This post is to provide guidance on how to best manage BALN Reward Allocations. It will evolve overtime as we get more data points, consider different perspectives, engage in more discussion, etc.
Optimize for TVL per BALN
TVL is a key metric, especially for the DEX. Higher TVL leads directly to more revenue. Let’s look at two different pools and think about which one is a better “bang for our buck”.
BALN/bnUSD:
- Daily BALN Reward = 7,906 BALN
- Liquidity = ~8.9M
- TVL per BALN = ~$1,125
BALN/sICX
- Daily BALN Reward = 5,452 BALN
- Liquidity = ~7.3M
- TVL per BALN = ~$1,345
Note: at time of writing, rewards were adjusted just a few hours ago to increase allocations to BALN/sICX and decrease to BALN/bnUSD. The effects on TVL have not had time to materialize, therefore these numbers are likely going to differ even more in about a week. Will update later
A 1,345 TVL per BALN means that, for every 1 BALN of inflation that the DAO releases, we should expect to retain $1,345 of TVL. Since TVL is a key driver of revenue on the DEX, this is a good way to think about incentive allocations on the DEX.
Don’t over-incentivize non-stablecoin bnUSD pairs
This creates pressure on the peg of bnUSD by creating an artificial incentive to mint more bnUSD without necessarily finding demand for it.
Stablecoin pairs don’t require a directional bet, therefore people are more comfortable selling their stablecoins for bnUSD to supply into the pool. Holding bnUSD vs holding USDT is the same bet in terms of crypto-price movements, while an sICX/bnUSD pool, for example, would require LPs to sell some sICX for bnUSD to enter the pool. This is much less likely.
Borrower Allocations should be managed based on rebalancing frequency and the need for more stability
Borrowers are the essential to ensuring the stability of bnUSD. More rebalancing and more pressure on borrowers should have higher incentives to borrowers. Simply minting bnUSD and holding onto it still provides stability for bnUSD.