[Proposal] Balancer V2 Liquidity Mining Program

The key term is “very inclusive now.” That is good for progressive new projects who can now build on Balancer. The new system would be controlled by a small group of decision makers and only a handful of assets would be included, and no guarantee of continuity. That will change the whole project into something else.

There will be new platforms other than Balancer that will be more inclusive, so Balancer will take its course, and markets decide if that was the right one or not.

I understand the technical rationale, but I wonder if that is actually an excuse to make the project more exclusive and controlled. I am not against streamlining (i.e. one BAL/WETH pool instead of ten slightly different) though, as the proposal goes for Tier 1 and 2.

My counter proposal: Leave Tier 3 to small projects and assets without a cap of 14 in total, that would alleviate my concerns 100%. Consolidate strategic mainstream pools as suggested for Tier 1 and 2.

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I will add that ~80% of my ALL assets are now pooled in Balancer, so I have skin in the game.

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Thanks @icinsight, I also thought of the option of having a flexible number of slots, especially for the last tier. The problem with that is that then we would have to either:

  • change the total amount of BAL distributed every week (which to me is a no-go as the project needs predictability on the inflation)
  • change the amount of BAL for the higher tiers (which is also not good IMO as the stakers there need some predictabiity)
  • change the amount of BAL for the Tier 3 slots: this could unpredictably dilute the amount of BAL that all pools in Tier 3 would get, which in my opinion is also bad as we need consistency and predictability also for the pools in Tier 3.

I think giving a chance for projects/protocols to show their worth during 4 weeks of Tier 3 is a great compromise. If they are performing in terms of volume, number of unique users and other important metrics then they will be kept among the pools included in Tier 3.

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Well, that is one compromise. Dividing 2500 by 14 or some other number should not be an issue. I agree that 2500 is low, but it is better than zero for the majority of the small projects. Monitoring users and volume is a fair requirement for an ongoing inclusion.

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I think this is something we could consider, but I fear this could expose individual Ballers that position themselves against projects/pools. We all know how mean these crypto armies can be.

By having a decision + rationale owned by the whole group it’s much harder for specific Ballers to be singled out for pressure/blackmailing. Happy to discuss this further though.

Glad to see discussions around this pick up!

I don’t think we should move in that direction. A four-weeks commitment is too long - it reduces the flexibility of the program and I’m afraid it will hurt our ability to accomplish Goal #3 from Mike’s excellent post kicking-off the V2 Liquidity Mining brainstorm:

I understand the concern and appreciate the care for small liquidity providers, but I would rather not sacrifice the LM program’s flexibility for this. Eventually this will probably be addressed by solutions built on top of the staking contracts - eg something that aggregates BPT before staking.

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Maybe 4 weeks is a bit too much, but I still think being able to add a pool to LM and then removing it after just 1 week would not be right with the stakers and token project added. This should maybe still be an option but IMO only in extreme cases (for example something fraudulent with that token/project was found). The agility Mike talks about can still be reached by adding new pools every week, it’s just necessary for Ballers to plan accordingly so they always have some slots that can be freed at any given week (i.e. at least one pool has already completed the minimum duration).

Curious what @mike thinks would be a good compromise in terms of minimum duration of a pool receiving LM.

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Some great discussion going on here, lots of good thoughts from everyone.

I agree on a number of things, namely:

  1. I it’s important that BAL pool APY’s remain solid, and greater than the majority of other pairs. Either that, or we need to think of some other kind of staking mechanism (e.g. a dBAL token which is the token eligible for a share of protocol “dividend” fees/other benefit which requires some kind of lock-up, although we’ve not voted in such fees yet) to ensure that V2’s launch isn’t accompanied by a sell-off, which wouldn’t reflect on the launch well.

  2. I think it’s right to have a way to add BAL rewards to particular high priority pools that are essential for ensuring a good trading experience, as suggested in the current plan. Same goes for being able to nimbly respond to new projects and attract users when particular tokens are “hot”.

  3. I share the concerns of those worried about “small asset” pools that will in effect lose their APYs as a result of this new program. I’m concerned that the new program optimises a bit too heavily towards traders rather than LPs. The thing that attracted me to Balancer initially was that I could pool any combination of tokens I wanted and then also earn BAL + fees for doing it. I get the impression that this is the same for a fair few LPs and I worry that losing this could make a usecase that attracted a lot of early users (who then went on to do other things with the protocol too) unprofitable.

I understand the argument that pools should be sustainable just based on fees, but IMO shorter term there is merit in attracting broader longtail liquidity, especially if we want to make the Balancer exchange a default destination people consider for all trades, like Uniswap currently enjoys. I think it’s worth emphasising that the reason lots of these pools are profitable on Uniswap is because it’s already this destination, which Balancer won’t immediately be.

  1. There’s definitely a trade-off around changing incentives too quickly pool-to-pool in the third tier. I’m not sure what’s best here, but I expect a compromise can be found in the 2-4 week minimum range.

  2. I’m a Baller myself so won’t get involved in discussing the committee idea too much in terms of for/against. I think a committee has pros e.g. it’s good in that it means decisions can be made quickly. Although it will be important that the process is seen as transparent, and absent of bad actors. All I will say is that Ballers to date were nominated for contributions to the community long before anything like this was proposed, and I have a lot of trust in everyone in the group currently to do right by Balancer.

Given the rewards are public in their very nature, there is also public accountability for all decisions the committee makes: if dodgy projects make it into rewards with flimsy justifications, it will be easy for the wider community to be able to tell. Where the larger risk for potential influence occurs is choosing between legitimate projects where it might be more like a coinflip what to include/not, although such a decision would at least be less significant in terms of its impact than scams etc, even in a worst case scenario where something bad happened. I think this is something to continue thinking about.

  1. I’d be very pro the idea of merging the two liquidity programs somehow, so e.g. half of BAL rewards being distributed as per the current system (perhaps removing balFactor), and the other half being prioritised as a “boost” for specific priority pools (which include a couple of BAL containing pools).

While I understand the desire to decentralise and also reduce the workload associated with this, this would reduce the risk of quickly losing the longtail of tokens that Balancer is currently quite strong for. It would also offer an opportunity to migrate fully to the new system at a later date (or otherwise transition slowly) in a lower risk way, after we’ve fully learned the pros/cons of the new program, which I’m sure won’t become fully evident until we see it running live.

I’d see this as a short term idea rather than long term solution, that at the very least ensures people can migrate their v1 pools to v2 and earn rewards like they’re used to being able to, and see the benefits of v2 before BAL rewards for the majority of pools aren’t incentivised. I worry that without an initial incentive like this in place that lots of people will just abandon their V1 pools and not migrate their liquidity.

It may even be worth thinking about delaying this “new” incentive program until after V2 is fully up-and-running, with the current reward system migrating like-for-like to V2 to get everyone to migrate their pools over, then transitioning towards this by slowly reducing the old style rewards & ramping up the new program in a way that reduces the risk of capital flight.

Anyway just my couple of cents. Very excited for V2 and the protocol being able to prioritise pool rewards better, will help in lots of ways I think.

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I fully support @bakamoto20 general comments and proposal to wait until V2 is launched and then slowly migrate to different reward programs. There are just too many moving parts at the moment.

And to clarify: I have nothing against the proposed list of ballers per se, but just general considerations on how misbehaviour can be prevented in the best interest of the project.

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I would like to speak on behalf of the smooth-brain-first-crypto-cycle investors like myself, because there are more of us then there are of you and you will need us to scale balancer further.

It took me close to a year of working with defi to finally latch on to balancer, so right off the bat you have a barrier to entry because the protocol is slightly more complex than other AMMs. And that’s not a bad thing! Balancer stands out, you have to dig a little deeper, not much, but for smooth brains it is a fair bit more than say uniswap. The reason I jumped onboard and invested a hefty amount of my holdings into eth/bal and btc/bal pools was absolutely 100% based on ROI. I like balancer, it’s different, slightly more exclusive, and it gives GREAT rewards.

If you reduce this reward incentive make no mistake about it, we the smooth brains do not care about the brilliance, the engineering, the tech. We will go elsewhere.

I just felt it needed to be said, cutting through the loftier ideas in the chat.

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First off, let me fully put my humble weight behind this suggestion.

Next, I feel the need to ad some points on my own.

There seems to be a huge consensus around the idea that we need to incentivise LPs with rewards. Returns are made out of rewards plus fees, and so the consensus implies that Balancer is incapable of generating enough fees to attract LPs. I disagree with this notion. More focus could be put on attracting volume and reducing other risks for LPs. Paying LPs for participation is not a sustainable model. Using scarce resources like BAL to invest in unsustainable advantages is not good practice.

As I feel alone in the above sentiment, I don’t expect the community to agree and so given that we have to incentivise LPs, I strongly believe they should support a broad and diverse base of tokens - as this plays into the unique properties of Balancer. Incentivising a few pools centered around a few core tokens feels to me like a “we also want to be Uniswap” strategy, which again, is not good practice. Embrace what makes Balancer unique, do not use BAL rewards to undermine it.

Why are we not considering incentivising tokens instead? As I understand V2, the notion of “pools” is less of a fact, and more of a concept and so this could easily be reflected in rewards too. Whitelisted tokens (and I do believe some QA is warranted for tokens to be eligible) could share the reward pool and be capped for rewards at some sensible level derived from trading efficiency. This also allows for special treatment of BAL, who could be the only token in the superior tier. This doesn’t really require the ballers to do anything but white- and blacklisting tokens, but it would make for a much more organic and natural ecosystem.

Balancers strengths are in flexibility and diversity. We should make that efficient and safe (those are two very different vectors), as this will sustain an ecosystem that is responsive to signals in the market and also attractive to a significant number of LPs, aggregators, arbs and end users. I think lower eth fees is a big win and a major contributor to increased volume. In addition, parts of those saved tx costs can clearly be captured as fees as well.

Let’s be a bit smarter about this than just providing more BAL for BAL holders. I get that it feels good, but seriously. It’s bad practice.

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I think that on a long term basis everyone agrees, but in the short term the liquidity mining rewards doubtlessly attract LPs, which is essential for being able to facilitate larger trades and compete on volume with other DEXs.

My understanding is that the intention isn’t to run rewards forever, but to get Balancer to a stage where it’s the primary source of programmable liquidity on ethereum, so that trading fees alone make pools profitable. Rewards will be voted out by governance when they’re deemed no longer necessary.

It’s the old two-sided network problem: you need trading volume to attract LPs, and LPs to attract trading volume. Rewards short-circuit building one side of the network by offering APY to LPs in the short term, so that Balancer can grow to a critical mass where they’re no longer necessary.

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I strongly agree with these two ideas.

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Another thought here in regards to distributing BAL rewards is to slowly lower the amount of rewards given to major pool receivers in relation to the price performance of BAL token. A flat percentage APY could be maintained, ideally, rather than a flat rate of BAL distributed. This would be very fair and allow for further BAL distribution to other pools without making V1 long term BPT holders suffer. And for now we really ought to keep the whales right where they’re at. They’ve taken the most risk to be here and they provide the most liquidity to the platform.

P.S. - As a smooth brain speaker I am awed by everyone here. I apologize in advance if I missed someone’s thoughts that may have already addressed this idea.

“You” in this post refers to “all of you guys who seems to disagree with me”, not focused on @bakamoto20 in particular :wink:

You think we need to incentivise LPs to come around. I think you are right for a lot of liquidity, but I’m, not convinced;

  • we know what share of liquidity depends on rewards, what share of liquidity is removed if we cut rewards in half?
  • we know how much liquidity is considered critical mass
  • that the proposed incentive system takes either of the two preceding points into account

You think the best way to deploy incentives it to focus them on select pairs or tokens, I think if we have to use rewards they should be much broader distributed in support of the whole ecosystem. If we focus on select pairs for deeper liquidity, we are trying to become more like Uniswap. If we go the other way, we become more “Balancer”. I am very much of the opinion that providing liquidity to a lot (no, a LOT) of tokens is the right way to go for balancer (yes, just opinion, not data)

Based on the suggested rewards structure, You think that the more liquidity the better - for the select pairs or tokens.

  • I have not seen any data driven opinion about the marginal usefulness of added liquidity. There very likely is a right answer to this, but “as much as possible” is not it.
  • when we incentivise more liquidity on the platform than it can use in a valuable way, we take down the rewards for the existing liquidity. That is, we introduce inefficiencies in the economic model that we then have to compensate for by providing rewards. And we do this without knowing the answer to the previous bullet!

Finally, on BAL. It is clearly of high value to the project and should be used accordingly. When we release more BAL we also dilute the future value, whatever it may be. This dilution, the risk many talk about, would be far less if we stopped giving it out in the reckless way we now do. Again, ceasing the practice, would remove or reduce the need for it. Granted, BAL needs to have utility beyond accumulating intrest in it’s own currency and platform governance - but that’s true anyway. To me, Stacks seems to be on to a very interesting idea. Stakers are paid not in STX, but in BTC. This removes the inflationary pressure and turns STX into cashflow instrument.

I don’t have the time, tools or data available to do the calculations to find out what options we have and the best decisions we can do on them, but I do not see traces of a lot of data in the proposal and above comments, and that’s … bad practice.

Much appreciated for everyone’s feedback!

This has been a healthy discussion and we hope to address everyone’s concerns. From our perspective, there were two main points of pushback:

  • Yields for BAL LPs under this proposal will be too low
  • Ballers have too much control over the liquidity mining.

After discussing internally along with some of the folks at Balancer Labs, we want to amend the original proposal to address the above concerns. Given that the proposal already has enough voting participation on the poll in favor “for” (70% in favor, 30% against), **the proposal outlined below will move to a formal Snapshot vote on Friday, April 15th in order to prepare for the upcoming launch of V2.

We hope that everyone participates and weighs in their sentiment on-chain.

We’d also like to highlight that no members of FireEyes DAO will participate in the committee as a result of the feedback.

I’d also like to highlight, as mentioned on Bakomoto’s feedback, that this system can always be changed in the future via normal governance processes if the community deems it unfit after its implementation (assuming it passes). That’s the beauty of open, decentralized governance!

Lastly, the section surrounding the govFactor has been removed and made into its own proposal. You can view, comment, and vote on it here.

Here’s the official proposal that will be featured on Snapshot:


Motivation

Crypto moves fast and the AMM space is as competitive as ever. In order to stay relevant and to attract significant liquidity, Balancer needs to implement a flexible Liquidity Mining Program which targets high priority pools and can respond quickly to changing market conditions.

Unfortunately, this can result in significant overhead for normal BAL governance. Constantly weighing in, voting, and checking the forums on a daily basis can be a hassle for most BAL holders.

As a result, this proposes having a dedicated committee of core members to the Balancer protocol to lead this charge and ensure that the protocol is always incentivizing the right pools, at the right time.

Specification

Balancer V2 Liquidity mining incentives will operate in three tiers governed by a combination of BAL governance and the Ballers Committee.

Tier 1 will be voted on by BAL governance while Tier 2 and Tier 3 are voted on by the Ballers committee.

All Balancer community members will retain the right to make proposals and signal support for T2 & T3 Liquidity Mining inclusion. The Ballers Committe will act as a liason between community sentiment and formal changes to the program. Discussions on Liquidity Mining inclusion will be open for all community members on both Discord and the Forum.

The Ballers Committee will have no control over the Tier 1 slots. Instead, they will be governed by normal BAL governance which will be put up for vote every 12 weeks. Additionally, all decisons made by the Ballers Committee (along with voting addresses) will be made public for everyone to see prior to implementation.

In order to accomodate for sufficient yield to attract liquidity on certain pools, more than one slot may be allocated to a single pool by consuming additional T2 and T3 slots as voted on by the committee.

The timing for changes on each tier outlined above is a guideline–BAL governance and the Ballers Committee will always have the right to change tiers if the market conditions deem it necessary (examples include rug pulls, bugs, and other issues which would require quick response by governance).

BAL/ETH Pool

In order to mitigate the reduction in yields for the BAL/ETH pair, the Ballers committee will aim to target the existing returns in V1 (60-70% APY) through the use of additional T2 & T3 slots.

It’s important to highlight that there are a significant amount of variables that will affect the BAL/ETH APY (as well as all other pools). This includes amount of liquidity migrated during the transition, amount staked, tiers consumed, etc.

With all those variables, The Ballers Committee will be responsible for trying to ensure that the APY on the BAL/ETH pool are in line with the above.

Transition from V1 to V2 Mining

The transition from Balancer V1 liquidity mining to V2 will be gradual and take several weeks. This will start with only a few of the Tier 3 (T3) and Tier 2 (T2) slots being filled by top priority pools, with new slots being "activated’’ on a rolling basis, targeting every week.

At every activation, the corresponding amount of BAL is subtracted from the weekly amount available in the V1 liquidity mining program. This way the total BAL distributed through liquidity mining between both V1 and V2 pools will always stay the same at 145,000 BAL per week.

As the community becomes more confident that there are no vulnerabilities in the V2 smart contracts, more of the liquidity mining program is expected to shift from V1 to V2 until the entirety of the V1 allocation is exhausted. This can happen by having more of the available slots being assigned to V2 pools, and also by upgrading a V2 pool to a higher tier.

The transition period will aim to take roughly 8 weeks from the start of V2 mining. At the end of the transition period, Tier 1 slots will be allocated to these pools:

  • 80/20 BAL/ETH, dynamic fee
  • 60/40 ETH/DAI, dynamic fee
  • 50/50 ETH/WBTC, dynamic fee
  • DAI/USDC/USDT stable pool

Ballers Committe

The selection of Tier 2 and Tier 3 Liquidity Mining Pools will discussed on a weekly basis according to community input and signal, and voted on formally by the Ballers Commmitee.

The Ballers Committe is open to everyone. Any engaged individuals in the community can be elected by fellow community members to join the committee. More on this below.

The goal of using the Ballers Committee is to avoid extensive overhead on BAL governance as well as to provide quick responses according to market conditions.

Ballers will use a specific Snapshot space (separate space from traditional BAL governance) so that the community can easily keep track of those decisions.

All decisions made by Ballers will be made public on Balancer’s forum shortly after the end of the committee weekly meetings (ideally within 2-3 hours). Highly respected individuals and working groups in the space may also be invited by Ballers to these meetings to provide strategic input. That said, they will have no formal voting rights on Snapshot.

Additional Background on Ballers

Ballers are active members of the community that have gone above and beyond by contributing significant resources and time to the Balancer Protocol. There are currently 10 Ballers in the community as assigned by their tag on Discord.

Ballers are currently elected by the team at Balancer Labs, however, there intends to be a formal governance process by BAL holders surrounding the election of future Ballers and the encompassing committee.

With that, The Ballers group is expected to expand and rotate over time, encouraging regular community members to keep a high level of engagement so they can eventually become Ballers too!

BAL governance has the ultimate power to elect and dismiss Ballers through Snapshot votes. Ballers and the broader community will constantly assess how participative Ballers are and how good their decisions on the allocation of liquidity mining slots are.

Drawbacks

  • The Ballers Committee is a small group of individuals and can poses centralization risks, collusion, etc. It’s important to note that BAL governance always retains the right to remove Ballers from their position. In addition, becoming a Baller is a selective process and requires a significant amount dedication to the protocol–meaning they’re extremely aligned with the success of Balancer!
  • This structure would eliminate liquidity incentives for the long-tail of pools. This is true, however, the upgrade to Balancer V2 drastically increases gas efficiency and creates a natural incentive for project teams to drive liquidity to Balancer given its competitive conditions for trading, namely lower gas costs. Importantly, some competitors don’t offer liquidity incentives at all and still have sufficient liquidity for the long-tail of assets. We believe that V2’s upgrade is substantial enough to compete with this market dynamic.

Summary

Balancer V2 liquidity mining will operate in 3 tiers. Tier 1 will be voted on by governance on a recurring basis while Tier 2 and Tier 3 pools will be strategically assigned by the Ballers Committee based on community sentiment.

It’s important to highlight that certain pools may be allocated more than one slot by the committee. For instance, the BAL/ETH pool may be elected multiple slots in order for the APY to tentatively match the BAL/ETH APY on V1 as mentioned.

All community members will always have the ability to signal their support for liquidity mining inclusion for T2 and T3 pools in order to guide the committee.

The transition from V1 to V2 will take place over a targeted ~8 weeks with BAL liquidity mining allocations incrementally migrated to V2 on a weekly basis. Throughout the entirety of the migration, the weekly BAL distribution will remain constant at 145,000 BAL per week spread across both Balancer V1 and V2.

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Really nice work addressing all the above concerns.

It’s tough to squash every nuance, but this feels like a really nice foundation for us to build off of us and iterate on.

Love the transition to T1 being voted through BAL governance and T2 and T3 being slotted by Ballers.

The target BAL APY feels great and leaves a lot of flexibility to adjust through additional slots in the future.

Keen to see what other community members pop up to join the Ballers. More context on this group here for anyone wondering more about this role and how the name came about!

Overall, I’m in favor of this proposal and will be voting in favor.

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my only concern is the APY targeting for bal/eth. maybe my numbers are wrong but I estimate ~68k BAL weekly is required for current 70% APY. That would require BAL/ETH to have 10 Tier 2 allocations + 1 Tier 1 allocation (5k BAL x 10 + 15k BAL = 65k BAL).

is this a realistic expectation? may be setting ourselves up for problems later by saying we’re committing to target this kind of APY.

@DavisRamsey is correct.

To maintain the current APY, the BAL/ETH would require around 60.5K BAL tokens per week. This is of course subject to changes depending on pool size and BAL price.

Wouldn’t be easier to simply allocate a fixed BAL supply to the native token pool (in this case the 80/20) without messing around with tiers?

I think this would possibly simplify reward allocations and create a simpler structure.

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Agreed!

From my perspective, this is just the starting point as we wanted to address the concerns around the significant drop in APYs under this program.

If the community is ok with lowering the target APY in the future (via discussions & on-chain vote), then there’s nothing stopping this system from doing that.

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