BIP-[XXX] Cap veBAL wrapper stableswap pools at 5% of emissions each

Authors: @Bobbay_StableNode , @Llama (@Matthew_Graham)

Motivation

The Balancer Ecosystem is growing. A significant part of that growth has involved the emergence of a number of veBAL liquid wrappers, each of which has its own function. These include auraBAL, sdBAL and tetuBAL.

The below tables and graphs about emissions to veBAL-related pools all came from this Dune Query:

auraBAL stableswap voting:

sdBAL stableswap voting:

tetuBAL stableswap voting:


As we can see, for the last few rounds, around 40% of emissions have been going to veBAL-based rewards in some way or another.

veBAL itself has a cap of 10% of emissions. This was implemented to prevent BAL hodlers from simply redirecting all emissions back to themselves without incentivizing liquidity from outside the protocol on Balancer. In the end, and as described in the Gauge Framework, the purpose of an AMM is to provide liquidity to those who need/wish to pay for it. An AMM that only trades one’s own tokens is not the goal.

In keeping with the motivation of the Gauge Framework, we, therefore, propose the following new rule:

All veBAL wrapper stableswap gauges should be limited at 5% of total balancer emissions (5% of veBAL voting) each.

Further, we recommend the following soft guideline and suggest further governance be considered if it is regularly violated.

No more than 15% of the vote weight is being directed towards veBAL and/or stableswap wrappers of it.

Specific Changes:

The following pools should all have their gauges replaced with new gauges capped at 5%. This change should happen with at least one full week’s notice and be performed in a way to minimize user impact.

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Guys,
at least be nice and include Tritium as a contributor to your work!

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So uhh, it’s just a coincidence that someone was farming the tetuBAL gauge, and then exited their pool (with substiantial size) exactly two hours before this forum post was created? Coincidence, right?

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Sorry to double post, I just feel bad shitposting and not saying much of anything else. (We will never know if that wallet is an insider or not, so the point is moot, too.)

I understand the concerns about Humpy and the tetuBAL pool, and from a neutral POV I totally understand the need to cap the gauge.

However, the fact that auraBAL has received higher than 5% of emissions in the past makes the proposal to cap these gauges at 5% seem biased and unfair.

A cap at 10% (which has only been exceeded by Aura once, as per the data shared from Dune) would make a lot of sense to me, and I would find it hard to argue against in good faith :slight_smile: (Can’t speak for others of course, lol)

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It’s public information that it is his work. His name is in the screenshots, and we have linked it to his dune analytics dashboard in the proposal. We appreciate his contribution, which helped paint a clear image of what is currently happening with gauges.

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Liquid wrappers take BAL out of circulation ad vitam æternam; multiple liquid wrappers do this both at an accelerated pace and in a more decentralized fashion. They also help create perma exit liquidity for BAL holders.

For liquid wrappers to capture BAL in circulation, they need to provide strong incentives to offset peg, liquidity and counterparty risks, which they do in forms of directing BAL (and their native token) emissions to their LPs.

Capping their gauges not only harms the existing flywheel but punishes any future entrant in competing with existing versions. See CVX ecosystem and the rapid pace of innovation that each new entrant is bringing to their system.

BAL trading highly correlated to ETH (0.7-0.8 - 30D) and holding its ground vs. the ETH pair is indicative that the current system is working pretty well. Excess BAL is largely flowing back and getting locked by existing veBAL participants and whales. LPs and projects can still generate 2x or more via bribes, largely due to the existing veBAL war participants.

And to be frank, I think it is ultimately better for liquid wrappers and whales with long investment horizons absorb BAL supply (as is) in the current bear we’re in than risk forwarding emissions to projects/players that rely on emissions to cover their burn rate or are in it just to dump BAL.

Vote-escrowed tokenomics is there to create a battle to control the money printing machine for years to come, play the game with your dollars and not your mouth.

Disclaimer: I hold veBAL, Aura, AuraBAL and TetuBAL.

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I think 10% is a more reasonable cap, consistent with veBAL guage. :slightly_smiling_face:

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Why have gauges when the DAO wants to control everything? I think a lot of these initiatives have happened as Aura is facing competition now from other liquid wrappers namely $tetuBAL and a lot of people in the inner balancer community are deeply involved in $AURA.

Aura recently created a proposal to enable using their veBAL to vote in governance decisions. This move also reduces the attractiveness for LPs of these liquid wrappers and as a result the pool hits a brick wall in terms of growth and is completely dependent on the price of $BAL to scale.

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Balancer has been very thoughtful on economic issues. Why is 5% per pool with a total cap of 15% across the 3 pools the right number?

For example, raising the cap to 10% would only result in ~20% capture across the 3 pools.

5% appears, on the surface, to favor Aura who only has ~5% and it undermines Tetu who has a much more significant holding. Aura’s close association with Balancer insiders makes this appear to be intentional.

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I don’t fully understand this argument that Tetu keeps making based on 2 things.

1: Tetu’s whitelist was approved around 1 week after Aura back in May. Since that time, a dedicated and focused team of AURA contributors have been working to apply the already proven “convex patch” to veBAL. Tetu has had all the time that AURA has had to exist under the same rules, so the arguments about how AURA has an unfair advanatge don’t carry so much weight with me.

2: Balancers goal, more than creating a fair breeding ground for wrappers, should be to create a healthy and growing ecosystem for all stakeholders. The AURA tokenomics, based on learnings from Convex, seek to create/add more value in all directions. Aura staking yields are high not so much because there are some yields on stableswap (that’s to provide liquidity), but because takes fees from “farms” offered to depositors that share the boost of veBAL and offer higher yields than depositing alone. Further, the AURA token is being slowly but consistently emitted, in a way that has added substantial additional yields to all balancer gauges for many months and shall continue to do so for many many more.

At least for now, everyone can make more money on Balancer because AURA exists and most of the value paid out to auraBAL HODLers comes from a 25% fee taken on that extra value being created. Can that be said for Tetu? I don’t think it can be yet, but I do see a lot of talented and energised people working to get there and am excited to see what comes out.

Tetu is in a tricky situation (through not fault of it’s own), whereby the cross-chain boost that was supposed to be in place doesn’t work, so there’s not really a good way to do much on polygon or other sidechains with veBAL other than allow for passthrough voting (which should respect the principals of locking more than it does IMO) and some sort of yields obtained from selling votes. We are all waiting for crosschain boosties gauges, it will be a glorious day, and when those exist perhaps Tetu will find new and amazing ways to add economic value to the ecosystem and bring in new DAOS and users from the polygon space.

For now though, I fail to see how Tetu is bringing tons of value to the Balancer ecosystem. In order for the relationship between Tetu and Balancer to be positive and long lasting (and I hope it is), conversations about the interaction between Tokenomics, The AMM, and Balancer need to shift towards builders thinking about how to create new value in the ecosystem, not about how to most efficiently farm rewards while minimising IL (this tends to also mean minimising trading or the potential to trade). I see a ton of potential here, and hope that everyone can remain focused on working together to build cool stuff.

The thing about liquid wrappers is that they also come with governance rights. As a result, depending on how those governance rights are used/bestowed they can be quite a centralizing force. Further, if the main way that a wrapper makes money is by voting for it’ own LP, it creates a blackhole situation where the most efficient way to earn yield on BAL is to deposit into the LP that votes 100% for itself. In this situation, you have perfect allocation of rewards to HODLers, in that deposits in the LP get 100% of the rewards being generated paid back to them (perhaps less some fees). This also means that no BAL is flowing to “those pesky LPs” in the AMM seeking to create liquidty for anything else :wink:

Balancer is an AMM, the goal of Balancer is to be a place where people come to trade their tokens, either through swapping or by putting them in liquidty pools that trade on their own. BalancerDAO makes fees based on this trading actively, and now also the management of upward rebasing assets at rest in liquidity pools. If all the rewards are being paid out to support BAL LP of some sort (veBAL, auraBAL, tetuBAL) then the entire system just folds in on itself and becomes nothing but the most basic and pointless of Ponzis. It’s for this reason that there is a cap on veBAL returns.

The veCRV(veBAL) contract/setups don’t solve all problems or work for all entities in all usecases. For this reason there is a lot of room to innovate, and wrapping locked governance and boosties (and finding healthy ways to redirect them) is one of the main ways this can happen. That being said, most of the value of a wrapper should come from the value it creates, not from the fact that it’s voting on it’s own yields.

The goal of gauges for wrappers should be to create sufficient liquidity for people to trade at decent volumes, not to make a given wrapper economically viable. We want DAOs to buy and lock governance so they can vote on their pools, bring their users/community to Balancer, and participate in the entire ecosystem generating revenue barring flows for the DAO.

Agered, but again, the battle is to create liquidity for your new stablecoin or gov token, not to build the best blackhole to suck up all the BAL emissions.

Good choice. Me too! Get some TETU also if you wanna have the complete “veBAL + frens index”

There’s 3 wrappers now (auraBAL, tetuBAL, sdBAL). If they all got 10% of veBAL each and then veBAL also got 10% of veBAL, 40% of all emissions would just be blackholing back into Balancer without supporting/encouraging any external utilisation of Balancer. veBAL or a single wrapper taking 10% of the vote seems fine, but I think 40% is too much. Because, from a BAL farming perspective, the veBAL blackholes described above are more capitally efficient than other forms of farming, as soon as one DAO starts to max out their veBAL stableswap, it creates strong competitive pressures for others to do the same. I don’t think that’s the arms race we want to define the next phase of Balancer Ecosystem Development.

What do you think the “right number” is? What would you suggest? To me more than 20% of emissions going towards veBAL (veBAL itself + wrappers) seems unlikely to result in positive/healthy growth in the Balancer ecosystem, but it’s just a gut feeling based on a lot of experience working with these kinds of systems.

I’d love to see veBAL also capped at 5% of emissions. Based on the fact that sdBAL is smol and seems to get less than 1% of veBAL voting for its stableswap, maybe it would make sense to set the limits at 7.5% per wrapper with an agreement to consider reducing the per wrapper limit further if/when more than 15%(or whatever number the community thinks is best) starts voting for wrappers + veBAL.

@Bobbay_StableNode as the author of this BIP, may I suggest that you consider running the snapshot with a few options about what the max cap per wrapper should be. Maybe 5%, 7,5% and 10% could be options. There doesn’t seem to be a lot of objection to the concept, and minimal concerns so far about the 15% cap across all wrappers, so maybe leave that there and use it as a reason to come back and reassess if too much BAL is getting sucked into veBAL wrapper blackholes.

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I don’t see anyone complaining yet about the 20% cap across all wrapper

Frankly I see a strong bias in this proposal. There are clear intentions to suppress a new protocol from expanding and the numbers intended to be proposed have a very weak rationale. Actors change but final goals seem oddly similar.

As a major delegate I formally request to have a deeper conversation regarding this proposal. Maybe rewrite it including a detailed motivation of the "why"s 5% should be a good final solution.

considering that once again caps seems to be the solution to world’s hunger, I formally request to take into consideration also higher caps and let Governance decide.

thanks

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I see a strong bias in this proposal away from veBAL blackholes being the primary source of value extraction for a protocol building on top of veBAL tokenomics. I think that’s healthy for the ecosystem. I think that’s a good bias for BalancerDAO to have.

Do you have a suggestion for what you think a good final solution should be and why? Do you agree that there is some level at which too many of the emissions are just being fed back onto stakers for staking BAL instead of participating in the rest of the AMM ecosystem? What do you think a reasonable maximum is, and how do you think the best way to divide that up between various wrappers and veBAL itself is? I think this thread gives us the chance to discuss that that and I suppose it’s up to Bobby if he wants to make changes and if/when what ends up written here goes to snapshot.

It seems to be policy, at least for now, that anyone can bring any properly structured governance to vote when they wish. I tend to agree that Balancer governance needs more process and checks and balances.

Do you have any proposal for the “formal” process" a decision like this should go through, and how it should be decided if and what goes to snapshot? You seem to think about these things a lot, and IMO Balancer governance could use some work/development in this regard. I would love to see a conversation and eventually a BIP about that.

In terms of this matter, is what you’re asking for the ability to vote between one of a number of options as I suggested above? I think in the end that’s up to Bobby, at least that seems to be precedent. Do you want to revisit, simplify and relax the caps laid out in BIP-57? I also think that would be a good idea sometime soon and would be happy to work together with you on another governance proposal around that.

DM me if you want to work on co-authoring some governance.

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15% per pool would equate to roughly 20% total. 10% per pool would result in roughly 15% total. The first is in line with your position that no more than 20% should go to these lockers.

This proposal aims to cap emissions so we can prevent too much BAL from being kept within the ecosystem. Currently, an excessive amount of BAL is returning to veBAL participants and whales.

There seem to be a lot of thoughts surrounding Aura, but as a protocol, we should aim to develop and retain win-win relationships with protocols such as Tetu. Still, we want to avoid BAL being absorbed into this black hole. We want to develop sustainable and beneficial partnerships, which this proposal enables.

Since community members don’t seem to object to some form of cap on these gauges. I would prefer to move forward by giving the 3 options listed; 5%, 7.5%, and 10%,

We presented an idea of a cap, and we prefer to see some form of a cap in place rather than no cap. If it takes going in the middle, 7.5% cap to see this cap put in place, then I am happy to support that.

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Good morning, everyone–great discussion all around.

Aura agrees that the amount of veBAL going to blackholes should be limited. Our tokenomics give us the flexibility to incentive auraBAL and its liquidity through multiple means. We’re willing to support any proposal such that it allows us at least 2% of weekly emissions to be directed to auraBAL stableswap based on veBAL voting. Additional liquidity incentives can be provided by redirecting some voter incentives on Hidden Hand to direct AURA emissions to LPs paid to LPs on the AURA dapp. If necessary, further liquidity incentives can be found by changing the fee structure to direct rewards from single asset staking towards the stablewap pool.

With that being said, anything from 2-10% would be acceptable on our end. Given that Tetu is a strong proponent of a 10% cap, we’d be open to that as well, as we do not wish to create an unfair playing field for others.

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Hi @Franklin ,

I’m not sure where Tetu officially proposed a 10% cap. Would you be so kind to point me to that info please?

As a Tetu delegate I am rejecting any cap proposed by the three options given.
Again, weak rationale and just randomised numbers that would favour Aura.

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The one common theme that repeats itself in the pro-cap camp (Tritium, Bobbay, Franklin) is this short-sighted “blackhole” argument, which basically alludes to Humpy’s emission farming using various tokens (CREAM, BADGER, COMP, GRAVIAURA, and now TetuBAL).

Before I simulate various scenarios, I will assume that we are all intellectually honest to accept the following statement:

1- Directing emissions to COMP, BADGER, CREAM is not the same as directing emissions to veBAL wrappers. The former benefits a smaller group, whilst the latter benefits the entire ecosystem by
a) creating buy pressure on BAL
b) removing BAL from circulation
c) adding permanent floor liquidity thanks to the innovative veBAL design
d) limiting max theoretical BAL sell-pressure which is capped to 80BAL-20WETH tied to the liquid wrapper
e) offering great pseudo delta-neutral farming strategies, generating borrow demand for BAL, which translates as yield for Balancer DAO

2- Humpy’s strategy has been accumulation to break-even than Alameda style farm & dump, which has contributed to the following performance alongside Aura launch:

BAL/BTC since veBAL launch = -2.43%
BAL/ETH since veBAL launch = -2.77%

compare this to CRV:

CRV/BTC since veBAL launch = -38%
CRV/ETH since veBAL launch = -39%

Now - let’s create some hypothetical scenarios and potential outcomes:

Scenario 1 - Humpy Goes Benevolent
We cap emissions to liquid veBAL wrappers and continue to play this whack-o-mole cap game for all pools. Humpy directs emissions to Aura/WETH, AuraBAL, tetuBAL and continues to accumulate BAL until next cycle to liquidate in profit.

Scenario 2 - Humpy is Pragmatic
We cap emissions to liquid veBAL wrappers. Humpy keeps some liquidity in the tetuBAL pool, withdraws the rest and begins diluting balancer bribes on HH using tetuBAL. He goes back to directing emissions to his portfolio of COMP, YFII, Aura, Badger and begins diluting balancer bribes on HH with the remaining veBAL.

Scenario 3 - Humpy Goes Chaotic Evil
Humpy stops playing the veBAL wars. Begins building a BAL short position. Uses all veBAL/TetuBAL to dilute HH bribe income. Begins farming AURA and AURABAL with his idle assets. Waits for his AURA to unlock. Withdraws all BAL-WETH liquidity from liquid wrapper pools and begins to systematically dump AURA, BAL on DEX and CEXs to break-even on his initial investment. Continues to dilute bribe income and liquidates all earned bal on a daily basis.

Instead of reactively trying to limit Humpy’s strategy to break-even with the rather short-sighted “we’re doing it for the ecosystem; imagine the growth after those emissions go to real pools” narrative - why don’t you address the man and offer him a strategy that benefits the whole ecosystem.

I’ll go first - no CAP, Humpy agrees to distribute emissions to Aura, AuraBAL, TetuBAL, sdBAL to make Bal attractive for other investors and LPs. That price stability and appreciation will help us grab more TVL from other competitors and maintain the current flywheel.

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I think one key point that is being neglected when looking at the numbers behind this proposal is the value being used to bribe for each of the pools being discussed. As far as I can tell Aura actively pays bribes into the greater Balancer ecosystem to support the emissions going toward the auraBal gauge, thus providing additional value to the ecosystem.

Although, as Franklin mentioned above any cap above 2% would be workable for Aura and would potentially allow Aura to shift incentives to other Aura supportive pools.

Interesting discussion nonetheless.

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Thanks for the feedback. As Tetu is rejecting everything, and seemingly has no official opinion on the matter, then we’ll respect Bobby’s original proposal and support the cap at 5.

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Please enlighten the community how this proposal enables ‘sustainable and beneficial partnerships’. Do you honestly believe humpy is going to stop playing the break-even game?

Please respond to my objections and arguments instead of creating this alternate reality in which this proposal have no objections from ‘community members’.

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