With the Year 2 funding season behind us there is an opportunity to re-assess the protocol fee split. Based on the impact analysis conducted recently it’s relatively safe to say Balancer DAO will face a very low probability of a funding shortfall at least through the end of Year 3. I believe it is prudent to consider adjusting the fee split to provide additional tailwinds to the growth of key protocol metrics. In the future if circumstances change we can always pivot again.
As a reminder the fee split was decided to be 75% veBAL passive fees, 25% to the treasury when veBAL originally launched. BIP-19 then introduced the idea of using fees to place voting incentives on “core pools”. The split then became: L1 core pools + L2’s: 75% voting incentives, 25% treasury. L1 non-core pools: 75% veBAL passive fees, 25% to the treasury.
BIP-161 adjusted the split again, changing the 75% voting incentives/passive veBAL to 65% and increasing the treasury allocation to 35%.
There’s three core issues I want to address by proposing a new fee split:
- Voting incentives market is at capacity and partners often reduce their participation to reflect that
- veBAL wrappers do not benefit from the core pool mechanic. If Balancer sees most emissions on L2’s later this year as I believe is likely this is a bad thing for wrappers.
- The treasury has an ample supply of stablecoins for at least the next couple of years
The new split I’m proposing is:
L1 core pools & L2’s: 50% voting incentives, 32.5% passive veBAL fees, 17.5% treasury
L1 non-core pools: 82.5% passive veBAL fees, 17.5% treasury
This addresses each of the above points. As part of this I also believe we should look to allocate direct incentives using funds from the treasury to jump start our presence on non-ethereum networks. Reducing voting incentives from 62.5% to 50% will indeed hurt the L2 flywheel but this can be offset with targeted incentives campaigns funded from the treasury. BIP-322 will be a good test case in this regard and contributors are working on a proposal to allocate incentives towards the Avalanche launch to be presented very soon.
Astute members of the community will reference this spreadsheet and adjust the figures on the right to the new split and see the following:
- End Q2 ‘24 stable balance: 3.1M
- End Q2 ‘25 stable balance: 500k
The new split is intended to spur growth. If it fails to do so and the split is not re-adjusted then we could face a shortage of stables. There is always the option to sell BAL as we did in BIP-197 and indeed that could become the preferred method of funding if this new fee split has the intended effect.
In any case a periodic re-assessment of the DAO’s financial status and impact of previous proposals like this one will be crucial to ensuring the community can properly steer the direction of the protocol.
Predictability in a tokenomic system is important. While on one hand the fact our system is not fully automated allows us to calibrate things which can be good - but the tradeoff is participants in the system can’t easily make decisions because of the uncertainty of future changes. I’d recommend no changes to the fee split for at least one year unless some significant unexpected events occur.
No particular onchain actions will be taken however this change will be reflected in the future operations of the DAO if the proposal passes.