It has been roughly 8 months since the original liquidity mining framework was officialy set into motion. The structure that the program put into place was necessary at the time since the liquidity mining committee was just being formed. However its tiered system is very rigid and that rigidity causes some inherent challenges when it comes to divvying up liquidity across many pools with varying TVL.
The liquidity mining committee and business development teams have been working hard to onboard new strategic partners. Due to this influx of new projects it is becoming increasingly difficult to allocate incentives to new pools without impacting other pools in a meaningful way. This is due to the sizable changes in BAL between tiers. We’ve seen over the past few months that smaller incentive changes lead to better pool retention. As a reminder these are the existing tiers:
As you can see above it is a ~70% drop from Tier 1 to Tier 2, 50% drop from Tier 2 to Tier 3, and a 60% drop from Tier 3 to Tier 4. Current setup constraints in BAL allocation do not allow an efficient incentive model for prospective partners of numerous sizes.
As you may remember there were already two governance votes to switch to a more flexible model, those decisions proved to be successful and allowed the Liquidity Mining Committee to tailor specific allocations to projects depending on pool sizes:
- Introduction of Tier 4 to add flexibility (link)
- Moving Polygon to a fully flexible allocation model (link)
This proposal moves even further in that direction by giving the Liquidity Mining Committee additional flexibility on both Main Net and Arbitrum.
- Keep Tier 1 in place (no changes), any changes to pools in this tier would still require a governance vote.
- Dissolve Tier 2, 3, and 4 distribution model on Ethereum mainnet and Arbitrum and move to the flexible allocation model that exists on Polygon today. This change will provide the liquidity committee flexibility to allocate the 41,500 BAL ($726,000) on Ethereum mainnet and 8,500 BAL ($148,000) on Arbiturm.
This increased flexibility will allow the Liquidity Mining Committee to “right size” the incentives for respective pools. This change will ultimately lead to a better BAL per TVL allocation and spread liquidity across many places.
As a real world example let’s take a look at the LINK/WETH pool that is currently allocated 2,500 BAL. If the Liquidity Committee felt that the BAL allocation was better served elsewhere the pool would be cut by 1,500 BAL if dropped to the next tier. The APR for that pool would drop from ~12% to ~5%. Instead, what if you could trim the BAL by 200, 300, 500, etc. This freedom of flexibility will empower the Liquidity Committee with the ability to “spread the wealth” across our many partners. This change will also allow the Balancer platform to take a step towards a Curve gauge like system in the future if that is ultimately a desire of the community.
There are no suggested incentive changes for any pools as part of this proposal.
We see no greater risk that Liquidity Committee members could 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.
- I’m in support of this change
- Let’s not change it