[BIP-734] Balancer V3 Launch and Protocol Enhancements

[Xeonus]

@rebelhermits

However, I believe the changes to non-core pools will instead discourage liquidity providers.
Previously, in non-core pools, at least 25% (50% * 50%) of the fees were used for bribing, but now it’s 0.
These bribes were ultimately converted into premiums to attract liquidity providers.

For clarification: in the old implementation non-core fees were redirected as voting incentives to core pools. Now they are distributed between veBAL holders and the treasury, overall simplifying the model significantly.

@rebelhermits

I am very concerned about the long-term fate of these pools. These pools like WBTC:ETH might remain popular in competitors, but on Balancer, fewer and fewer people may provide liquidity on these pool because of lacking of incentitive and can only get 50% of swapping fees, seems no one will bribe on WBTC:ETH after this change.

Again, to be clear: non-core pools didn’t get any votes in the first place as those fees were redistributed to core pools only. Nothing would change in that setup except that we stop paying premiums to core pools. Therefore, we should take the bigger picture into account and not rely on emissions anymore for our products. Balancer v3 can achieve this with intrinsic boosted yield and pool creator fees. Our project is too advanced in the emission curve, even if BAL price appreciates significantly, liquidity attraction should come from a great product without additional incentives and that is what we are aiming for.

@rebelhermits

Furthermore, let’s look at the successful strategies of recent market players. Aerodrome, the most popular DEX on the Base chain, distributes 100% of fee income as bribes to token holders. These token holders then vote, allowing popular pools to maintain sufficient premiums. All bribe participants must compete with 100% of the fees. This setup drives up the token’s price, thereby increasing the efficiency of bribing. Eventually, they became vampires to other DEXs through premiums and dominated the market. Intuitively, going against the strategies of successful DEXs is not a good idea.

We shouldn’t compare ourselves to a DEX that has a fresh token emission setup massively outpacing any older DEX like us. Aerodrome will run into the same issues 1-2 years down the line. Their model is simply not sustainable long-term. It works great for them now but my take is they will run into the same issues in a few years, meaning they will ultimately also need to optimize on how to redistribute fees.

@rebelhermits

We all agree that the price of $BAL limits Balancer’s growth, so our strategy should focus on increasing veBAL’s revenue instead.

Please study again the model. veBAL holders will remain the biggest benefitooor of incentives, we simply redistribute them from voting incentives to passive fee income. Net sum stays the same for veBAL holders although there will be a lower global yield-fee which is really needed to get any meaningful traction for our protocol. Note that many partners didn’t like our high yield-fee cut and some projects even chose to get yield-fee exemption meaning there was zero income neither to the DAO nor veBAL holders in those instances. The new fee model so far seems to be perceived very well and no partner so far said to opt out of it. To me that is a net positive effect already.

@rebelhermits

Reduce the 17.5% USDC share Balancer DAO receives from swap fees and allocate it to the bribing market; instead, Balancer DAO could obtain a portion of $BAL from weekly BAL emissions.

I disagree with this approach as this would complicate things a lot:

• who decides where votes go? Implies a voting committee which speaks against decentralization. Even if it is automated it would be the same as we do with core pools now.
• a DAO position would be against true decentralization IMO, veBAL holders should be independent entities
• In the end holding a veBAL position, voting for incentives and take that as an income stream to the DAO is the same thing as simply having a fee cut in place as proposed. I don’t see any benefit in your suggested approach at all.

I really value your inputs and the thoughts you have put into your responses. We had the same thoughts at some point but overall came to our proposed conclusion for an effective fee redesign. Finally, I want to emphasize that we will very closely monitor our new setup and if we see that things don’t work out as we anticipate, then there is always an option to propose further changes to find the optimal solution for market conditions - but for now our main focus is a successful v3 launch!