[Proposal] Increase BAL Reward Flexibility for LM Committee

Updated on July 12th: proposal to move forward as below, no modifications proposed during RFC.

Background

We’re now approaching a couple of months into the V2 Liquidity Mining Program, and everyone’s been learning what’s good about it, as well as where improvements could be made to make the most of every BAL token we allocate. Since the launch, we’ve added a new Tier 4 (following a governance vote), and introduced liquidity mining rewards on Polygon. We’re quickly gaining traction on Polygon, and created a lot of excitement around Balancer, which has been awesome.

Over the coming weeks, there’s plans for launching on Arbitrum (although we need to be mindful of spreading liquidity mining rewards too thin + liquidity fragmentation), new stablecoin pool deployments, and a number of dual incentive partnerships.

While all very positive and exciting, these plans create additional pressure on the limited number of liquidity mining slots we have, and it’s becoming difficult to envisage how everything will fit in without further changes to the tiers and slots. We also have some potential partnerships with smaller projects where weekly BAL rewards as low as 250-500 BAL may make sense, which the committee doesn’t currently have the power to grant (the smallest we currently have available to us is a Tier 4 slot, at 1,000 BAL per week).

Core Proposal

I propose that moving forward, the Liquidity Mining Committee would be given the freedom to flex the number of Tiers, BAL per week for each pool in each tier, and number of pools in each tier. Tier 1 would continue to be locked in place, and be unchanged.

In addition to this, the Commitee would have the ability to operate a different LM Tier structure on each network we incentivise, such that tiers could be different on Matic to Ethereum for example.

To illustrate with hypothetical examples, this would mean:

  • The Liquidity Mining Committee would have the ability to decide that Tier 2 pools should now receive e.g. 4,500 BAL per week rather than 5,000 BAL per week per slot, then allocate the additional BAL to newly created slots.

  • The committee could introduce an entirely new Tier 5 for 500 BAL per week with 10 slots. To give an example of a use-case for such a tier, we have been discussing the idea that the majority of Balancer LBPs for legitimate projects should be able to expect 500 BAL/week in incentives for a 2-token pool for 8 weeks after their launch. We would then seek to work out dual incentives on those pools where possible, with the intention they bootstrap liquidity with us rather than e.g. Sushi.

Due to the nature of Matic and the fact we have double, sometimes triple rewards on pools, we may benefit from being able to go as low as 250 BAL/week + equivalent matic for e.g. partnering with a Polygon native project on a single 80/20 pool, in a context where we may often have to move quickly to beat a competitor to it.

What would the Liquidity Mining Committee not have the ability to do?

  • Change Tier 1 in any way, without a wider governance vote.

  • Change the total amount of weekly BAL rewards: this is fixed at 145,000 in total, across all networks.

  • Provide any amount of liquidity mining rewards to a new network (e.g. Arbitrum), without a wider governance vote.

  • Change the amount of weekly BAL rewards any currently incentivised network receives in total, without a wider governance vote. So the 25,000 BAL per week going to Matic pools would be fixed, as would the current 107,500 per week going to V2 on ETH and 12,500 going to AAVE on V1 on ETH.

All changes to Tier structure or pools would need to be voted on and approved by the committee.

Dependencies

None that I am aware of. The frontend liquidity mining script has already been updated to be more flexible, such that we could allocate any amount of BAL to any pool.

Risk Assessment

Firstly, I see no greater risk that Committee Members could “go rogue” and mis-manage rewards than they could with the current structure. As it stands, we can allocate multiple slots to an individual pool, for example.

Probably the biggest risk is that the committee changes the structures too quickly/frequently and LPs find it difficult to keep up. This can be addressed by the committee announcing changes clearly, planning major changes well in advance (with consideration for LPs, especially on Ethereum Mainnet where gas fees can be high for smaller LPs) and using phased transitions when rewards for pools are being reduced (e.g. no shift from 5,000 BAL per week this week, to 0 BAL per week next week, unless e.g. a token in a pool fails).

The user interface accurately showing rewards makes it easy for people to tell in V2 if the rewards for their pool have changed, reducing this risk in comparison with V1. The flexibility afforded to us by this new proposal passing would also make both phasing pools in & out easier, as more granularity would be available to us.

Another risk is that managing the liquidity mining program takes too much time for committee members. Given that it’s a core part of our marketing currently, and so important, it’s reasonable there should be time, effort & debate involved in managing it correctly. If managing the program becomes too time consuming for a member, we can work on improving processes, hiring additional committee members, or remove a member if they (or the rest of the committee) don’t believe they can perform their role any longer.

Any committee member would be able to bring up concerns within the committee each week, where the rest of the committee can work with the member to try to resolve the problem.

In the future we may want to go further and look at creating specific roles for committee members, to define responsibilities & spread workload formally.

As the program progresses, there will likely be fewer weekly changes, so while there could be more slots in the future, fewer will likely be changing each week. We will also continually learn what works and what doesn’t work, which should make things easier over time.

Governance would continue to have the power to halt the powers of the committee at any time, or remove members from the committee if it deemed such an action appropriate. The need for committee votes to pass changes each week would provide several days for governance to intervene, were such an intervention deemed necessary for some reason also.

Open Questions

Are the current members of the committee all happy with increasing this flexibility? If not, why?

Are there any risks or concerns that wouldn’t apply to the committee’s current powers, that would become concerns if this greater flexibility was introduced, that I have not thought of?

Next Steps

I would like to propose that the RFC runs through to Saturday 10th July, with a proposal published early the next week so we can take the proposal to a vote starting July 19th, unless there are major concerns raised which introduce the need to delay. The reason for wanting to move quickly with taking this to proposal is the opportunity cost of each week delayed on Polygon in particular.

3 Likes

I agree with @bakamoto20 that more flexibility in LM will allow the committee to react quicker to market forces, competitors and of course try out different LM strategies that are unique to Balancer.

I think the market innovates at breakneck speed and competitors are moving even faster to capture alpha in this sideway market. Its insane just thinking about it - In the past 3 months, almost all respectable DEXs deployed a major technical/ features breakthrough. We simply need to move faster to keep up - and have our shot at competing too.

In terms of risks, I feel that the current committee has high Discord engagement, respectful, and good decision making framework, which essentially flags out bad actors and makes all finalised decisions well thought out - all in all, I think this is a low risk, high reward move.

4 Likes

+1

I think Ballers have shown their serious work in these first weeks of managing the LM slots and more flexibility would be quite helpful.

Important reminder for those who could be afraid of granting more power to Ballers: if ever the community feels Ballers are doing a poor job it can quickly remove/replace the committee with a community vote on snapshot. Therefore the risk is quite low/contained.

4 Likes

Hi @bakamoto20,

would you consider redesigning the tier structure this time not based on LP TVL but on chain TVL?
I.e. (ATM)
Tier 1: ethereum
Tier 2: polygon
Tier 3: arbitrum

and within those groups having sub tiers?

Maybe this could be a way to streamline BAL allocation.

This is sort of how I could see it progressing, so we maintain a spreadsheet for each chain. Probably no need to refer to each network as a tier though. In terms of what I’m proposing we wouldn’t have the power to vote more BAL rewards towards a particular network however, governance would need to do that (I think it makes sense that governance retains that too, as a new network / shifting the balance is a major strategic decision).

2 Likes

To update everyone, given no suggestions for modifications during the RFC period, I’ve updated the tag to Proposal and will wait to see if there are any final comments this week before moving to Snapshot.

I just want to note that the governance vote that approved allocating 12,500 BAL/week to AAVE/WETH stakers also empowered Ballers to adjust this pool’s allocation as they see fit until September 20th. Snapshot

IMO we should make sure the wording that goes to a vote in this proposal doesn’t remove that power.

3 Likes

Hi @bakamoto20,

As previously said, in general, I agree with the idea of giving more flexibility to the committee. I anticipate great interest from various minor projects in the deployment on Balancer. But I feel I have to call for a bit more conservatism on the potential reduction of rewards in the BAL/WETH LP. We are in a transitional phase with a general interest in introducing a staking program, mostly based on the current issue of BAL and the potential of attracting new fresh capital to that specific pool.

I wrote something here about it.

In general terms, therefore, I will support the proposal on the condition that at least for the moment we do not touch the allocation on the BAL/WETH.

All this at least until the final RFC proposal has been defined and a general agreement reached.

What do you think?

Hi Andrea, perhaps you have misunderstood something: the intention isn’t to take more BAL away from the BAL/WETH pool? We “lend” empty slots to that pool, so we have space for other pools being added to LM without having to take away from another. Perhaps you are suggesting we should have a minimum for that pool that’s greater than 15,000 BAL/week, though? (At the moment we have a 15k/week minimum, and committee targets 40-50% APY)

1 Like

Hello Bakamoto,

I’m aware of the slot allocation and the intention to target a specific APR.

I’m just looking at a broader picture and trying to connect two very important proposals (yours and the staking program ~ still discussed) so we can have a foundation we can build on. All I’m saying is that I would favour a specific number of BAL rewards if the staking program goes ahead as proposed so to give certainty to potential LPs.

This is just a suggestion looking at some mid/long term implications. Thats all.

Ah I see, yes, and it should probably be 25,000 - 30,000 per week or so. If we then allocate extra BAL to the pool in order to help us with slot management, that’s just a free bonus.

1 Like

To update everyone on this, I have parked this for now. After further conversations we decided this could make managing the committee too demanding on members’ time with the current setup.

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Update: as a stop gap until we have the committee & processes more formalised, we’d like to propose that the committee is allocated 5,000 BAL/week which it can allocate to whichever pools it likes, in whatever size it wants.

This would replace an existing Tier 2 slot, which the committee will decide on.

The idea is that this flexible BAL pool can be used to incentivise pools where 1,000 BAL/week is too much (e.g. there are some TEL pools on polygon where we might want to do some dual incentives on a few of their pools, but not commit so much BAL), and generally add some greater flexibility, without making everything flexible like the proposal above does.

Does anyone have any thoughts/concerns with this, before I put it to a vote on Snapshot?

2 Likes

I fear that the allocation of those BALs would create a sense of uncertainty related to the total discretion given to the LM committee.

I would probably wait for this proposal until we have a clearer picture of what direction we want to take.
I understand the urge to find a decent short term fix to the allocation of some BAL to certain pools, I would suggest, however, a more structured approach to tackle once and for all this issue.

1 Like

I strongly support the proposal for granting the LM Committee flexibility in determining BAL allocation. For instance, TEL is a project that currently is incentivizing it’s liquidity providers with a set number of rewards. As I understand it, the minimum allocation (1000BAL/week) would far exceed the fiat value of the current TEL rewards and would not be able to be allocate BAL to the TEL pools. However, if there was flexibility where the 1000BAL/week could be divided in half or even lower, BAL rewards could be granted to those pools to appropriately match the TEL rewards. I realize the proposal covers multiple issues but this would be one scenario where it would benefit BAL and TEL users. TEL is building a giant ecosystem on Polygon that will heavily use and generate fees from millions of users down the road. The LPs will only grow from here. With all new projects and pools bringing new users to Balancer, I believe the allocation of rewards (to pools not currently able to receive rewards) will not only entice users to purchase BAL but allow new users to adopt this ecosystem as their primary source for LPs and foster an environment where projects can build out their vision and keep users here despite the competitive landscape.

3 Likes

Agreed.

I think this flexibility is totally aligned with the vision of many projects building/partnering with Balancer, since many of them will like offer joint incentives to which our existing LM slots won’t be suitable (1k BAL is often way too much).

2 Likes

+1 to increased flexibility.

The LM committee is proving itself week in and week out. At this point, I’m comfortable with them expanding beyond the original spec and empowering them with more flexibility/control that will allow them to react quicker and more effectively based on the market conditions.

2 Likes

Following further conversations among the Ballers today, we’d like to move forward with proposing 10k rather than 5k. Does this create any concerns for anyone? We have a fair bit of demand on slots now, and we’re also looking at allowing the grants committee to be guaranteed some weekly BAL to offer as LM incentives to partnership projects (500 bal/week ringfenced for them in total, not lots - just for their ease in communication with projects, as a kicker to help motivate grantees. In circumstances where there’s a larger partnership with more significant amounts of BAL, that would still go through the LM committee).

This should help us a lot in managing the addition of Arbitrum, also, by freeing up additional slots (we can downgrade some existing ETH pools rather than removing all rewards for them this way).

2 Likes

Update, here’s the proposal to go to Snapshot on Friday. Please respond below if anyone has any final suggested edits, tweaks or concerns.

Motivation

We’re now a few months into the V2 Liquidity Mining Program, and everyone’s been learning what’s good about it, as well as where improvements could be made to make the most of every BAL token we allocate. Since the launch, we’ve added a new Tier 4 (following a governance vote), and introduced liquidity mining rewards on Polygon. We’re quickly gaining traction on Polygon, and created a lot of excitement around Balancer, which has been awesome.

Over the coming weeks, there’s plans for launching on Arbitrum (although we need to be mindful of spreading liquidity mining rewards too thin + liquidity fragmentation), new pool deployments, and a number of dual incentive partnerships.

While all very positive and exciting, these plans create additional pressure on the limited number of liquidity mining slots we have, and it’s becoming difficult to envisage how everything will fit in without further changes to the tiers and slots. We also have some potential partnerships with smaller projects where weekly BAL rewards as low as 100-500 BAL per pool may make sense, which the committee doesn’t currently have the power to grant (the smallest we currently have available to us is a Tier 4 slot, at 1,000 BAL per week).

Dual incentive partnerships with smaller projects are very helpful for long term relationship building, securing liquidity for good projects which will grow over time & marketing to new users.

Specification

If this proposal is approved, the Liquidity Mining Committee would be able to allocate a total of 10,000 BAL per week however it wants, outside of the tier system, to whichever networks & pools it decides make sense at the time, based on available opportunities.

This 10,000 BAL per week will be made available by removing 2xTier 2 slots, currently filled by USDC/WETH & USDT/WETH on Ethereum. There were already plans to deprecate these pools over time, as the Tier 1 WETH/DAI pool is planned to be replaced by a WETH/staBAL-3 pool when the batch relayer is ready.

This flexible BAL allocation will make it much easier for the committee to fine tune liquidity mining rewards, and phase pools in/out of rewards. For Polygon, Arbitrum, or any other network Balancer’s governance may decide to incentivise in the future, the committee will not be able to allocate more than the total BAL voted on by governance to that network across the new flexible BAL allocation and tiers. If flexible BAL is to be allocated to a network that would take it over its limit, a Tiered slot would need to be allocated back to Ethereum to keep it under.

As of the time of this proposal, a maximum of 25,000 BAL per week can be allocated to Polygon, and 25,000 BAL per week to Arbitrum. Governance may vote to change these limits in the future.

Dependencies

None. The frontend liquidity mining script has already been updated to be more flexible, such that we could allocate any amount of BAL to any pool.

Risk Assessment

We see no greater risk that Committee Members could “go rogue” and mis-manage rewards than they could with the current structure.

Governance would continue to have the power to halt the powers of the committee at any time, or remove members from the committee if it deemed such an action appropriate. The need for committee votes to pass changes each week would provide several days for governance to intervene, were such an intervention deemed necessary.

3 Likes

25,000 BAL per week to Arbitrum - yes. would love it