Co-Authors: Zen Dragon & Lipman with the support of the Balancer Maxis
Fee Processing & Automation Owners: Xeonus and Gosuto
Summary & Motivation
This proposal aims to align key partners in the Balancer ecosystem with the tokenomic model of veBAL. By doing so, liquidity providers and partners equally benefit by their liquidity in Balancer pools and prioritizing Balancer over competing DEXs. In short, the way to further align all parties leveraging the Balancer DEX is to share a portion of the revenue generated by their pools with them; in the form of USDC to be converted to veBAL.
In doing so, partners such as Aave, Lido, and Rocketpool will be actively building a veBAL position to incentivize their pools long term, while collecting passive income on their position. This mechanism not only acts as a pseudo-buy back of BAL in the form of the 8020 pool tokens, but it also incentivizes and exposes partners to participate in veBAL further. Thus maintaining their relationship and usage with Balancer not only for the cutting edge features on Balancer V3, and historic depth on V2, but because they receive economic benefits for doing so.
Based on BIP-734, the split of the 50% protocol fee on swaps and 10% protocol fee on yields would act as follows under this new arrangement:
For core pools (wstETH/wETH or rETH/wETH for example), of all fees collected:
- 12.5% continues to flows passively to veBAL holders
- 52.5% (instead of 70%) of revenue would be recycled as bribes
- 17.5% is directed to the multisig designated by a partner protocol in the form of USDC to be converted to veBAL
- 17.5% is sent to the Balancer DAO
For non-core pools (80AAVE/20wstETH for example) of all fees collected:
- 65% (instead of 82.5%) of revenue flows to veBAL holders as passive income
- 17.5% is directed to the multisig designated by a partner protocol in the form of USDC to be converted to veBAL
- 17.5% is sent to the Balancer DAO
In the sections below details regarding qualifications, the automation process, monitoring, and time commitments are outlined to define in greater detail the proposed rules of this program.
Execution Specification
In order to execute this proposal, the fee processing logic built for Balancer V2 and Balancer V3 must be modified to redirect the proposed portion of fees defined above to the addresses presented by each qualifying partner protocol. The V2 portion, due to being built for over a year, is far more configurable and trusted, making the phase one roll out of this program possible for V2 within 4 weeks of this proposal passing. To respect the framework laid out by BIP-734, this proposal will only go live after the first enactment of a Balancer Alliance member is passed by governance. In turn the non-core to core recycling portion of Balancer V2 would end as stated in the mentioned enhancement proposal. Balancer V3 core pool recycling would still potentially not occur for 1-2 more rounds, making the rollout of both fee model formats occur progressively.
The estimated lead time upon passing this proposal is after 2 epochs of successful fee processing for Balance V3 before the first Balancer Alliance fee processing round to occur. During this time period qualifying protocols would be invited to propose becoming Alliance members on the forum based on their history on Balancer. These proposals will be considered primarily in terms of time weighted TVL and revenue generating benchmarks, coupled with an outlined incentive structure from the corresponding partner to justify the flagging of new or existing pools to be deemed as eligible for revenue sharing.
Qualification
Partners that have generated $1M or more in lifetime protocol fees are deemed (âEligible Partnersâ). We believe these protocols have historically contributed a meaningful positive impact to Balancer and should automatically qualify for this program as a result. The following protocols would meet this criteria per this query:
Top Performers
- AAVE
- Lido
- Rocketpool
- Radiant
- Renzo
Potential Alliance Members
- EtherFi
- Gnosis
- Others if a compelling proposal is made to the DAO
How it works
There are two categories of Eligible Partners:
-
Eligible Partners with individual pool(s) that generated >$1m in lifetime protocol fees (âE1 Partnersâ)
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Eligible Partners without individual pool(s) that have generated >$1m in protocol fees - but the sum of lifetime protocol fees across all pools is >$1m (âE2 Partnersâ)
E1 Partners would automatically receive the 17.5% fee sharing on the existing pools that have generated >$1M in lifetime protocol fees (âGrandfathered Poolâ). E1 Partners would also be eligible to receive the 17.5% on future pools if additional certain criteria are met (more below).
Grandfathered Pools include:
- Aave-wstETH
- wstETH-wETH
- rETH-wETH
- ezETH-wETH
- RDNT-wETH
E2 Partners would not automatically earn the 17.5% fee share on any existing pools. They can earn 17.5% on existing or future pools if certain criteria is met (more below).
Criteria to earn Fee Share
For clarity, this section excludes Grandfathered Pools.
The following criteria must be met in order to receive the 17.5% fee:
- Must be an Eligible Partner
- Pools must be a core pool
- Pools can only have Balancer protocol fees associated with it (e.g. cannot be a Gyro pool, etc.)
- Eligible Partner must bribe an amount on Aura for the pool in order to maintain alignment between ecosystem participants. This results in Aura holders maintaining at least status quo (likely better) even with the fee sharing.
- At a minimum partner pools must target a $5M TVL and utilize 1,000 USD worth of incentives per week to bootstrap pools from 0 to this point. Only at the point of hitting $5M in TVL is a pool eligible for the fees to be redirected towards accumulating veBAL for the partner.
- The recommended incentive structure for partners would vary depending on the token, network, and various other factors. The suggested incentive format would entail a 3 month program at a minimum, however larger packages over a short period of time should also be considered by the DAO.
- This point is only a recommendation, ultimately the DAO determines which partners proposal do or do not qualify for this program.
- Must continue to permalock their veBAL
If an Eligible Partner stops meeting these criteria, then the 17.5% fee sharing will terminate.
Automation and Processing
Upon the confirmation of a Balancer Alliance memberâs proposal to join the program, a flag will be set in the fee processing automation for the pools included in their respective proposal. This flag will indicate the pool is actively claimed by a partner, and indicate the address in which the USDC tokens should be sent. Depending upon if the pool is on Balancer V2 or V3, the fee processing automation repo will be adjusted respectively. All funds are processed on L2s and Mainnet will be converted to USDC, consolidated to the mainnet fee processing multisig, and the respective portion of USDC will be sent to the partner multisig, which will purchase 8020 BPT, lock the tokens, and manage the position accordingly.
If the partner fails to continue to relock the veBAL position, and or does not deliver on their agreed-upon incentive package the flag can be terminated at the discretion of the Balancer Maxis without a DAO via a governance vote. If desired, any community member is capable of putting up a proposal to end a partnerâs alliance program eligibility for the DAO to vote upon.
Monitoring and Regulation
The Balancer Maxis, the operations and business development arm of the DAO, will take responsibility for monitoring the behavior of each Balancer Alliance member in terms of their veBAL locking activity and delivering on their incentive strategies to each respective pool. This will be done manually via on chain spot checks given the likelihood of only 3-5 participants in the near term. If the program does expand greatly, automation will be considered as needed.
To regulate gamification or abuse of the program, partner mutlisigs will be monitored to confirm locking of freshly acquired pool tokens occurs on at least a monthly basis. The Maxis will issue a notification to respective partners if the deadline is missed. The Maxis reserve the right, without a governance proposal, to terminate the fee sharing agreement if a lock is not executed for a 8 week period. A similar precedent will be held for the incentive commitments in the partner proposals, if an incentive program is not delivered upon for 2 weeks, a notification will be sent to the partner, with a proposal to pause revenue sharing being vindicated after 4 weeks.
Lido Case Study
Using Lidoâs wstETH-wETH mainnet pool as an example, Lido would have earned roughly $120k worth of veBAL over the last twelve months as a result of the proposed 17.5% fee share. When also considering the emissions they would have commanded and the veBAL fees they would have received, the total value of the $120k veBAL position would have been ~$138k. Please note: the TVL of this pool has varied significantly over the past 12 months due to migrations (e.g. TVL of $10m vs. $40m today). If TVL continues to grow, such as when the pool was ~$150m in the past, weâd expect the fee sharing to also grow accordingly.
The $120,000 redirected away from LPs due to this program would need to be offset by Lido through roughly $84,000 in bribes on Aura (see calculation below).
The following analysis uses data from this Dune. The data can also be found in this google sheet.
| Component | Calculation | Value |
|---|---|---|
| Poolâs Total Monthly Incentives | Average of last 3 months | 40,000 USD |
| Fee Sharing: veBAL Purchase | 17.5% of Poolâs Revenue | (10,000 USD) |
| Remaining Incentives After veBAL Purchase | 40,000 - 10,000 | 30,000 USD |
| Incentive Reallocation | ||
| - 70% to LPs already going to vlAURA | 30,000 Ă 70% | 21,000 USD |
| - 30% shifted from veBAL bribes to vlAURA bribes | 30,000 Ă 30% | 9,000 USD |
| vlAURA Efficiency Gain* | 9,000 Ă (1/0.75) | 3,000 USD |
| Net LP Incentives | 21,000 + 12,000 | 33,000 USD |
| Gross Partner Costs | ||
| - Monthly incentive budget necessary to make up for LP deficit | 40,000 - 33,000 | 7,000 USD |
| Additional Revenue Streams | ||
| - Monthly veBAL vote rewards | Based on the average of the last twelve months, assuming the fee share program was in place. | $1,075 |
| - Monthly passive veBAL revenue | 11% return on locked position | $1,100 |
| Monthly Net Partner Cost | 7,000 - 1,075 - 1,100 | 4,825 USD |
| Annualized Impact | ||
| Total Partner veBAL position | $120,000 | |
| Total Net Partner Cost | $57,900 | |
| Total Net Partner Benefit | $62,100 | |
| Net Partner Passive Benefits for Year 2 if fully locked | Passive yield $1,100 x 12 veBAL incentives control $1,075 x 12 | $13,200/yr $12,900/yr |
Aura Efficiency Consideration
As mentioned above, in order to bridge the gap of any incentives forfeited by liquidity providers, Balancer will redirect 100% of core pool revenue for these pools to vlAura bribes. Due to the state of the voting market, Aura is smoother in terms of returns and predictable outcomes. Making the ROI roughly 1.3x compared to a veBAL bribe. While all other core pools will continue to respect the split based on Auras veBAL share, these pools will receive the âoptimalâ revenue redirection strategy. Per Rocketpool tracking reference.
Timelines
Proposal to be discussed on forum for 2 weeks due itâs magnitude. Based on todayâs post date of Tuesday March 25th, the vote round of April 10th, 2025 would be when this proposal is eligible for a snapshot vote.
Assuming the proposal passes, any teams interested in proposing to join the Balancer Alliance would post to the forum any time after this snapshot vote concludes. Each proposal is recommended to sit on the forum allowing discussion regarding included pools and incentive plans, for one full week prior to being sent to a formal snapshot vote.
After passing a vote, the partner is not eligible for fee sharing until the following fee round is processed. A partner is not eligible for the fees being collected during their proposal discussion and voting period.
The Balancer Maxis are expected to have to have automation in place for this form of recycling to occur no later than after 2 successful fee processing epochs on V3. Timelines regarding the automated monitoring are to follow upon further evaluation of the scale and overhead this imposes manually.
Cold Start Initiative
Due to the nature of veBAL, there is a barrier for entry to begin participating in the system where voting relative to incentives controlled, revenue generated, and gas costs of operating the position do not make economic sense. In order to combat this, and give partners a warm start on their veBAL participation experience, this proposal invites each Balancer Alliance member to include a request for up to 10,000 USD worth of BAL to be given to them by the Balancer DAO in the form of a loan. The BAL is to be matched with wETH from their treasury and locked as a kickstart to their governance holdings. If a partner ever unwinds their veBAL position, they must commit to returning the BAL equivalent to the Balancer DAO.
Eligibility is subject to evaluation for each project, which will be outlined in each partnerâs respective proposal. Committed partners with unwavering commitment to utilizing Balancer as their core DEX would be candidates for this allocation. All proposing alliance members are welcome to present their historic commitment to compel the DAO to loan this BAL as a value add.
Partner Proposal Requirements and Proposal Guidelines
- Require a Gnosis Safe or Smart Contract
- Must be whitelisted to lock veBAL, this is a payload attached to each Balancer Alliance Member proposal.
- Must include proposed incentive package in terms of token, amounts per round, number of rounds, and net goal in TVL leveraging calculations around the prior values.
Disclaimers
-
The data related to economic performance of veBAL, like any investment, cannot be held to the account that prior returns are indicative of future performance.
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No forum post or proposal is necessary for the Balancer Maxis to act on behalf of the DAO when ending a program or portion of the program based on partners not meeting the outlined criteria above. For example, if proposed incentives are not delivered or veBAL is not re-locked by a partner, Maxis reserves the right to turn off the revenue sharing flag. This action would require a public post to the forum with motivation and supporting data only.
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If two members wish to join the Balancer Alliance Program claiming rights to the same pool, this is not in the scope of the Balancer Maxi automation infrastructure. For example if Renzo and Lido over a wstETH-ezETH pair. The first partner to lay claim, with the voted and approved incentive package by the DAO must honor this vote. To transition a pool revenue share from one partner to another would require a governance vote and thorough discussion with all relevant parties on the forum.
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Any revenue split amongst alliance members must be handled between their teams. The Balancer Maxis will not support splitting revenue of one pool amongst more than one partner address.
