Following up on the message above, just to make it easier to follow, I have updated the proposal to reflect some of the feedback, primarily the staking of BAL/WETH LPT vs. BAL.
I think one of the next major topics to address will be the rewards boosting formula. Additionally, one other element I thought I had earlier removed is the decaying over time of voting and rewards boosting, e.g. the closer it gets to the end of the staking period, the lower the boost. However, I think this both complicates the mechanics and is not necessarily fairer.
SUMMARY
We propose a program for BAL/WETH LP token (“BPT” throughout this doc) 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 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 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, additional 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.
BACKGROUND
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 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.
PROPOSAL
We propose a staking program and mechanism for the BPT of the BAL/WETH pool 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 BPT
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 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).
Protocol fee distribution
Once the protocol fees are turned on for V2, a portion of these fees could be allocated to those who have staked their BPT tokens. However, given protocol fees and their distribution is a major topic for discussion in itself, for the purpose of this proposal we will not consider this as a feature or economic benefit. Rather, this proposal should be a pre-requisite mechanism to a separate proposal addressing distribution of protocol fees.
GOVERNANCE BENEFITS OF STAKING BPT
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.
There are two governance benefits that BPT staking could give BPT 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 BPT would allow addresses that staked to vote on Balancer protocol governance proposals as long as the BPT 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 BPT tokens for longer.
FEATURES OF BPT STAKING
Staking BPT
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 should be fairly intuitive for less experienced users, potentially with a “slider” feature with monthly increments, from 1 month to 48 months.
In return, BPT token holders who stake their BPT, receive vBPT, a token that enables them to claim economic and governance benefits outlined below. The number of vBPT received is outlined in the table below, and the exchange rate between BPT and vBPT 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.
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.
Draft - For discussion
| BPT staking locking period | vBPT received |
|---|---|
| 1 month | 1 BPT : 1 vBPT |
| 2 months | 1 BPT : 2 vBPT |
| … | … |
| 1 year | 1 BPT : 12 vBPT |
| 2 years | 1 BPT : 24 vBPT |
| 3 years | 1 BPT : 36 vBPT |
| 4 years | 1 BPT : 48 vBPT |
Boosting BAL rewards for Liquidity Mining
vBPT token holders would be able to boost their BAL rewards from liquidity mining up to 2.4x depending on how long they stake their BPT tokens for. The table below shows the BAL rewards boost they can earn for different locking periods:
Draft - For discussion
| 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 |
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
vBPT token holders have the power to vote on proposals once they have staked their BPT and received their vBPT. Voting power can be boosted depending on how long BPT token holders stake their tokens.
Boosting of voting power
vBPT token holders can boost their power to vote on proposals based on how long they have staked BPT for. Voting power is determined by the number of vBPT tokens a community member has. The table in the section “Staking BPT” illustrates how the longer you stake for, the higher vBPT you receive, the more voting power you have.
CONCLUSION
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
- Staking mechanism for L2s