LongHash Ventures proposes a program for BAL/WETH LP token (“BPT” throughout this proposal) holders to stake their BPT for different periods of time in order to get economic benefits, such as boosting their Liquidity Mining rewards, and governance benefits, such as having the ability to vote on proposals. This staking feature is beneficial for the Balancer protocol as it rewards BAL holders who take a long-term view through staking of their BPT, while still ensuring BAL is not sitting idly staked but within a BAL pool.
For the purpose of focusing on the staking and governance mechanisms, this document will only propose staking of BPT from the BAL/WETH pool. In the future, proposals can be made to include BPTs from other BAL pools. Additionally, this proposal will only propose staking on L1. Staking on L2s such as Polygon should be addressed in a separate proposal.
LongHash Ventures is a Web 3 investment fund and accelerator actively collaborating with founders to navigate the crypto landscape in Asia and build their Web 3 model. In January 2021, we launched a DeFi-focused fund and invested in projects such as Balancer. We also invited Balancer to join our Asia DeFi Network initiative, as part of which we worked together with Balancer Labs over the course of 12 weeks through our venture building program to support them with the development of a decentralized governance model, liquidity mining for Balancer V2, and community building in China. We wrote this proposal as a follow on to the work we did on governance as a natural first step and enabler towards a decentralized governance model.
This proposal builds on the forum discussion “[RFC] Staking of BAL for Economic and Governance Benefits” that can be found here: [RFC] Staking of BAL for Economic and Governance Benefits - #12 by StefanoBury_LongHash for which we got very valuable feedback and input to help shape this proposal from @DavisRamsey, @Andrea81, @bakamoto20, @Fernando, @Greg, @felix_macht, @iyvy, and @delitzer, whom we would like to thank for their contributions.
Governance token staking has been adopted by DeFi protocols, such as Uniswap and Curve. It is a way to provide an incentive mechanism for token holders to actively participate in the governance of the protocol. It is also beneficial for the protocol as it rewards BAL holders that take a long-term view, and incentivizes them to actively participate in the governance and future development of the protocol.
As the governance of Balancer begins to shift from Balancer Labs to a more decentralized model that is led by the community, staking of BPT from the BAL/WETH pool can act as a mechanism to incentivize token holders to actively participate in the governance of the protocol.
We have taken inspiration from the staking model of Curve, Idle Finance, and Pickle Finance for this proposal.
We propose a staking program and mechanism for the BPT of the BAL/WETH pool to have economic and governance benefits, as part of a broader effort to formalize the decentralized governance framework that will govern the Balancer protocol.
In Balancer V2, Liquidity Providers can earn BAL tokens from the liquidity provided into specific pools eligible, based on their proportional share of liquidity of those pools.
Liquidity Providers could stake BPT from the BAL/WETH pool to boost their Liquidity Mining rewards, based on the period of time the tokens are staked for. For example, Liquidity Mining rewards could be boosted by X (multiplier) if BPT tokens are staked for Y (time period). Note that this staking mechanism does not change or impact the amount of weekly BAL allocated to the pool, but rather changes the proportion of the allocation of those BAL rewards to the LPs depending on their share of the pool and whether they have staked their BPT and the duration of staking.
As Balancer embarks on a journey towards decentralization of how the protocol is run, a key enabler of this will be for the ability of BPT holders to vote on proposals. Staking of BPT would allow addresses that staked to vote on Balancer protocol governance proposals as long as the BPT remains staked/locked.
BPT token holders would have the option to stake their BPT into a smart contract and lock it in for a period of between 1 month and up to 4 years, in monthly increments, e.g. 1 month, 2 months, …, and 48 months. The UI/UX would be intuitive for less experienced users, for example with a “slider” feature with monthly increments, from 1 month to 48 months, that can also show the LP what the rewards booster is for each lock up period.
In return, BPT token holders who stake their BPT receive vBPT, a token that enables them to claim economic and governance benefits outlined above. Those who stake BPT would receive vBPT on a 1:1 basis regardless of the locking period. The boost to liquidity mining rewards depending on the locking period is outlined in the table below:
|BPT staking locking period||Boost to liquidity mining rewards|
|1 month||Up to 0.05x boost|
|2 months||Up to 0.1x boost|
|1 year||Up to 0.6x boost|
|2 years||Up to 1.2x boost|
|3 years||Up to 1.8x boost|
|4 years||Up to 2.4x boost|
Note that BPT holders who stake their BPT will not be able to withdraw BAL from the BAL/WETH pool for the staking period of BPT, e.g. if a BPT holder stakes BPT for 12 months, they will not be able to withdraw BAL or WETH from the BAL/WETH pool for 12 months. However, BPT holders who stake their BPT have the option to unstake their BPT tokens for a 50% penalty, i.e. they will only receive back half of their BPT tokens and in turn they will only be able to claim back half of their liquidity provided into the BAL/WETH pool.
The formula for rewards boosting would work, conceptually, as follows:
[LP’s share of pool] x [Multiplier] / [Sumproduct of LP’s share of pool and multiplier] = [Share of BAL rewards]
|LP||Share of pool||Staking||Duration||Boost||Boost x share||Share of rewards|
|LP B||20%||Yes||4 years||3.4||0.7||39%|
|LP C||50%||Yes||1 year||1.6||0.8||46%|
This proposal for a staking mechanism to give economic and governance benefits to BAL holders can be a benefit for Balancer on two fronts:
- It provides a rewards mechanism for BAL holders who take the long-term view
- It is a starting point for Balancer to shift to a decentralized governance model
We think it is best to start with the features outlined above for the staking mechanism. In the future, additional features or modifications / scope can be proposed and added to it, such as:
- Staking BPT from BAL pools other than BAL/WETH
- Distribution of protocol fees to vBPT holders
- Vote boosting feature to provide additional voting power to BPT holders who stake for longer periods of time
- Staking mechanism for L2s
Voting will be up on Snapshot shortly (@rabmarut please help us to put up on Snapshot) and will be open to all BAL and BPT token holders. We will have three options for the vote:
- Implement staking of BPT from BAL/WETH pool as articulated in this proposal
- Implement a different version of staking of BPT (go back to the drawing board)
- Do not implement staking of BPT