Proposal: Change Liquidity Mining rewards
this is the first proposal of the Circle of Tokens.
The Circle of Tokens proposes to change the rewards for Liquidity Mining by the following numbers.
BNB / BTC pool: Remove the weekly SOV payouts entirely from 15.000 SOV to 0 SOV.
ETH / BTC pool: Reduce the weekly SOV payouts from 15.000 SOV to 5.000 SOV.
MYNT / BTC pool: Reduce the weekly SOV payouts from 15.000 SOV to 5.000 SOV.
XUSD / BTC pool: Increase the weekly SOV payouts from 15.000 SOV to 25.000 SOV
SOV / BTC pool: Increase the weekly SOV payouts from 30.000 SOV to 35.000 SOV.
In total, this will reduce the weekly SOV rewards by 20,000. On the one hand, the two biggest revenue-generating pools are strengthened with the XUSD / BTC and SOV / BTC pools, while on the other hand reward-SOV is saved on unprofitable pools.
In recent weeks, the Circle of Tokens has published data and argumentation in the forum. To get a complete picture of the arguments and our decision making, I recommend reading through all the forum threads. The following compilation of arguments refers to this information.
We have 3 goals with this proposal.
We want to stabilize the Sovryn token price in order to maintain or increase the APY of important pools.
We want to increase the protocol revenue, and incentivize this by boosting key liquidity AMM pools.
We want to reduce the overall inflation rate of the SOV token.
The subgraph data from @Bananas_in_the_sky shows the following.
The cost that the Sovryn protocol pays weekly for liquidity in the amm pools looks like this:
BNB / BTC pool: 0.78 % of liquidity provided
ETH / BTC pool: 0.28 % of liquidity provided
XUSD / BTC pool: 0.4 % of liquidity provided
SOV / BTC pool: 0.41 % of liquidity provided
MYNT / BTC pool: 1.07 % of liquidity provided
The BNB and MYNT pools are extremely expensive in terms of borrowing liquidity. The ETH BTC pool is the cheapest pool by this metric.
In addition to the costs, we also consider the benefits. How much revenue do the pools generate? If you take the trading volume of the individual pools into account, the picture shifts somewhat. The borrowing costs (SOV-rewards) in relation to the trading volume are as follows:
MYNT / BTC pool: 0.291259 BTC borrowing cost per 1 btc trade volume.
BNB / BTC pool: 0.115053 BTC borrowing cost per 1 btc trade volume.
SOV / BTC pool: 0.069628 BTC borrowing cost per 1 btc trade volume.
ETH / BTC pool: 0.028068 BTC borrowing cost per 1 btc trade volume.
XUSD / BTC pool: 0.007877 BTC borrowing cost per 1 btc trade volume.
Looking at this data, it should quickly become clear why we want to further strengthen the XUSD / BTC pool. This pool is by far the most profitable. We hope that an increase of the rewards in this pool will lead to increased liquidity and even greater trading volume.
The Mynt pool is by far the least profitable of all. However, since MYNT is an integral part of the Sovryn protocol, unlike BNB and ETH, there are strategic interests here. The launch of Zero and Mynt is imminent and Mynt holders also have a high impermanent loss in the AMM pool. Holding MYNT locks up SOV via bonding curve. With the MYNT Subprotocol not having launched yet, we do not want to remove the only incentive to hold the token entirely just before it kicks off. But we would like to reduce the SOV rewards and thus the cost of the pool and bring it more in line with the other important pools.
The costs in the BNB pool are very high and there are no strategic interests in the pool. It is extremely unprofitable, so we propose to suspend the SOV rewards.
The ETH pool is in a better position than the BNB pool. However, the ETH pool also incurs more costs than it generates profits. We propose a drastic reduction of the SOV rewards for this pool.
If SOV is traded somewhere, it should happen on Sovryn. We want to expand the liquidity in the SOV pool and give the holders a small compensation for the large impermanent loss. Therefore, we would like to slightly increase the SOV rewards here.
This data is discussed in more detail here, also the revenue per amm pool is listed further down the thread.
The Circle will closely monitor the AMM pools and investigate how the measures will affect them. Based on this research, further adjustments may be made in the coming weeks. We will keep bitocracy updated with data.
The token inflation rate will only be changed by these measures in the long term due to the 10-month vesting period and all the outstanding rewards. Nevertheless, we think this is an important first step. Adjustments may very well be made based on the data gathered in the next weeks.
We hope that the bitocracy and exchequer support this proposal.