doesn’t reduce ‘inflation’ it reduces dilution temporarily since they stay in the DAO until used, and hopefully used for good purposes, like improving Balanced.

This is sort of a 2 parter:

  1. Increasing the DAO Fund
  2. Reducing borrow rewards, which was a topic that occured in the past 3(?) proposal discussions.
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That’s one of the issues, everyday the rewards drop. I’ll come back to this point later.

Hyperbole or not, I agree with this statement. I believe and hope that a major portion of the extra funds going into the DAO fund will be used to attract those users. I also believe that the best time for making a big push to bring new users to Balanced will be in the future.

Further, I do not believe these changes will significantly impact user base or activity.

First, the borrowing reward pool. From 20% of rewards to 10%.

Currently, you get about .6 BALN per 1,000 bnUSD borrowed.

Joe deposits 5000 ICX, borrows/mints 1,000 bnUSD (+11 in fees), and earns .6 BALN in rewards per day. In 9 days, the fees are paid off.

After this change, you get about .3 BALN per 1,000 bnUSD borrowed.

Joe deposits 5000 ICX, borrows/mints 1,000 bnUSD (+11 in fees), and earns .3 BALN in rewards per day. In 17 days, the fees are paid off.

I don’t think this change will have a huge effect on the user base or loan activity. I could be wrong, and we might need to change it back or even boost it. To me, this function is over incentivized.

Second, the sICX/ICX pool — there is a huge amount of ICX in that pool, and it is barely making more in rewards than just staking ICX. Clearly this pool is popular with some big time holders of ICX (I’m looking at you ICON foundation). This pool is essential to the functionality of Balanced, but it’s a ridiculously deep pool — I want to see this change mostly just to see if anything happens.

The DAO fund is most likely the war chest Balanced will use to attract capital from other chains to Balanced and ICON. Eventually, we are going to be asking “How are we going to get Polkadot users to dwposit dot onto Balanced as collateral to mint/borrow BnUSD?” Or similar questions. And the answer will be incentives.

Maybe that’s in 6 months, maybe it’s two years from now, regardless, ten percent of the rewards today is a lot more BALN than it will be anytime in the future.

This brings me back to the first point. Making a 10% change now, even for a short time, will create a bigger reserve to utilize for incentives, than making a 10% change in the future.

Example:
In 10 days the the extra 10% will gain the DAO fund the equivalent of 560 days of 10% rewards once we hit 2% inflation.

I want good rewards and incentives. As the amount of total BALN available for rewards shrinks, the DAO fund is a way we can ensure growth long after we hit 2% inflation.

The DAO fund is not a blackhole. Some of the potential uses for the fund:

I hope I don’t come off as a jerk, I just wanted to share my thoughts on your post.

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So serious. Then we should quickly vote this to increase dao fund allocation. i think we sound like discussing the borrower reduction quite some time already. Let do it .

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The change of vbaln will not boost your rewards, its the same amount distributed to stakers, it is only if you stake for 4 years and other people dont that you will get more.

I think a small % should go to stakers

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How do we cast a vote for the above proposal with the adjustment that 2.5% gets taken from workers and giving to balanaced stakers? This will boost the tokenomics and workers are still paid plenty and had plenty of time to stack tokens already.

Well said @AwaxJago thanks again for the detailed response.

In an effort to move more efficiently, I’d also like to propose one more change to the original document since we are adding the IUSDC/bnUSD pool. It would be nice to get a small allocation going there straight away. We discussed a fair amount on Discord so wanted to bring the proposal here:

NEW CURRENT CHANGE
DAO Fund 20.0% 5% 15.0%
Teams that contribute to Balanced 20.0% 20% 0.0%
sICX/bnUSD pool 17.5% 17.50% 0.0%
BALN/bnUSD pool 17.5% 17.50% 0.0%
Borrowers 10.0% 20% -10.0%
ICX-only pool 7.0% 10% -3.0%
BALN/sICX pool 5.0% 5% 0.0%
Emergency Reserve 2.5% 5% -2.5%
IUSDC/bnUSD pool 0.5% 0% 0.5%

As for making adjustments to this proposal, I’ve considered the feedback and based on community sentiment I’d like to move forward with a vote on the above allocation that would start this Friday (ideally).

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Hey Matt - the way it works is that I post on the forum (anybody can do this part of it) to start discussion then another Balanced contributor submits a vote on-chain for the community to vote on. In our coming update, anybody that meets certain criteria (has 0.1% of total BALN supply staked + pays a 100 bnUSD fee) will be able to submit a proposal on-chain for the community to vote on.