Protocol Owned Liquidity for Balanced

The blockchain industry is rapidly evolving, DeFi especially. I have been researching liquidity incentive programs across the industry and have been intrigued by a new liquidity mining incentive program, Protocol Owned Liquidity and Bonds.


Right now, BALN is inflated on a daily basis to pay liquidity providers. Balanced just straight up gives away money. One way of thinking about this is that Balanced is “renting” liquidity. When BALN tokens eventually stop inflating so much, the liquidity that is there right now may move on to greener pastures with higher yields, projects that are newly launched, etc.

Basically, we spend a lot of money on liquidity, giving away BALN every day, but there’s no guarantee it will stay.


Protocol Owned Liquidity. This means that the Balanced DAO Fund will supply liquidity to its own pairs. If Balanced owns the liquidity, then Balanced gives away less BALN for the same results, as it will be mining its own tokens (evenutally, we could just stop giving out BALN to liquidity providers if we owned enough liquidity).

This can be achieved in two ways:

1.) Use the funding we already have in the DAO Fund. This is a great first step and shouldn’t be all that hard to do. See our balances here.

2.) “Bonding” mechanisms, as pioneered by Olympus DAO. Detailed information on how Olympus manages Protocol Owned Liquidity can be found here. Long story short, instead of giving away BALN for free to liquidity providers, the Bonding structure has the DAO Fund sell BALN at a discount in exchange for LP tokens.

It’s almost always focused on what they call “pool2”, which is the governance token (BALN) against the native protocol token (ICX). Initiatives like this tend to bring in more liquidity providers, therefore bringing more ICX into Balanced.

For example, Balanced would buy $100 worth of BALN/sICX LP tokens in exchange for $105 worth of BALN, but the discounted BALN would be vested over a period of time. Let’s walk through an actual example:

Bob starts with $100 of sICX. Bob wants to participate in the Balanced Bonding program to purchase BALN at a discounted rate.

  • Bob trades half his sICX for BALN and now has $50 of sICX and $50 of BALN
  • Bob supplies liquidity to the BALN/sICX liquidity pool and receives 100 LP tokens, worth about $50 of BALN and $50 of sICX
  • Bob sells his 100 LP tokens to the Balanced DAO Fund in exchanges for $105 worth of BALN
  • The $105 worth of BALN will be vested for 7 days (vesting schedule is just an example, tho Olympus commonly uses 7 days)

To the DAO, that’s a net loss of $5. However, this is exponentially better than just straight up giving away money the way it does now. Not only that, the DAO is an LP, so it is also earning trading fees as all LPs do.

In summary, I offered two options. Option 2 is a lot more work I’d say, something that needs fine tuning and a new user interface to allow people to sell their LP tokens to Balanced. Option 1 is something we could act on shorter term. The DAO can start supplying liquidity on Balanced and earning the BALN that it’s giving away, keeping some of it off the market at least while also creating some permanent liquidity, which is the ultimate goal. We don’t want to be “renting” liquidity forever, it’s better to buy and hold it within the DAO.



I’ve never explored this train of thought before… But to kick of the discussion i would like to start of with some rambling

  • The Dao doesn’t have enough funds to supply a meaningfull amount if liquidity ( DAO fund 3,5M, Baln ICX pair 15M).
  • It probably doesn’t gain us any liquidity short term (becouse of falling apr, i expect it to push out current liquidity)
  • if LP rewards are falling to levels not acceptable for individual users, why would it be acceptable to the dao?

i’ll sleep on it a bit… but my first thought would be that if we go the route of POL we should revisit tokeneconomics altogether.


Across all projects using Olympus Pro, seems they’ve aggregated around 14M worth of liquidity, I would say giving this a try doesn’t hurt.

You’re missing the point with this statement. Even if liquidity remained the exact same or less, it’s liquidity that doesn’t leave, it’s not rented liquidity, it’s owned liquidity. Balanced will not be withdrawing the liquidity anytime soon. Balanced doesn’t need BALN in order to market make its own exchange and generate revenue.

Because Balanced owns the exchange and profits from activity of its exchange. Balanced takes actions that benefit Balanced, while liquidity providers take actions that benefit themselves, which is why incentives are needed.

I don’t see the relationship between the two. If Balanced becomes an LP, then Balanced starts earning BALN. There’s really no need to change anything, but of course, if you find a clear attack vector or issue with the token economics if Balanced starts supplying its own liquidity, then I would want to know.

I like the idea @benny_options. I think it’s a better use of the DAO’s funds to provide liquidity and have a permanent LP base that to simply have the funds sitting in a wallet. Over time, the permanent base in the liquidity pools will grow, plus it reduces sell pressure on BALN. I’m supportive of this idea. It also creates a nice compounded growth rate for the DAO’s funds too.


I think the main difference in prespective is you are approaching it from a liquidity standpoint, reasonable since we are talking about liquidity.

But if you think about it, its more a question, how can we use the DAO funds. There seemed to be a lot of backing for example using it on omm, that can be pure profit from a financial standpoint, but why not use it on our own platform, with platform benefits to boot?

Here are some of the benefits I can see for both POL methods, and I’d like to see both come into play

  • Puts the DAO fund to work
  • Prevents large flucuations in liquidity
  • The is no need to play with allocations of minting because as POL increases its essentially automatically scaling some LP rewards into DAO rewards. The allocation for LP rewards is again, not about the APY its about how much total Liquidity we want to pay for, at the APY the market is willing to supply.
  • This differs from the Olympus design but, theres no reason for the Liquidity to be permanent. If Balanced feels the need to change the ammount in any particular pair, if Balance wants to withdraw because it feels it can use those funds better, it can. Its of course less fickle and more Balanced centric than a normal participant, but we aren’t burning the LP tokens or anything, its still a DAO asset, just in a different more beneficial form.
  • We can also target expensive pools like BALN/bnUSD, which should also be considered a ‘pool2’ for Balanced.

I agree. Long term survival of our DAO should always be priority 1.

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It’s a great idea, and I think at this point most protocols already launch with a PCV mechanism.

However, I think bonding will be difficult for large players as BALN is not a very liquid asset. But if it works, great. Definitely worth a try.

Check Oolongswap on Boba Network, Scott.
They will just take a cut of swap fees into their own PCV.
I like this a lot.


I think it is a wrong direction. Balanced tokens owned by DAO are held off the market. If you put it into liquidity pools, it will be ON the market, increasing de-facto BALN market supply.

In case of the market crash an increased supply can destroy the value, and individual liquidity providers will start leaving alltogether. The strategic focus should be on bringing more players into the ecosystem, not creating long-term impacts that can decrease their number. The risk is that with proposal you can destroy the market, for what benefit ? Balanced DAO is not giving away money, it is giving away BALN tokens. If the token value is at 0, it is worth nothing.

What will bring liquidity strategically is increasing the BALN token value. So when the inflation slows down, the token value is still attractive to provide liquidity (let’s say not 2$ but 200$). The easiest way for this is to list BALN on all possible exchanges, like Binance, Huobi etc - they will absorb BALN market supply and inflation. And/Or a buyback program when the market is crashing, so you get the the supply off the market for cheap.

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I think that that is not the right description of the risk of so called ‘putting it on the market’. If the tokens in the DAO cannot be used, those tokens are already zero.

That is not the use nor intention of th DAO fund. The fund is explicitly for being spent, either for the improvement of the platform or returning value to tokenholders. Additionally it holds not just allocated minted tokens, in fact most of it is real earnings from its core business as the increase of allocation of BALN is a fairly recent development.

Additionally, an LP is not ‘putting it on the market’ in the way you describe. It is partially a sell yes, but it is also a buy. It in fact buys when people want to sell, and sells when people want to buy, a literal description of a market maker… as it is a market maker.

Moreover, as people such as @Uglyrage have correctly noted, adding liquidity into the pool reduces yield sourced from BALN rewards, which all market conditions being equal, will reduce the desirability to supply liquidity, in essence in the long term, POL is no different to external liquidity. The real difference is, the DAO is less likely to pull liquidity than an external participant. This is the direct opposite of likely to cause a runaway crash, as liquidity that doesn’t exit is quite literally the very thing that will reduce the impact of a large selloff.

If it does result in a net increase in liquidity, that will only serve to reduce the volatility in price of BALN which to me is a positive thing.

The real potential negative of this action is simply, money always has a use. Is this a good allocation of DAO funds? With the way the DAO works if the DAO encounters a better use of it, as long as we can vote to re-allocate, there should be no issue.

Like we are seeing with all these other examples of other platforms doing it, it’s a pretty reasonable idea, that the party most willing to both buy and sell BALN should be Balanced, hence being a LP for a BALN pair makes a ton of sense.

We even have a bonus, we can pair BALN/bnUSD, TWO Balanced coins, for maximum platform contribution, and the pair with best rewards currently.