BALN token economics enhancement: bBALN

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 = 0.0078125 bBALN per 1 BALN staked
  • 1 month = 0.03125 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

9 Likes

Hello Scott, thanks for the comprehensive breakdown of the new BALN token economics.

Few questions here:

  1. Can I stake a portion of my BALN and lock it up for 6 months and another portion of it for 4 years?
  2. I could always buy 1 BALN and lock it up for 4 years to get 2.5x boosting. Is there a minimum number of BALN I need to hold and lock up so it cannot be abused?
  3. The reward you mention is specifically for LP. Does it apply to those who does only staking? If so, could you give an example on it?
  4. I know this is not part of the proposal but is still related to staking. Will there be a small amount of BALN allocated from the daily allocation to be given to the stakers? Could be something huge and nice to compensate if there is little trading activity / minting of bnUSD.

EDIT - Added the implications of this proposal below:

  1. To maximise the rewards in LP, they need to stake a dynamic amount of BALN to get full rewards. This will reduce sell pressure significantly. Why? Because if you don’t stake BALN, you will not be able to maximise the rewards. With no BALN staked, the rewards you get will be reduced, assuming if everyone else stakes their token.

  2. Users have the flexibility to use the platform to do laddering of their BALN tokens, implying they are not forced to locked up if they are uncomfortable and can gradually increase if they want to and see the benefits

4 Likes

Support this proposal as it will create the different weight for staking . Good for baln holder and ecosystem. Thank @benny_options

2 Likes

This sounds great.

  1. Will this be retroactive, or only going forward?
  2. Will this boost apply to BALN stakers and network fees? Or only LP Rewards?
2 Likes

1.) Yes, you can “ladder” your stakes

2.) I think you misunderstand a little bit, which is fair because it’s a dense proposal. Try watching this video from Curve to understand how it works. As a brief example, there will be some amount of vBALN holdings necessary to achieve the 2.5x boost. Let’s say that Bob needs 100 vBALN to maximize his 2.5x boost. He can do this by staking 100 BALN for 4 years or 200 BALN for 2 years.

3.) Staking BALN gives you vBALN, vBALN is used to determine:

  • Your boost for reward-based activities (currently LP and Borrowing)
  • The amount of network fees you earn (my vBALN / total vBALN)

4.) We can discuss allocating some BALN to stakers, but vBALN is an alternative utility for BALN. There is no reason we can’t have both, but I personally am not a huge fan of giving out BALN for people that stake BALN. While staking is good as it locks up tokens, it doesn’t specifically contribute to Balanced revenues the way being an LP and borrower does. But let’s save any back-and-forth of this for that topic or telegram DMs. I’m certainly open to it.

1 Like

1.) Going forward only
2.) Network Fees will be based on vBALN holdings, not quite a boost style. It will simply be My Network Fees = My vBALN / total vBALN. If we do decide to add a rewards category for stakers, it would also have the same boost logic as LPs and borrowers. Any rewards category will follow the boost logic, being:

Earning Weight = min((dollarProvided * 40 / 100) + (totalLiquidity * votingBalance / votingTotal * (100 - 40) / 100), dollarProvided)

So for borrowers, you would replace dollarProvided with dollarBorrowed. totalLiquidity would be replaced with totalBorrowed

I have a question about the decay, what does it mean when it says your vBALN will decay.

  1. When it decays does it conrespondingly unlock its counterpart BALN?
  2. Do different buckets of vBALN decay differently, even for the same duration but different starting times?
  3. If 1 is not the case, what does re-stake BALN to reset the decay mean?
  4. If 1 is the case, is this the method by which BALN unstakes? will there be no more normal unstake option? Will there be an option for fast unstaking at some sort of penalty?
  5. This is unrelated to decay but, does this mean LP BALN dont get any network fees at all, unless they stake some, and even then, the stake is only proportional to the staked amount not the LP amount? I am not against it, thats probably the reason for their boosted weight rewards for some staking.
  6. Will there still be UI feedback on the expected rewards/return per option, it sounds hard to gauge your possible returns when theres so many more variables?

For the people talking about bonuses for staking isnt this the ultimate bonus, staking 4 years has 128 times more network fees than staking for 1 week. And infinity times more network fees than LP BALN.

1 Like

100 % agree with what you have laid out here and the reasoning. Many other protocols like convex, Qi Dao, adamant, etc have followed curve’s lead in using this token model and it has been what i think is the best model thus far.
I suspect vBALN will be transferrable in which case i think we should create an LP for vBALN, incentivize it, and consider is possibly pushing it as the ultimate usable form of the token.

1 Like

vBALN is NOT transferrable

1 Like

For #2, is it a fixed amount of BALN or an amount relative to your contributions to the LP? If so, how is that number determined?

1.) Not quite, it decays to meet how much lock time is left. Let’s walk through an example, and please compare to my table in the initial post:

Bob stakes 1 BALN for 4 years, he is credited with 1 vBALN.
After 3 years, Bob will only have 0.25 vBALN. This is because the amount of vBALN received for a 1 year lockup is 0.25 vBALN. To reiterate, initially locked for 4 years, so he gets 1 vBALN. Now there is only 1 year left of his lockup, so he only has 0.25 vBALN unless he re-locks and starts over the 4-year countdown.

2.) Same decay, it’s a linear decay.

3.) See my answer to the first question. If you locked BALN for 4 years, but there’s only 2 years left on the lock, the amount of vBALN you have will be as if you locked for 2 years, because there’s only 2 years remaining on the lock

4.) Correct, there will be no normal “unstake”. You simply choose a period of time to lock it for, and it essentially starts what you would consider the “unstaking period” immediately.

5.) Correct, vBALN will be the new basis of network fee distribution. It will be very simple. My Network Fees = My vBALN / total vBALN

6.) The UI for this will not be easy. But what we can do is show a range of potential APYs based on the maximum boost and 0 boost. We can display each user’s rewards based on their current boost. Check out https://dao.curve.fi/ for a basic idea (we hope to be better than this haha)

Also, to everybody on this thread, please realize this is just a proposal. Of course, I don’t want to deviate too far from this, as it will make the discussion quite difficult, but please feel free to weigh in on certain variables or logical changes you would like to see. This is a DAO, and community opinion is paramount

1 Like

Is there then a step that lets you stake something that is staked for 2 years left, to back to 4 years?

My line of thinking is, if you expect the network to grow faster than the rate of decay, its actually negative to stake it all, and there will (I think) be some ratio where you should keep some unstaked to stake at 4years later, when network fees are higher.

Regarding my question about buckets, if I have BALN staked with 1 year 7months to go, and I stake new BALN for 4 years, what happens? (this may be related to me first question, if it just updates it all and re-locks it for that duration)

1 Like
  • Yes
  • This is a good question that I will research and get back to

Edit: Just asked in the Curve telegram and already got a response. There is only 1 bucket. So if you have 1 BALN locked for 2 years, then lock another 5 BALN for 4 years, all of it becomes locked for 4 years. A way to “ladder” your lockup periods is to use different addresses for different lockup periods

1 Like

It’s relative to the total amount of vBALN. Here is the formula and I’ll try to help understand it:

Earning Weight = min((dollarProvided * 40 / 100) + (totalLiquidity * votingBalance / votingTotal * (100 - 40) / 100), dollarProvided)

The goal for the user is to get the below expression:

(dollarProvided * 40 / 100) + (totalLiquidity * votingBalance / votingTotal * (100 - 40) / 100)

to equal this expression:

dollarProvided

When (dollarProvided * 40 / 100) + (totalLiquidity * votingBalance / votingTotal * (100 - 40) / 100) = dollarProvided, the user has maximized their boost

Nice I think I understand what I wanted to understand.

All thumbs up.

Wait, one more, if BALN is already staked, will we need to unstake to move to the new system?

1 Like

I agree 100%. However I strongly feel that we should have penalty fee and allow investors to withdraw BALN early. The penalty could be 1-5% of their BALN and this distributed to the the BALN holders (vBALN).

I feel this is another incentive to hold BALN longer, once your locked period is up you can withdraw funds without penalty.

This supports long term holders, with increased rewards from penalty fees.

Thanks for your time.

3 Likes

I think this is great. Can’t wait to see it in action.

1 Like

This is a good idea and something I’m open to, but would like to propose we wait until we get the first version implemented on main net.

There is a lot to consider about this and I don’t want to rush it. For example, based on BALN reward rates, it could be advantageous to game the system by locking BALN for 4 years, then withdrawing in 3 days, paying the penalty, and locking again for 4 years.

2 Likes

First of all many thanks to Scott and all the guys and gals at ICX Station, Parrot 9, and IconDAO, as well as everyone else who has contributed to the Balanced DAO ecosystem. I love the leadership, pace of development, and involvement of the community and am excited to watch this platform grow.

With respect to the current proposal, if it came to a vote in it’s current state I would support it. However, I do have a couple of concerns relating to vBALN carrying voting weight and being the basis for network fee distribution.

Firstly, I am of the opinion that voting on the DAO should be 1 staked BALN = 1 vote irrespective of how long it is locked for.

Additionally I would propose that an amendment be made to vBALN being the sole basis for distribution of network fees. Using the current proposal, someone who locks their BALN for 4 years earns 128x more than someone who locks for a week and 32x more than someone who locks for a month. I think this would be fine if the rewards were BALN issuance, but these are the Network fees, and in my mind BALN holders should be entitled to a reasonable portion of network fees generated on any given day that they hold the token, irrespective of whether they will hold the token one week, one month, one year, or four years from now.

I propose that the distribution of network fees should be directed evenly to all staked BALN and all vBALN (with a slight 2x weighting to favor vBALN) combined as shown in the formula below.

Network Fees Earned = (BALN staked + 2 * vBALN) / (total BALN staked + 2 * total vBALN)

I think this is a good idea because it spreads the Network Fees more evenly across all BALN stakers as opposed to favoring only those who can afford to lock for 2/4 years, while still allowing the people who lock for 2/4 years to earn higher rewards. If I’ve done the maths right, on any given day the people who lock for 4 years should earn a little less than double the network fees that someone who only locks for one week earns. I think for Network fees this is a more fair option that achieves a better distribution.

That said I think it’s great we’re having these discussions and I feel the DAO is moving in a good direction regardless.

Regards

Ed

2 Likes

Benny check out Ellipsis finance on BSC, it’s an approved fork of Curve. They have upto 50% penalty’s. They seem to have. Improved on what Curve have done IMO.

1 Like