[BIP-332] Reallocate wstETH/wETH Protocol Fees

General Chat
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title: [BIP-XX] Reallocate wstETH/wETH Protocol Fees
author: @Llamaxyz - TokenLogic
created: 2023-06-06

Summary

This publication presents the Balancer community an opportunity to bootstrap the wstETH/bb-a-wETH pool by redirecting protocol fees used for bribes from wstETH/wETH to wstETH/bb-a-wETH pool.

Abstract

This publication proposes reallocating the bribe portion of Protocol Fees from the wstETH/wETH pool to the wstETH/bb-a-wETH pool. If the pool was fully migrated, the yield from the Aave wETH Linear Pool (bb-a-wETH) will provide the following benefits:

  • Additional yield for Liquidity Providers (approx. 1.2%)
  • Boost the Hidden Hand bribe flywheel (approx. 50%)
  • Generate additional revenue for Balancer DAO ($0.26M)

Assuming 95% of the 32,060 wETH are deposited into Aave v3 earning 2.41%, Balancer DAO is expected to earn an additional $0.26M in additional annual revenue.

Motivation

The wstETH/wETH pool is a “core pool” under BIP-19 with 50% of the pool generating yield. This means 32.5% of yield generated by this pool is then used for bribing votes on Hidden Hand.

This publication proposes redirecting the bribe portion of the protocol fees towards the wstETH/bb-a-wETH pool. The wstETH/bb-a-wETH pool replaces the wETH with bb-a-wETH and generates additional yield and revenue for Liquidity Providers (LP) and Balancer DAO respectively.

If 95% of the 32,060 wETH in the wstETH/wETH pool was deposited into Aave v3 via bb-a-wETH to earn 2.41%, then an estimated 734.01 wETH in yield would be generated and 251.10 wETH would be directed towards bribes. The results is an approximate 50% increase in bribe funding, assuming wstETH averages 4.82% APY, and would help sustain the pool.

Separate to the additional bribe wETH flows, the Balancer DAO will generate an additional 135.21 wETH in revenue, valued at $0.26M from the wstETH/bb-a-wETH pool relative to the wstETH/wETH pool.

Specification

The bribe portion of the ProtocolFee from wstETH/wETH is to be redirected to bribes for wstETH/bb-a-wETH.

Pools:

Disclosure

This proposal is the sole work of @Llama contributor, @Matthew_Graham, via the legal entity TokenLogic. Llama is a Service Provider to Aave DAO.

Copyright

Copyright and related rights waived via CC0.

3 Likes
2

The downside of this is we’re taking an opinionated stance on herding folks into a boosted pool exposed to Aave v3. plus there are a lot of existing integrations on this pool that might either take time to migrate or wouldn’t bother migrating.

The upsides would be:

  • more revenue as a far higher % of the pool would be yield bearing
  • far higher volume as we could increase amplification factor and decrease the swap fee (both parameters are immutable on the current pool

Overall I support this as a smart use of resources to bootstrap the wstETH/bbaweth pool. I’ll also note voters can still choose to support the existing pool and some likely will. We aren’t killing the gauge so emissions won’t stop, at least for awhile (if all voters respond to economic incentives).

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What is the rationale for reallocating the voting incentives in perpetuity? The wstETH/WETH pool has been one of our best pools for quite some time. I feel some users will not want to be exposed to a boosted pool. Have you thought about phasing into this change or running a program for a few weeks to measure the impact?

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I share @zekraken’s concerns.

From an integrations perspective at Sturdy, I would strongly prefer the existing pools that are paired with WETH. Having multiple pools will fragment liquidity, and in my view the additional 1% yield is not worth the risk in this case

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Hi @zekraken,

With the governance process being reasonably nimble, there is always the ability to pivot from this strategy to a more evenly distributed approach or revert back to the original pool. The benefits to Balancer, in our opinion, justify migrating deposits to the proposed pool.

The proposed pool offers more revenue to Balancer and is expected to attract greater portion of swap volume.

If the communication is that the directional shift was temporary, this would discourage users from migrating. Therefore I favour a full migration, with any future pivot being reactionary based upon how users respond.

As the current pool is quite large, there is time to monitor the conditions and then integrate to the boosted pool.

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one big factor here is the ability to see way higher volume because we can adjust swap fee and amplification factor vs those being immutable on the current pool.

the current pool is just way too inefficient - it could easily be doing 30M+ volume per day if the parameters were optimized properly.

I hear pgpsam’s concern but new integrations can and will be built atop the new pool. imo it’s time we bite the bullet and embrace the future.

I’d also add in the cbETH/wstETH pool to this - redirect those protocol fees towards bootstrapping cbETH/bbaweth. Same logic applies - current cbETH pool’s parameters are immutable so it will never contribute meaningful volume. New pool could also easily be printing 8 figures of daily volume with optimized parameters.

I think conversations are in progress with rocket pool to see them embrace a similar migration to rETH/bbaweth. Time to make Balancer liquidity actually useful, again!

3 Likes
7

I was a bit hesitant at first but @solarcurve arguments made a strong case to go down this route. I am all for optimizing Balancers liquidity and given LSDs are our strong suit (in combination with Aave boosted pools) it seems to make total sense. In support.

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ah yes, i forgot that the parameters were immutable on the OG wstETH pool

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https://snapshot.org/#/balancer.eth/proposal/0x67d6569aaa12e00a76622d1ce7f4d14e141b41d49b15cc13c9ba6f1bd3a3764a

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Hi @Xeonus,

Would it be possible to re-run this vote ? I believe a number of large voters missed the last vote and we expect a lot greater turnout if the vote was to be rerun.

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Sure, vote is queued for re-run: https://snapshot.org/#/balancer.eth/proposal/0xc59ebe5c9ba238dfae21f048b6bb1ed7ecee8d52bdd5c5b92b787d61eed1980d

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Things changed over the week related to protocol fee collection see announcement here. The primary wstETH pool is metastable and therefore still collecting fees even with recovery mode activated on the new wstETH/bbaWETH and other composable stable pools. I would suggest voting against this until the CSPs are able to collect fees again.

1 Like
13

Hi Everyone,

In light of the above, we would to indicate our support for waiting until such time as this proposal can be implemented as originally intended and any potential issue has been addressed.

4 Likes
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Hi @Xeonus,

Would it be possible to implement this proposal once the new v5 wstETH/bb-a-wETH gauge has been deployed.

For reference: [BIP-365] Migrate Affected Composable Stable Pools Wave 1

1 Like
15

yes, will be implemented

1 Like