This proposal aims to find a balance between inflationary pressure and proper incentives for liquidity providers. Balanced token economics are most similar to CRV, where CRV (and BALN) are minted to reward liquidity providers on the platform. In my opinion, the initial design of BALN inflation became too restrictive too quickly, dropping inflation to under 2% after just 3 years.
Curve, on the other hand, arrives at a similar inflation goal but much slower. It first drops below 2% inflation in the year 2030, and is currently sitting at around 27%.
Balanced inflation is currently about 5.6% and rapidly dropping after just 2 years. At this point, I’d like to propose that we shift from a daily cut of 0.5% to a fixed daily incentive of 5,000 BALN minted per day that can be easily adjusted via governance.
5,000 BALN daily inflation would result in an annualized rate of ~7.2% that continues to drop (same 5k per day, but total supply continues to grow).
I’m open to other suggestions and thoughts, but generally speaking I think there should be a fixed amount of daily BALN incentives that the DAO can vote to adjust. I’d like to see a higher incentive to participate as a liquidity provider and also offer more value to outside projects looking to use BALN inflation for Bribes (Craft doing this coming up soon).
I am warming up to this idea, however, I feel that POL is going to cause us problems in the long term if we don’t address it. I almost hijacked this thread to ramble on about it, but then created a new topic (Unstake POL Liquidity Tokens)
The point that relates to this topic is:
I feel that a fixed inflation of 5,000 BALN is a good idea (if we stop renting liquidity from ourselves). Current bBALN stakers are situated best to take advantage of the new inflation schedule with LP votes and LP providing.
I agree BALN inflation dropped too quickly but I really like the daily cut idea. It is a formula that shows BALN will become more scarce by the day, so better participate sooner rather than later to get the most rewards. Perhaps a solution is raising the inflation % back up as a one time and but then it continues dropping by the day? The DAO is ready with all the pools, the daily cut idea was a good one it was just done too early imo. Just my 2 cents
Based on community feedback in the discord and a convo I had with a large holder I think that maybe we should wait to do this until Balanced expands to other networks and grows the community. Once we have more pools that require incentives (i.e. BNB/sICX on BSC), then it will be a good time to raise the total amount of incentives and revisit this. Pretty much, the point I’m trying to get across is that increasing BALN incentives may not actually get more liquidity based on our current userbase, need to expand userbase THEN expand incentives.