BALN Reward Allocation Adjustments - DAO Fund increase

Proposal Discussion WIP: BIP
#62

I can see how it might feel this way. Hopefully I can share my point of view with you in a helpful way.

As DAO members we all have a right to our opinion on how best to move forward. So first, I’m not necessarily saying “this is the only way to think about this” ~ I’m just sharing my thought process, and if I come off like a jerk, I’m sorry, I don’t mean to.

Alright, first: My feeling is this is about “Growing the DAO fund vs over incentivizing LP/Borrowers.”

Why grow the DAO fund?

For me, I am specifically thinking about how we will reward/incentivize collateral providers in the future, especially people who are bringing in capital from other chains. Eventually we will be trying to attract users from other chains and platforms. How will we get them to bring dot/eth or whatever to Balanced? Incentives!

Why grow the DAO fund now?

To capture the high rate of BALN being minted/rewarded now, so that we, the DAO, can use those funds/rewards in the future to help grow Balanced. It is not permanent change, the next vote could change the allocations again (not saying that it will).

The sooner we make this change, the more beneficial it is for our DAO fund. From a post earlier in the thread:

Let’s say in a few years, when we get to 2% inflation, BTP connects ICON to a new chain/network. We want to add their token as a collateral option, and get users to deposit that token as collateral and mint bnUSD. Instead of changing our reward allocations from daily minted BALN, we could reward from the DAO. With just half of the rewards from 1 day now (from that extra 10%), we would be able to provide a month of 10% rewards — without having to disrupt our existing rewards.

Note: I’m not going to address the ICX/sICX LP rewards.

Are borrowing rewards over incentivized?

I believe, at this time, borrower rewards are over incentivized.
I updated this quote from above with today’s numbers. It shows how this change will effect users.

On the surface, I don’t see this change being that impactful on user numbers or activity. If you hold your loan for 13 days, you have paid off your fees on an interest free loan — that is pretty amazing to me.

Now, if the borrower puts the borrowed bnUSD into a LP, let’s say the iUSDC/bnUSD pair, then they will be getting fees and if BIP5 passes BALN rewards as well. All with very low risk.

I think it is pretty great even after reducing the rewards.

Will it stay that way?
I don’t know. I could definitely see a scenario in where we decide to boost rewards to borrowers (as daily BALN minted drops). Similarly, if the price of BALN climbs up and hovers around the $10 mark, I could see the community voting to reduce rewards for specific pools or borrowers.

Those are my thoughts.

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BALN allocation: Test spending BALN on "cheaper" liquidity
#63

On point one, agreed, growing the DAO fund is a good decision. There are no arguments there. My only problem is with almost the entire allocation coming from the collateral userbase. There was no % coming from liquidity suppliers at all. In my opinion, collateral users are just as important to the network. There is a real risk of liquidation, along with any inherent risks involved. The collateral users are also rebalanced very regularly, almost to the point as where I have the same amount of ICX that I deposited few months back. It just seems that collateral users are getting the short end of the stick on this one. For context, I have not sold a single ICX or BALN yet.

#64

I guess I totally ignored this part of your question - I clearly failed in reading comprehension. Sorry.

My best guess may be the necessity of having the LP. The APY on the pools is high, but that is because more capital isn’t in the pools. One of the reasons more capital isn’t in the pools is because of the very present risk of impermanent loss, compounded by having a stable (bnUSD) being one side of both high reward pools.

I can’t say that I am the best to answer this, but I imagine that more capital in the pools would be better (for big price swings being effected by trades).

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#65

To keep going from my previous point.

I don’t think higher rewards are needed to bring more capital to the LP. But I do fear lowering the rewards might get people to pull out capital from those pools, which I think might have unintended consequences.

Does rebalancing happen when the peg is off based on the bnUSD/sICX LP?

Having less capital in that pool may lead to greater price swings, leading to more rebalancing. Again, I’m not the best to talk about this area.

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#66

Yeah, I agree that providing LP is important as well. This vote just seems rushed in my opinion. With OMM released, what happens if everyone withdraws their collateral to there instead? Will the remaining users be hit with even more rebalancing? I hardly think it’s been enough time to reduce incentives that drastically. Just my thoughts.

#67

Rebalancing, frustrating. I believe there are things in the works to try to mitigate the problems associated.

Simple and extreme example below highlights why it is so upsetting (for others, not familiar):
Edit: I do not believe the numbers in this example are accurate
Joe uses Balanced, He:
Deposits 5000 ICX collateral
Borrows 1000 bnUSD
Owes 1011 bnUSD
His net is 5000 ICX - 11 bnUSD

A month goes by, rebalancing has happened:
100 ICX sold
144 bnUSD paid off

Joe loves his ICX, and every time he got rebalanced he bought ICX with his borrowed bnUSD. But Joe paid 10% more:
100 ICX bought
159 bnUSD paid

After a month
5000 ICX
841 bnUSD
9 BALN if BIP5 passes (18 BALN otherwise)
Owes 856 bnUSD
His net is 5000 ICX, 9 BALN, -15 bnUSD

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#68

Hmm, I have no idea if it would increase the instances of rebalancing.

For comparison, here’s OMM’s tokenomics (with BIP5 as comparable):

  • DAO fund (40%) (BALN 10% BIP5 20%)

  • Omm Worker Tokens (30%) (BALN 20%)

  • Liquidity pools (15%) (BALN 50% BIP5 47.5%)

  • OMM / sICX (5%)

  • OMM / IUSDC (5%)

  • OMM / USDS (5%)

  • Markets (10%) (BALN 20% BIP5 10%)

  • 4% to ICX/sICX (3.6% for supplying/0.4% for borrowing)

  • 3% to IUSDC (1.5% for supplying/1.5% for borrowing)

  • 3% to USDS (1.5% for supplying/1.5% for borrowing)

  • OMM staking (5%) (BALN 0%)

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#69

They are different platforms, and are rewarding different things.

On Balanced, you are rewarded for minting BALN, and even after BIP5, you are rewarded with 10% of rewards.

A similar action on OMM would be to supply ICX, but you are rewarded with market rate interest and 3.6% of rewards.

We will see how it goes - however, if the worst happens, we can vote to change things. Including voting for a one time payout from DAO to borrowers if rebalancing goes sideways (I really hope that doesn’t happen).

#70

Nice job on the Math AwaxJago, but there’s a slight fact i believe you have overlooked.
Rebalancing only happens when bnUSD is worth 0,95 usd. So basicly when it happens, you sell your ICX 5% above market value. So being rebalanced is a feature to be welcomed, instead of something to be prevented.

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#71

Thank for sharing the comparison. And I guess with BALN, the 0% from staking is offset by network fees. Are we 100% sure this is correct though? I had to check, but I have 2x more deposited into Balanced, then OMM, but currently am getting more OMM than BALN daily.

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#72

Completely different tokenomics:
Whitepaper

#73

Once the bBALN staking gets implemented things will change. Right now LP BALN acts like staked BALN (someone please correct me if I’m wrong), so afterwards, network fees should increase for stakers.

#74

The rebalancing is an accounting nightmare. It is definitely not something I am too fond of, but I realize it as a necessity. I am definitely looking forward to the new updates to the system.

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#75

I need to go make pizza. To sum up, I believe BIP5 is going to be really good for the long term growth of Balanced.

There are definitely growing pains, bumps, and bruises (I am down like 12% vs just staking my ICX -— Impermanent loss is not kind). That said I am excited for Balanced and the direction it is headed!

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#76

There are entirely too many changes for one single proposal. I absolutely love the idea of funding the DAO more, but why so drastic all of a sudden?

We went from fairly straight forward yes/no votes… to something that has a lot of moving parts. Why cant we have a more gradual increase? I just see to much being proposed for everyone to agree on.

Would love to see a 7.5-10% change to the DAO fund, and for the IUSDC/bnUSD to be incentivized more. Keep the verbiage and changes more simple. I am sure such a big proposal is a shock to many as well.

#77

I understand the idea behind, but I don’t agree with the new structure of distribution. Why borrowers and pools, and even the emergency fund get cut, but not teams contributing to Balanced? Isn’t it the purpose of the DAO fund to incentivize the platform development ?

I would prefer us to vote on clear budget allocation from the DAO fund for development, other than just a % of the inflation. So instead of cutting borrowers and liquidity providers, why wouldn’t we take these 15% from the inflation allocated to teams contributing to DAO, forcing them to show us more visibility on what they do, and pass to a budget-based development model.

I will vote No for this proposal.

#78

I get your sentiment, though I feel like it’s just one thing, adjusting reward allocations. The topic was discussed at length for a week before the BIP5 went to vote. Good community discussion happened - feedback, explanations and some changes.

I feel it’s not that drastic. I get that it feels that way, seeing a 15% jump. When you take a step back and compare our DAO fund’s initial 5% to OMM’s 40%, then it seems modest.

The Balance team has put a great deal effort and thought into creating the mechanics for the DAO to operate. The rewards were not meant to be set in stone. We need to be nimble, in making changes and rectifying mistakes.

The initial tokenomics heavily incentivizes and rewards early participants with ownership of the network ~ at the expense of things like the DAO fund and worker tokens (when compared to other projects).

I believe this proposal is good for the long term growth of Balanced as it transfers some of the reward allocations into the DAO fund (which, by comparison, was extremely underfunded).

#79

Edit: I didn’t mean to sound rude, I reread and if I come off like a jerk, sorry.

I feel you haven’t researched just how little the team that created balanced is/has taken. Similarly, how generous they were to early users.

For an Icon comparison, look at OMM: 40% goes to DAO fund and 30% to worker tokens.

Balanced launched with 5% DAO fund and 20% to worker tokens — largely to give you and me, and all the other early users, a bigger stake in Balanced. That was pretty cool of them, but maybe it’s time to adjust so we have funds to work with later.

Good explanation here:

#80

I am with Balanced since the day 1 and I did my research, do not worry about this.

I don’t believe it is comparable to OMM. OMM market suppliers do not take the rebalancing risk, bnUSD minters have it, and it can be very wild as we could experience.

OMM tokens do not earn anything from the platform, they entitle only for government vote rights. BALN tokens do earn a % of the platform commission, so just holding them at a 2% inflation (which we will get someday) guarantees a stable income, dependent on the platform volumes. Holding OMM when the minting is over won’t have any direct benefit from the platform volumes.

I am not at all against 20% DAO fund, this is a great idea. I am against taking 15% from borrowers and liquidity providers. It can be and should be instead taken from Worker tokens, or at least partially so. Even 5% of BALN, when the volumes are large enough - which is also in turn a direct consequence of the work of the team - will generate for teams the revenue.

OMM will not generate any revenue, its value only is in its market price, so it is fair to ask for a high % of the inflation for worker tokens. So no, for me those two token models are not comparable and governance cannot follow the same logic.

Of course DAO fund belong to voters, but it is like public money, it cannot be used by BALN holders to finance their private needs. We all in our real lives pay some part of revenue for the development and improvement of the public infrastructure - we pay taxes. So this increased allocation is an analogy of a tax in real life - it is useful, it belongs to everyone, but still it is a part of your revenue taken from you.

That being said, I am for the 20% allocation to DAO fund, but it is not fair to “tax” borrowers and liquidity providers, and do not “tax” worker tokens allocation.

#81

I want to draw a line for me personally.

Balanced isn’t here to unilaterally profit borrowers or LP providers.

Its a partnership. Borrowers may or may not want the terms Balanced provides, and Balanced may or may not want the services the borrowers provide.
You can’t just say collatoral is needed, and automatically justifies any amount of costs. X or Y rewards incentivises D or E amount of borrowing. If borrowers feel the service is not appropriate, they should stop utilising it until it is appropriate for them, perhaps the service will be desirable to other parties.

What we DO know for a fact, is other platforms have a certain level of borrowing per a certain level of interest charged. And the terms Balanced provides are still superior to other platforms.

Borrowing COSTS money normally.

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