Rewards to BALN stakers
It’s been a clear consensus amongst the community that there should be additional incentives to stake BALN outside of network fees, so let’s make it happen. The question is, what is the optimal design?
After looking into CRV token staking rewards I’ve been inspired to create a mechanism that aligns BALN stakers and all users of the platform. It leads to the ideal group of people with the most influence over the DAO → the active contributors that lock BALN the longest. Curve and the CRV token have become the backbone of many DeFi protocols on Ethereum, so there is strong data to support this as a powerful token model.
This will be more complex than what I initially had in mind, but I believe it will be well-worth the extra effort given the success it’s had in building an ecosystem around Curve.fi. One side-benefit of this system is that it doesn’t require a specific reward allocation to stakers, it just gives existing LPs/Borrowers extra rewards if they stake BALN.
The system introduces a non-transferable token that we’ll call bBALN. Just to reiterate, bBALN is non-transferable. It can’t be traded or sent to another address. It’s a token to represent voting power & earning weight in the DAO. It will provide a booster to rewards you are currently receiving and also be the new basis for network fee distribution.
To acquire bBALN, you will need to lock your BALN for a period of time. The longer you lock, the more bBALN you will earn. The maximum period will be 4 years (based on CRV)
- 1 week = 0.0048 bBALN per 1 BALN staked
- 1 month = 0.0208333 bBALN per 1 BALN staked
- 3 months = 0.0625 bBALN per 1 BALN staked
- 6 months lockup = 0.125 bBALN per 1 BALN staked
- 1 year lockup = 0.25 bBALN per 1 BALN staked
- 2 year lockup = 0.5 bBALN per 1 BALN staked
- 4 year lockup = 1 bBALN per 1 BALN staked
Your bBALN balance will decay linearly to 0 based on the amount of time you stake your BALN. If you stake for 4 years, after 2 years have passed, your 1 bBALN will have decayed to 0.5 bBALN. You can always re-stake the BALN to reset the bBALN decay.
bBALN acts as a booster to your existing rewards from other activities on Balanced, up to a certain point. For example, if you are an LP in the sICX / bnUSD pool, the more bBALN you have, the more rewards you will earn from participating in this pool. There will be a limit on how much you can boost your rewards, with that limit being 2.5x that of those with no bBALN. The formula to calculate your earning weight is below:
Earning Weight = min((dollarProvided * 40 / 100) + (totalLiquidity * votingBalance / votingTotal * (100 - 40) / 100), dollarProvided)
In this equation, “40” is how we arrive at a 2.5x maximum boost (40 → 100 = 2.5x). We will include this as a governance parameter that can be changed by BALN holders via an on-chain vote.
This formula is daunting, so let’s walk through an example:
Bob has supplied 1,000 bnUSD worth of liquidity to the BALN/bnUSD pool but has 0 bBALN. There is 1,000,000 bnUSD of liquidity in the pool and a total of 500,000 bBALN.
- dollarProvided = 1,000
- totalLiquidity = 1,000,000
- votingBalance = 0 bBALN
- votingTotal = 500,000 bBALN
Bob’s Earning Weight = min ((1,000 * 0.4) + (1,000,000 * 0 / 500,000 * 0.6), 1000)
- Bob’s Earning Weight = min(400, 1000) = 400
Now let’s boost Bob’s earnings by 2.5x by locking BALN and earning bBALN. According to the formula, we can figure out that Bob needs a votingBalance of 500 bBALN in order to maximize his boost. Bob decides to lock 500 BALN for 4 years in order to receive 500 bBALN.
- dollarProvided = 1,000
- totalLiquidity = 1,000,000
- votingBalance = 500 bBALN
- votingTotal = 500,000 bBALN
Bob’s Earning Weight = min ((1,000 * 0.4) + (1,000,000 * 500 / 500,000 * 0.6), 1000)
- Bob’s Earning Weight = min(1000, 1000) = 1000
Before locking BALN, Bob’s earning weight was 400. After locking BALN, his voting weight is 1000. He has increased his rewards by 2.5x by staking BALN for 4 years.
Additional info:
Delphi Digital talking about Curve incentive program (around the 40 minute mark)
“We believe that curve.finance, through its veCRV token, has built one of the best token designs in the space for emission based projects.” - Andre Cronje, yearn.finance ($YFI) founder.
EDIT: Based on community feedback, we will add the option to unlock your tokens early for a 50% penalty as a starting point