[BIP-XX] Add Paladin's Quest to the Core Pools and L2 Incentivization program

Hello everyone,

We are officially expanding Quest and Warden to the Balancer ecosystem. This means that starting the next round, DAOs will be able to use our dapp to access the Balancer gauge, and in a couple of weeks, LPs will be able to buy veBoosts to maximize their yield strategies.

The goal of this post is to include Quest into the list of service providers contributing to the Core Pool Incentive program highlighted in BIP-19.

What is Quest ?

Quest is a gauge acquisition tool that allows DAOs to incentivize veToken holders. Yield is fixed by the quest creator since a specified amount of voting power is targeted. This means once loyal voters fill a quest, no additional votes are rewarded, ensuring maximum efficiency for DAOs. Overall, this approach is more sustainable for bribers. You can find more details about the mechanisms here.

Why should it be added to the Program ?

Currently, the Core Pool Incentive program is only relying on Hidden Hands. So why add another bribe marketplace?

As mentioned previously, Quest is a radically different solution in the sense that it enables bribers to fix their rate and know exactly how much they’re paying per vote.

DAOs can manage their budgets better and play the gauge wars without spending more than the emissions they attract, especially when the market is irrational. For Balancer this is specifically relevant because the previous round of bribes is finishing at ~0.23$ / vote while each vote directs 0.14$ of emissions. From what we have gathered, this 40% markdown is an intentional strategy to attract more veBAL lockers with high bribe APR. While extremely smart, we believe the Balancer DAO should be vigilant in totally killing the organic bribe market with subsidies that make the base layer unprofitable to incentivize.

Having two bribe marketplaces with different systems would allow the DAO to maintain high bribe APRs on certain pools, while offering LPs extremely high APRs on other pools since they would have bribes optimized for BAL emissions. This would attract more TVL to the protocol.

Additionally, Paladin will try to provide a unified marketplace for both veBAL and vlAURA in the very near future, which should free operators from some menial bribe-splitting tasks, as well as other modules allowing for a more composable and decentralized approach to gauge incentives.

How should this Program be amended to include Quest?

In BIP-19 we requested a framework of bribe sharing to avoid an implementation roadblock during our request. Since we weren’t able to introduce a framework because of time constraints, we suggest the following approach:

  • Split Core pools between “High Growth Priority” (most lucrative ones) and “Low Priority / Mature Pools”
  • Mature Pools would go to Hidden Hands, where they would offer juicy bribe yield to create a “Lockening”;
  • High Growth Priority Pool would go to Quest, where bribe prices would be lower but the number of votes attracted would be significantly higher, effectively attracting more LPs to the pool.*

Any feedback is welcome.

*There will always be demand on Quest because the yield rate is fixed and the soon to be unified marketplace with vlAURA will allow the use of governance arbitrage to attract vlAURA voters.

** Paladin has set up a Partner Program with a fee-sharing mechanism, we think the program can be activated for Balancer to redirect the fees to finance contributor initiatives.

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We welcome external providers to the Balancer community and think having more than one provider is important. One issue with BIP-19 was the reliance on Hidden Hand, and it is important that we do not let Hidden Hand dictate and maintain control. This quest model provides another longer-term mechanism alongside the current short-term bribe solution.

However, we would like to see examples of protocols that have used Quest? What was their uptake like? How has quest faired against other bribe protocols when used in the same protocol?

Also, to clarify, we could request to share up to 50% of the fees with your partner program. I can see in the PIP-3 that there was some discussion about adjusting fees on the volume. Is that still the case?

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I think Quest is a much better fit for 3rd party bribers - for example, Lido and Stader should give this product serious consideration imo. The reason I say that is because 3rd parties never want to pay more in bribes than the emissions they stand to earn.

The goal of BIP-19 is to make voting so lucrative that new voters enter the system to take advantage of that. We did significantly “overpay” in the most recent round on Balancer’s HH market but this is actually working as intended. It would be very hard to know what $/vote to set on Quest since we want the maximum number of votes we can get and we do not really care how much $/vote we pay.

Even if you believe this strategy is dumb and can’t work (new voters won’t come no matter how lucrative it is), you then face the question of where should all the extra money go. Sending it passively to veBAL kinda kicks the legs out of BIP-19 imo. Sending it to the DAO rugs veBAL of their share of fees. Open to ideas.

Pending more discussion, etc for now I don’t see Quest as a good fit for BIP-19 activity. Other DAO’s that are bribing should strongly consider using it though.

edit: please leave the topic as [BIP-XX] so the voting order isn’t messed up. This will be assigned a BIP number when/if it goes to a vote :slight_smile:

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We officially launched yesterday ! You can find our interface here: 1. Warden | Dashboard

The feedback we can take comes from our operations on Curve, namely with Threshold, who we have been working with for the past 2 months; Outside of high upward volatility weeks, Quests have been mostly filled up with high stickiness.

Yes, I will post a summarized table to give a clearer understanding of how all of it works. But the rate is 5 to 50% depending on the volume brought to the dapp.

The problem is not just with the emissions rate being saturated, but also because of the signalling created by the main DAO distributing on one sole platform. Subsidizing the business of one service provider is the fastest way to create a monopoly. Proof of that is Stader recreating a bribe directly after an unprofitable week.

From what I’ve understood, the goal is to massively attract voters, and, as you said, it is working out perfectly (more than +10% veBAL locked this week). But why not just create a zero sum game for the DAO instead of a negative sum game ? Currently 90% of the LPs are locked, it’s not just lockers, but LPs that need to be attracted.

It is fairly easy to create by setting the Quest $ / vote price at the emissions rate (that’s 130% APR). From what I’ve gathered, a lot of people are scared of locking because they believe the subsidized yield is unsustainable, by using this, sophisticated degens might see more sustainability for the system. Quest was built to solve this.

It’s fairly easy for us to check how many votes are getting bribed on the layer, simulate inflation and offer a very competitive incentive. The current set up makes you dependent on market irrationality while with Quest, you’d be able to have a more data-driven approach.

We believe it was the best decision with the tools at hand but regret a framework was not put in place to specifically understand when it is not relevant to use Hidden Hands for that said program when it was proposed. I 100% agree reinvesting in growth is the best move right now (this is also a question we have internally for Paladin) and the data shows veBAL is growing thanks to it.

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I’m not sure I follow this logic really. When you zoom out to a holistic view of total $ spent on bribes vs total $ of emissions these two numbers are very far apart today. Saying the current yield is unsustainable is missing the big picture imo. The yield is not only sustainable but it will rise as the gap between protocol revenues and protocol emissions narrows. The rate of this rise will be determined by whether votes decide to follow the voting incentives, or not.

Even when we reach protocol revenue = protocol emissions, that’s not a ceiling on bribes. Balancer Protocol is distributing protocol fees via bribes - if these fees are worth more than the emissions, that’s actually a good thing. and to be honest that is my ultimate goal.

I appreciate the response and I sympathize with your view that we are creating a monopoly with Hidden Hand. They were first movers and they’ve spent a lot of their own dev work to support Balancer and the BIP-19 initiative. I am certainly not opposed to using Quest but the reality is you designed this product for DAO’s who don’t want to overpay for emissions. Balancer Protocol does not mind overpaying and I would argue for this to really work we must overpay. This strategy doesn’t seem compatible with Quest as it stands today.

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Thanks so much for this proposal and congrats on the great products you guys are launching!

I agree with most of the points you brought up while I also agree with @solarcurve’s.

Isn’t there a compromise where we don’t touch/change BIP-19 but still experiment with bribing with Quest? The DAO could use some BAL from the treasury for bribing specific pools (TBD) on Quest?

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Thank you everyone for the feedback. We have worked very hard over the last 3 months to adapt Quest to Balancer and offer a better set-up for BIP-19.

Here is an overview of Quest’s performance on Curve:

What we can now offer is a way for core pool incentives to be optimally used.
Currently, there are 10 pools benefitting from the incentives, 4 of which are significantly over the profitability threshold. We have understood from Solarcurve’s previous comment that this was beneficial to Balancer since it enable high APR, attracting new veBAL lockers. However, I think it is interesting to put into perspective that for DAOs / LPs givng away 50% of their yield, they probably expect an optimal use of the resources.

By creating Quests with BPT or BAL as reward token there is a way to create a much more aligned system that what is currently in place.

  • BAL / 80-20 BPT is the currency of the game, it is much more interesting to pay rewards in such format as it will create weekly buy pressure on BAL;
  • It is also highly likely most rewards are captured by liquid lockers who need these to grow;
  • With Quest, we could provide a custom interface where the reward / emission ratio is fixed to 1. This means that Balancer would offer the highest reward while not “wasting” resources. I believe a lot of DAOs would appreciate the gesture;
  • vlAURA users could also vote on the Core Pool Quests as our platform is the only cross-layer vote incentive marketplace.

In addition to this, we have adapted our fees and reduced them to 2.5% for Ecosystem Partners such as Balancer or Aura.

We believe DAOs should be able to decide how their yield is used, which is why we are requesting again to be included in the BIP-19 program.

Support article : Weekly Gauge #15 : BIP-19 Update - by Paladin

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I appreciate the continued development and interest. I continue to think Quests are interesting for DAO’s who want to ensure they aren’t overpaying for emissions but it is not suitable for the distribution of protocol fees under BIP-19.

Exceeding 1:1 reward/emission ratio for BIP-19 activity is actually a good thing. That means competition for votes is so strong people are willing to overpay which means more revenue for active voters. As an active voter myself why would I want to cap my earnings?

As far as changing the currency from USDC to BAL, I don’t think you’ve presented any data on why that would be a good thing? Before BIP-19 protocol revenue was paid out in bbaUSD, that’s why we went with USDC in the beginning - to keep the theme of yield in stablecoins.

Asking us to pay you 2.5% when we’re paying 1% with Hidden Hand also doesn’t feel too good to me.

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I have to agree with @solarcurve assessment of the proposal.

Quests are in my view obviously considered as a completely different mechanism not fitting in the BIP-19 narrative. I see quests as a service on top of the current bribing ecosystem.

As a consequence I don’t see how any quest config would make sense with BIP-19 in any form - be it BPTs as rewards etc.

I suggest you continue with your product as is and expand it from there.

Thank you for the detailed answer.

Not it doesn’t, it means that the offer for bribes far exceed the number of votes ready to be bribed.
Furthermore,

How do you expect DAOs to be competitive when the DAO itself overprices the market?

Do we really need to? Why would lockers not replicate a strategy that works perfectly on Curve?

It is beyond me how you think paying THREE TIMES over market for bribes is fine, but paying 1.5% more in fees is bad. Small reminder that if you pay 1% of 3x emissions, it is the same as paying 3% in fees, but then again, I suppose it is all optics, isn’t it?

Thank you for your kind suggestion, unfortunately, it is extremely hard to sell a service the DAO officially deems unworthy, especially when they privately recommend a competing solution =)

The ultimate end game here is they won’t be, except for those DAO’s who are looking to play the “convert token to BAL/AURA” game via treasury farming and are insensitive to a negative ROI.

The more negative ROI bribing goes the more “voting incentives” active voters are collecting.

As an active voter this is a good thing for me. Still unclear why you think it isn’t.

Negative ROI for bribes makes no sense whatsoever, why not do Liquidity Mining instead? The whole point of bribes is that they are cheaper than LM.
I think it is great that you think as an active voter, but markets are driven by the offer side as much as the demand side. So what is the result? There are only 2 bribers left on this layer: Aura which does it because they don’t have enough veBAL under their control yet, and Lido who has specifically mentioned on their forums they were looking for alternatives.
Once you have finally made veBAL barren of all organic bribes, incentives will instead drown Aura voters while starving veBAL voters. All in all, it just breaks the whole bribing mechanism.

What I don’t understand is that you have created an extremely sophisticated system that takes value from LPs (50%) fees and subsidize them with BAL who are directed by voters who get the LP fees. This plan would be great, but because you think making bribes over emisions is a great idea, it becomes pointless. Here’s why: you totally disregard LPs. What do you think is going to happen once rETH holders understand you are taking 50% of their yield and only giving them half back in BAL? Now, you will tell me “they just have to farm on Aura to compensate” → True, for the next four months, when emissions decrease, what happens? Mass LP migration away from this unsustainable system OR just cap incentives to the 1:1 ratio.

I would just like to add that you very explicitally stated in BIP-19 you would love to have a unified marketplace as it would simplify the distribution of these incentives. We built it.

Why would we take fees that veBAL voters have a claim to and distribute them to LP’s via LM?

What do you think is going to happen once rETH holders understand you are taking 50% of their yield and only giving them half back in BAL?

?

If I understand, you’re implying that we can never earn more in fees than we’re spending in emissions? Because in a world where most of our fees are distributed via voting incentives and bribing ROI goes negative, this is effectively what’s happening.

Not Balancer, but the DAOs in general. If all in all it is more lucrative for them to be on another AMM that can auto-compound their yield, why would they chose Balancer ? You’re juste opening the project to needless competition.

I’m saying doing it like it is currently done is extremely risky. There are a lot of other ways to progressively raise the profitability without destroying the growth of the pools. GHO is coming to Balancer, this is a going to be a massive opportunity to pour in billions of TVL. Now, I would love for you to explain to stablecoin holders who want to migrate from a FraxBP to a Balancer equivalent, and tell them they are losing 50% yield versus what they had on Curve because of BIP-19.
Instead, would it not be better to achieve a point where all non distributed incentives are directly redistributed to veBAL holders? Let 1:1 bribes grow as much as possible and then the yield overflow is the benefits that you can either use to run the DAO or redistribute to veBAL holders. My guess is that in 2-3 months we are in yield overflow territory.

It is happening because you are sponsoring it, not because the market wants it. No one can compete against protocol sponsored incentives.