We propose a program for BAL holders to stake their BAL 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 and boosting their voting power. This staking feature is beneficial for the Balancer protocol as it rewards BAL holders who take a long-term view.
Governance token staking has been adopted by AMM 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 BAL 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.
Furthermore, this proposal builds on initial ideas shared by Bakamoto20 in the post “[Pre-RFC Discussion] LP & BAL holder incentive alignment” which can be found here:
We propose a staking program and mechanism for the BAL token to have additional economic and governance benefits, as part of a broader effort to formalize the decentralized governance framework that will govern the Balancer protocol.
ECONOMIC BENEFITS OF STAKING BAL
Boosting of BAL rewards for Liquidity Mining
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 BAL 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 BAL tokens are staked for Y (time period).
GOVERNANCE BENEFITS OF STAKING BAL
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 BAL holders to vote on proposals.
There are two governance benefits that BAL staking could give BAL token holders:
- The ability to vote on protocol proposals
- Boosting of voter power based on the period of time the tokens are staked for
Voting on proposals
Staking of BAL would allow addresses that staked to vote on Balancer protocol governance proposals as long as the BAL remains staked/locked.
Boosting of voter power
The voting power of the staked tokens can be boosted by giving higher voting power to token holders who stake their BAL tokens for longer.
FEATURES OF BAL STAKING
BAL token holders would have the option to stake their BAL 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.
In return, BAL token holders who stake their BAL, receive vBAL, a token that enables them to claim economic and governance benefits outlined below. The number of vBAL received is outlined in the table below, and the exchange rate between BAL and vBAL is directly proportional to the length of the locking period. This simplifies the calculation for voting power boost in the “Boosting voting power” section further below.
Draft - For discussion
|BAL staking locking period||vBAL received|
|1 month||1 BAL : 1 vBAL|
|2 months||1 BAL : 2 vBAL|
|1 year||1 BAL : 12 vBAL|
|2 years||1 BAL : vBAL|
|3 years||1 BAL : 36 vBAL|
|4 years||1 BAL : 48 vBAL|
Boosting BAL rewards for Liquidity Mining
vBAL token holders would be able to boost their BAL rewards from liquidity mining up to 2.4x depending on how long they stake their BAL tokens for. The table below shows the BAL rewards boost they can earn for different locking periods:
Draft - For discussion
|BAL 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|
BAL rewards boosting decline linearly over time as the BAL token holders reach the end of the staking period. This can be mitigated by extending the lock period or staking additional BAL.
The actual formula for boosting rewards still needs to be worked out. Additional information on how Curve (the inspiration for this RfC) does rewards boosting can be found here: Boosting your CRV Rewards - Curve Finance and the formula can be found at the bottom of the page.
Voting on proposals
vBAL token holders have the power to vote on proposals once they have staked their BAL and received their vBAL. Voting power can be boosted depending on how long BAL token holders stake their tokens.
Boosting of voting power
vBAL token holders can boost their power to vote on proposals based on how long they have staked BAL for. Voting power is determined by the number of vBAL tokens a community member has. The table in the section "Staking BAL’ illustrates how the longer you stake for, the higher vBAL you receive, the more voting power you have.
CONCLUSION AND FUTURE FEATURES
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 can be proposed and added to it, such as:
- Stake BPT of BAL-ETH or BAL-Stablecoin pools, although these are subject to IL
- Once staking is live, Liquidity Mining rewards can be distributed as a “staked version” (e.g. vBAL which can be converted into BAL) for the shortest period, i.e. 1 month, after which the LP can decide whether they want to extend the staking period