MFAM Token Reallocation for Liquidity Incentives

[coolhorsegirl]

Summary

As Moonwell approaches its second anniversary on Moonriver, a critical juncture has been reached with the recent exhaustion of the initial 50% of MFAM tokens earmarked for liquidity incentives. These incentives have been fundamental in bolstering Moonwell’s Moonriver markets, [Safety Module](Safety Module), and DEX farm on Solarbeam. However, with this resource now fully utilized, the DAO urgently needs to settle on a sustainable strategy to maintain and extend liquidity incentives to our users. The suggested solution is reallocating ~20% of the MFAM token supply, originally allocated to Developer Grants and Incentives, to be utilized purely as liquidity incentives for Moonriver markets, MFAM staking, and the MFAM <> MOVR DEX pool on Solarbeam.

Background

The Moonwell community on Moonriver is at a crucial point with the recent exhaustion of the originally allocated 50% of the MFAM token supply to be utilized as liquidity incentives. These incentives have played a vital role in the growth and stability of Moonwell’s ecosystem, as detailed in the MFAM Transparency Report. The necessity for ongoing liquidity incentives is underscored by the increasing activity in Moonwell’s markets and the important role that liquidity plays in sustainably fostering a robust and secure DeFi environment.

To address this, I am proposing a reallocation of the MFAM tokens originally earmarked for Developer Grants and Incentives (transferred during the MFAM Migration in May 2022) to Liquidity Incentives. This MFAM reallocation aims to extend the duration of these incentives for an additional two years. The targeted areas for distribution include rewards for supplying assets to the protocol, providing liquidity to the MOVR/MFAM pool on Solarbeam DEX, and staking MFAM in the Safety Module.

This strategic reallocation is crucial for maintaining a healthy liquidity pool, ensuring the sustainability and efficiency of Moonwell’s operations on Moonriver.

Rationale

• Combat Liquidity Flight: The risk of liquidity flight is significant if MFAM rewards are depleted. If we do not sustain liquidity, we could face a decrease in protocol usage and community trust. Without incentives, users may withdraw their assets from the protocol, the Safety Module, and the DEX farm on Solarbeam, causing potential destabilization.
• Growth Continuity: Maintaining consistent protocol engagement and expanding the user base are crucial for the long-term success of Moonwell on Moonriver. Liquidity incentives have been shown to attract and retain users, thereby supporting ongoing growth and activity within the ecosystem.
• Strategic Resource Utilization: The proposal to reallocate funds from the Developer Grants bucket is rooted in practicality. Given the minimal grants and development activity on Moonriver to date, repurposing these funds for liquidity incentives represents a more effective use of resources. This strategic reallocation ensures that existing token allocations are leveraged to support the most pressing needs of the protocol.

MFAM Incentives Campaign Duration

The voting options presented to the Moonwell community for the MFAM Incentives Campaign offer different strategies for reallocating MFAM token supply towards Liquidity Incentives. If 20% of the MFAM token supply is reallocated, the options are to make the distribution period 2 years, 3 years, or 4 years. Voters should consider the need for immediate impact versus sustainability when deciding. The final option is to maintain the status quo, making no changes to the current allocation.

Impact on Token Distribution

• Adjusted Allocation Post-Proposal:
• Liquidity Incentives: 70% (including additional 20%)
• Developer Grants and Incentives: Reduced to 0%
• Application Development: Unchanged at 20%
• Team and Advisors: Unchanged at 10%

Technical Implementation

• Fund Migration: From Developer Grants and Incentives multisig: 0x5d6C4DCb86b8A761C062a5274a77AaD5F7209AA3 to the designated Liquidity Incentives multisig: 0x45dd368e30c07804b037260071d332e547c874f0.

Voting

All members of the Moonwell community with delegated MFAM tokens are invited to participate in this vote.

• Yes: Reallocate 20% of MFAM token supply to Liquidity Incentives over a 2 year distribution.
• Yes: Reallocate 20% of MFAM token supply to Liquidity Incentives over a 3 year distribution.
• Yes: Reallocate 20% of MFAM token supply to Liquidity Incentives over a 4 year distribution.
• No: Make no change.

Conclusion

The proposed reallocation of MFAM tokens marks a crucial step in Moonwell’s journey on Moonriver. I am excited for us to continue to sustain Moonwell by dynamically addressing Moonwell’s highest priority needs, and right now one of those needs is liquidity incentives.

Edit: Upon community discussion, the original proposal has been deleted off of Snapshot and will be resubmitted following additional dialogue in the forum.

[0xrobinhood]

Oh, we spent too much that 50% was meant to last 4 years

Is that really the only option? will it be the same for $well in the near future?

I think this is not a good solution because it only supports „farm&dump“

Imo we should cover the liquidity incentives with the protocol reserves ( frax, movr, ksm ) and stick to the original tokenomics. other protocols do this too, hydra and others

what do you think ?

[Curly]

Firstly, I think this should have been posted here for discussion before putting it up for a Snapshot vote.

Secondly, I think there are more appropriate options in terms of how we reallocate the Grants and Incentives funds.

I agree that we should take some of those tokens and apply them to liquidity incentives, but I don’t think we should use all of them for this purpose. There is certainly no reason why we should allocate all of them right now to be used as liquidity incentives.

Instead of taking the full 20% from the Grants & Incentives wallet right now and applying it to the timeframes you suggested, couldn’t we just take half now, and apply it to half of the timeframes you suggested? For example, the vote would become:

• Yes: Reallocate 10% of MFAM token supply to Liquidity Incentives over a 1 year distribution.
• Yes: Reallocate 10% of MFAM token supply to Liquidity Incentives over a 1.5 year distribution.
• Yes: Reallocate 10% of MFAM token supply to Liquidity Incentives over a 2 year distribution.
• No: Make no change.

This would leave us with some funds in the Grants & Incentives budget and give us some flexibility for the future. We could always have another vote to use the rest of the funds in 1-2 years time. I just don’t see the reason why we need to use it all right now.

One thing I would really like to see these Grants & Incentives funds used for is a POL strategy. We are rightly identifying right now that liquidity incentives are a key factor that is keeping liquidity in the platform, once these incentives run out, whether that is in 2 months, 1 year, or 4 years, the liquidity will likely start to drop unless we find some other solution.

I’m sure many of us have heard about Protocol Owned Liquidity before so I won’t go into an explanation (but you can read about it here: POL (Protocol Owned Liquidity) - Decentralized Finance | IQ.wiki). In my opinion, this is the most viable way to ensure the longevity of the protocol. I would propose that we use some of the Grants & Incentives budget to put up a bounty/RFP for the community to pitch methods by which we can build up the POL for all Moonwell protocols.

We can then use more of the Grants budget to fund the coding of the strategy the community chooses. typically POL strategy requires buying liquidity in some way, so we may then need another tranche of Grant funding to implement that. If all goes well in the end we will have a protocol that is less reliant on retail investors providing liquidity to keep the protocol going, and therefore need little to no incentivization at all.

[Curly]

I am going to vote “Make No Change” on this Proposal for the reasons I stated above, and hope that the community will be drawn to participate in the conversation here.

[Luke]

@0xrobinhood

Oh, we spent too much that 50% was meant to last 4 years

I did want to mention that MFAM was always intended to be a “fair launch” token and thus the 50% allocation to liquidity providers was always intended to be distributed on a 2 year timeframe. The 2 year anniversary is right around the corner, at which point the 50% emissions will be exhausted.

WELL, on the other hand, has a 4 year emission schedule for the 15% allocated to liquidity incentives, so there is still ~2.5 years left.

Because MFAM is a “fair launch” token with no token sales to investors, getting it into the hands of the community so we can all vote on governance proposals is critical. The accelerated emission schedule has accomplished this quite well, with 1,746 unique holders of the MFAM token and 1,221 unique MFAM stakers.

[coolhorsegirl]

I understand your concerns. I have taken down the Snapshot proposal and agree we should discuss more on the forum before putting to a vote.

I believe that we do not have time to wait for a product to be built via Grants and Initiatives to solve this issue though, so I think we should forgo an RFP.

[Curly]

Thanks for taking down the Snapshot.

I think this can be considered a sort of “emergency” situation since we definitely don’t want the rewards to run out. So what I propose is that we put up an interim proposal taking just 1-3 months worth of rewards from the Grants & Incentives budget to apply to liquidity Incentives in the short term.

We can then use that time to have a more thoughtful discussion here about what the appropriate next step should be.

[0xrobinhood]

True, I mixed it up but Well also needs a solution at some point, I don’t think token holders would agree to increase the supply so that farmers can dump

I agree with @Curly idea of ​​a 3 month emergency plan

[jan5442]

I think this is a sensible proposal. I would add that the discussion should address the topic of sustainability in a broader sense. Incentives are supposed to be a kickstarter measure; in the long run, a protocol should sustain itself because of its value and connections. Moonriver should be a spearhead of creativity and innovation, let’s find a solution that goes beyond incentives.

[Curly]

I 100% agree with this. That is why I suggest we only take a small portion of the Grants funds as a short-term liquidity solution, and we use the rest to fund the ideation and implementation of POL or other sustainability proposals.

[Luke]

Hey everyone, I wanted to chime in here and let the community know how the various MFAM allocations work. As a starting point, you can read the MFAM Transparency Report.

The Moonwell Apollo (MFAM) governor/timelock has an open allowance to both of these smart contracts, which combined held 70% of the total supply:

When @Curly (and other members of the community) use the market reward adjustments tool to generate governance proposals that keep liquidity incentives flowing to suppliers on Moonriver, as well as MFAM stakers and Solarbeam LPs in the MFAM/MOVR pool, you’ll see the governance proposal looks like this (MIP-R11):

The first 4 proposed contract calls above, that say “Transfers X from MFAM Reserves” are basically sending MFAM to:

• The delegate that put in the hard work to create the proposal
• The Safety Module (Apollo EcosystemReserve) for MFAM stakers
• The Apollo Comptroller (For suppliers in MOVR, xcKSM, and Frax markets)
• The Apollo Timelock (which gets sent to the Solarbeam DEX rewarder for LPs in MFAM/MOVR in step 6)

What is important to know is that the wallet that the proposal transfers from can be easily changed by the delegate that puts up the proposal.

What that means is that @Curly, or whoever puts up the next proposal, can simply choose to propose transferring from the developer grants wallet instead of the liquidity incentives wallet, and if the community votes in favor of it, a small percentage of the 20% originally allocated to developer grants will be used for the next 4 week reward period.

I think the idea that we must decide right now, as a community, whether we allocate 5, 10, 15, or all 20% of the developer grants allocation to liquidity incentives is premature. We don’t need to decide right now, because the community gets to vote every 4 weeks on whether we use those funds or not. In other words, the snapshot vote is just a signaling vote, meant to gauge community sentiment. The vote that really matters is the onchain proposal that transfer the MFAM tokens.

This is a lot of information to digest, so let me give an example:

• Let’s say that as a community, we voted to use the developer grant funds for 4 years of liquidity incentives.
• In a couple weeks, MIP-R12 goes up and proposes to spend 1/52nd (0.38% of total supply) of the 20% MFAM allocated to grants
• If the community votes for it and it passes successfully, the grants allocation will now have 19.62% remaining and the liquidity incentives will be funded for the next 4 weeks
• If the community votes against it, nothing will be transferred and the grants allocation will be the same as before

So, regardless of this snapshot vote, MFAM token holders get to choose every 4 weeks whether they want to draw down the grants allocation, and by how much.

Another example:

• After 2 years of successful proposals, there is now 10% (of the original 20%) remaining in the developer grants allocation
• A strong developer proposes a grant to build a PoL (protocol owned liquidity) solution for the community, that will require 7% of the MFAM total supply (it better be very good, for that price )
• They submit a grant proposal to governance
• Regardless of any reward speed proposals in flight, as long as:
  • Their proposal succeeds with supermajority and quorum
  • There is still more (10%) than their 7% grant proposal in the developer grants allocation
  • They will receive the grant, and the remaining 3% will be available for future grants, or liquidity incentives

At this point, based on community sentiment, or another signal vote/snapshot proposal, we might decide to extend the remaining 3% out over the remaining 2 years.

I hope these 2 examples helped you understand how things work.

TLDR:

• This snapshot/signal vote is important, and I thank @coolhorsegirl for starting the discussion
• The signal from the community is intended to merely inform whoever is generating the reward speed proposals every 4 weeks: which wallet to point at and how much to spend?
• MFAM holders still need to vote onchain whether they agree or not with how the funds are spent
• Grant applicants can always submit an onchain proposal to spend any remaining funds that haven’t yet been spent.

Cheers!

[Curly]

Thanks for that great explanation @Luke

I feel like the examples you shared make things really clear!

[Luke]

Thanks, I think it might make sense to include how much of the 20% should be allocated, and over what timeframe, in an updated snapshot proposal, with several options so the community can indicate their preferred release schedule.

[0xrobinhood]

I shared the proposal in the Apollo/Movr community and it is a NO-GO to change the tokenomics… (join our tg group for more infos )

I can understand it, I was part of a project that did exactly that and it ended in a total disaster!

We need to work with our reserves and find a way for a sustainable reward stream for suppliers and stakers

[Curly]

This isn’t exactly changing our tokenomics though.

It is like we as the community are requesting a Grant for the the funds set aside for Grants and the purpose of that grant is to pay for supply incentives for a few months while we gather plans for sustainability.

I don’t see why this should be a “NO-GO”

If you’re worried about sustainability, what do you think will happen when the MFAM rewards disappear in a couple of weeks?

I agree with you that sustainability in the long term is a top priority…but so is sustainability in the short term.

[Curly]

Can you also please encourage people in the TG to post their thoughts here? It is too hard to follow conversations around bigger topics in an unstructured chat room.

[coolhorsegirl]

I have put this proposal up on Snapshot for voting.

Voting is open until February 8th.

[Curly]

I’m confused. This is the same proposal you put up the first time.

You haven’t changed anything or reflected any of the points that I brought up.

Still a NAY from me

[0xrobinhood]

Yes, I thought the same, I agree with 2-3 months of rewards from that allocation or however long it takes until a good solution is found

Btw, why has about 2 million mfam already been withdrawn from this allocation ?

[Curly]

Yeah, so that was because the Liquidity Incentives wallet didn’t have enough funds to cover the last Reward adjustment proposal that I put up. So the Grant Multisig key holders transferred enough funds to the Liquidity INcentives wallet in order for the transactions to pass.

Thus highlighting that we are now out of MFAM tokens to give out as Liquidity Incentives and what has sparked the conversation we are not having.