As the liquidity mining migration nears completion and additional deployments of Balancer v2 are coming soon to L2’s / side chains like polygon, I wanted to begin discussion around activating the protocol fee. For the unaware, Balancer v2 has the ability to impose a protocol fee that will collect a percentage of liquidity provider fee earnings. It can be set from 0% currently to as high as 50%.
This proposal would set the protocol fee at 10% on all current and future Balancer v2 deployments. This means LP’s would retain 90% of their fee earnings and 10% would go to Balancer protocol. A future proposal would address possible uses for these funds, such as reinvestment on Balancer, yield farming using other protocols, and paying out some portion to BAL holders. This proposal would simply begin passive accumulation of fees.
For comparison’s sake, Sushi takes 16.67% of their LP’s fee earnings (0.05% out of 0.30%).
Years from now Balancer will complete its path to decentralization when Balancer Labs hands control over future development, marketing, biz dev, etc to Balancer DAO. While our earning power is small currently, accumulating a treasury now has many benefits:
- Exposure to future upside of every token supplied on Balancer
- Having a say in governance of other protocols (we accumulate their gov tokens)
- A well diversified treasury reduces risk of having to sell BAL in the future to fund operations.
Essentially Balancer starts to become a token with direct exposure to ETH and DeFi plus a supply of stablecoins. The earlier we begin accumulating a treasury the more hardened the protocol will become against any future extended price drops.
Before the crash in May, Balancer v1 was averaging between $1M and $3M of LP fee earnings per week. The last two weeks, Balancer v2 was around $440,000 of LP fee earnings per week. I think we can reach and exceed v1 levels of earnings relatively quickly between optimization of our ETH mainnet incentives and adding other deployments like polygon.
All current and future deployments of Balancer v2 would activate the protocol fee at 10% via transactions from the relevant multisig. Proceeds from the protocol fee would be passively accumulated until a future proposal is made as to how to use them.
- Yes, let’s do it.
- No, we should wait.