Not much discussion happened yet (Discord) so please shout if you have thoughts.
At a high level - we’re largely staying the course.
Some thoughts from a discussion in #trading with @knoshua and @Xer0 (Discord) have made me consider whether we’d actually do better at providing liquidity with lower incentives.
Doing this would reduce some of the mercenary rETH demand, which would help move us towards the peg. We have more liquidity depth (both in gamma and in balancer) near the peg.
If we think this is true, we could try reducing mainnet rETH/ETH further – maybe to 3k for the next round?
Since the recent premium is persisting, there is a strong argument to be made to reduce our expenditure now so that we can boost spending later when we have additional capacity.
We’re also continuing to spend more than the monthly disbursement, utilising reserves which made sense while pools were being established but should be brought down to more sustainable levels while rETH availability is a bottleneck.
We do however need to be mindful to not make sudden changes that will drastically reduce our total liquidity or negatively impact volume while we are making progress with integrations and continue to be evaluated.
With that in mind I am a proponent of a gradual scale down of rewards, I would suggest a 80 RPL reduction for the next round and a further reduction of 75 for the following 3 rounds.
While observing the effect on market demand for rETH, the premium and re-evaluating at the conclusion of the Gamma trial.
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I wanted to add this bit of context here… getting off peg this much is making us use thinner liquidity regions. So while “peg” is a secondary priority, we’re also hurting on “liquidity” (the primary priority).
Decreasing demand (as proposed) is one possible knob and an easy one. We can also consider less peg-centric liquidity as an option longer term. This could look like a lower amplification factor in balancer or a larger concentrated range in uni. Ofc, this trades off with being less efficient near the peg.
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Currently, Balancer holds roughly 27k ETH and 10k rETH. Removal of 17k ETH would put the pool close to 50/50 and the premium to 0. 17k ETH represents about 45% of the TVL of the pool. Based on these numbers, we can see a 45% reduction as a ballpark number for what it would take to remove the premium currently, since a reduction in incentives should lead to a respective reduction in TVL. It’s worth noting that 24 hours ago that value was only 30%, so this is a moving target and not meant to be exact.
Am I understanding correctly that this would be a 80 RPL reduction compared to 3150 RPL per period total? That would be a 2.5% reduction. While I think it makes sense to take a gradual approach here and reevaluate frequently, I’d say this is an overly conservative choice and it might take multiple months before we would see effects.
Let’s try to get some numbers - bribe round is v soon.
Numbers tossed out so far:
- Val: 150 RPL reduction this fortnight
- @Uisce : 80 RPL reduction this fortnight
- @knoshua : 30-45% reduction (945 RPL-1417 RPL) eventually – very rough idea and should move somewhat gradually
Some of this chatter might do better in Discord
That would be a 2.5% reduction. While I think it makes sense to take a gradual approach here and reevaluate frequently, I’d say this is an overly conservative choice and it might take multiple months before we would see effects.
I lean towards small changes when possible as swings can hurt confidence of LPs who want to make longer term decisions, especially smaller ones who need to consider gas. This is also why I favour a multiple period decision (with room for evaluation) rather than deciding round by round.
It is definitely conservative, though I agree it may be too much so considering the overnight increase in the premium.
However I do expect the market to be a bit more reactive, I doubt such a large TVL reduction is necessary to return to peg. My logic was that a 5% decrease mid December would put the aura APR roughly on par with the wstETH/WETH pool at the current TVL which should cause some individuals to move from rETH to wstETH taking advantage of moving from premium to discount.