Title: Re-balancing of WELL Token Liquidity Incentives
Author(s): Xavier D’Mello
Submission Date: 09/29/2022
Update: This proposal has been submitted to governance and is now up for voting! Check it out: MIP-2: Re-balancing of WELL Token Liquidity Incentives
I am proposing reward speed adjustments and re-balancing of the designated allocations of WELL liquidity incentives for the Core lending protocol, the Safety Module, and the StellaSwap WELL/GLMR farm.
The total designated amount of WELL reward tokens, as allocated by the Lunar Technology Foundation, will remain unchanged. This proposal merely calls for a re-balancing of the previously allocated tokens across the three components (Core, Safety Module, and DEX LP), in order to maintain target yield rates despite ever fluctuating TVL.
Another focus of this proposal is to promote staking in the Safety Module. The Safety Module serves a vital function in backstopping the protocol in case of a shortfall event and the proposed distribution changes should incentivise additional liquidity.
Finally, as a part of this proposal, I have also included a one time grant of 100,000 WELL tokens to my wallet address. I believe this will set a healthy precedent and encourage other community members to take on the work and responsibility of maintaining Moonwell.
To get an in-depth look into what these changes mean for the protocol and the rationale behind them, please consult the definitions and overview sections below.
- Safety Module: 20% → 29%
- DEX LP: 40% → 38%
- Core: 40% → 33%
- Safety Module: 1.19 → 1.73 WELL/second (Target APR: 80.28%)
- DEX LP: 2.38 → 2.27 WELL/second (Target APR: 100%)
- Core: 206044 → 169986 WELL/day (Target APR: ~2-4%)
Moonwell Contributor Grant
- 100,000 WELL → 0x7e4a3edd2F6C516166b4C615884b69B7dbfF3fE5
If this proposal passes, the one-time grant will be transferred and the aforementioned rates will come into effect after a 24 hour timelock.
WELL - The Moonwell Artemis governance token
Liquidity Incentives - WELL tokens that have been allocated for use as rewards to incentivize liquidity growth.
Core - Moonwell Artemis lending protocol.
DEX LP - StellaSwap’s WELL/GLMR farm.
Safety Module - Smart contract that allows users to stake their WELL tokens in order to earn liquidity incentives and help backstop the Moonwell protocol.
Reward Speed - The rate at which WELL tokens (on a per second basis) are distributed proportionally to DEX LPs, wallets staking in the Safety Module, and those supplying/borrowing on Moonwell.
750,000,000 WELL, or 15% of the total supply, has been earmarked as liquidity incentives to help stimulate the growth of liquidity in the Moonwell ecosystem. There are three main avenues that these rewards are directed to in order to incentivize this liquidity growth:
- The Core lending protocol (Moonwell Artemis):
- WELL rewards earned for supplying and borrowing assets on Moonwell Artemis.
- The Safety Module:
- WELL rewards earned through staking WELL and helping to backstop the protocol.
- The DEX LP (StellaSwap WELL/GLMR farm):
- WELL rewards for liquidity providers/market makers that provide liquidity to buyers and sellers of WELL.
The 750 million WELL tokens designated as liquidity incentives are designed to be distributed over a 4 year period, starting from the launch of the Moonwell Artemis protocol on June 23rd, 2022. Every week, for 208 weeks (4 years), ~3.6M WELL tokens are distributed as liquidity incentives to these 3 components (Core, SM, and DEX). Due to the fact that there is a fixed allocation of WELL tokens per week, the ratio of liquidity incentives should be recalibrated over time to adjust to the amount of liquidity in each component, with the goal of balancing liquidity through incentives.
Below I have provided worksheet excerpts that illustrate how the WELL liquidity incentives were most recently calibrated and my proposed updates.
On August 11th, 2022, the ratio of WELL rewards between the 3 components was set as follows:
As of September 27th, 2022, a new ratio is recommended. These numbers are based on growth in the DEX LP (StellaSwap farm) and Safety Module:
In the forthcoming paragraphs, I will delve deeper into each of these three components and explain my rationale for determining my proposed changes.
The first of the three aforementioned components that I will cover is the Safety Module.
The goal of liquidity incentives in the Safety Module is to compensate Safety Module (WELL) stakers for providing their liquidity to help backstop the Moonwell protocol. The Safety Module rewards are configured as the amount of WELL tokens per second that are distributed proportionally to every wallet that stakes in the Safety Module. This is usually referred to as the reward speed.
As of August 11th, 2022, the last time the Safety Module reward speed was updated, there was ~31.9M WELL staked in the Safety Module, which was valued at $380,045.38. An estimate was made that the TVL in the Safety Module might grow to approximately $550,000 by October 6th (8 weeks). The target APR for the Safety Module is 80%. Therefore, the reward speed was set to 1.19 WELL per second.
As of September 27th, 2022, the Safety Module had ~61M WELL staked in it, valued at $503,136.52. The price of WELL has dropped from $0.0119 to $0.0082. It is estimated that the TVL in the Safety Module might grow to approximately $560,000 by November 3rd. It is recommended that the reward speed for the safety module be increased from the current rate of 1.19 WELL per second to a new rate of 1.73 WELL per second in order to maintain an 80.28% APR at $560,000 TVL.
The WELL/GLMR market on StellaSwap provides useful liquidity to either buy or sell the WELL token. Liquidity Providers, commonly referred to as LPs, earn rewards for adding liquidity to the WELL/GLMR market and staking their LP tokens in StellaSwap’s farm. “Reward periods” are defined in the farm that encompass both a “reward speed,” in the form of the number of WELL tokens per second that are distributed proportionally to all stakers in the farm, and an ending timestamp, which defines when the reward period ends.
As of August 11th, 2022, the TVL in the farm was ~$472,700 and it was estimated TVL growth over the next 8 weeks would result in a TVL of approximately $600,000 on October 6th, 2022. The target APR for the farm was 150%. This resulted in a reward speed of 2.38 WELL per second. An end timestamp of 1665113400 was set, which is equal to Fri Oct 07 2022 03:30:00 GMT+0000.
As of September 27th, 2022, the TVL in the farm was $508,200. The price of WELL had dropped from $0.0119 to $0.0082. It is estimated that the TVL in the farm might grow to approximately $600,000 by November 3rd, 2022. In order to maintain healthy liquidity incentives for Safety Module stakers after a significant increase in TVL, it is recommended that the target APR be reduced from 150% to 100%. The new recommended reward speed is 2.27 WELL per second, with an end timestamp of 1667532600, which is equal to Fri Nov 04 2022 03:30:00 GMT+0000.
Core protocol rewards consist of the rewards paid to suppliers and borrowers in the money markets of the Moonwell Artemis protocol. Anyone that supplies or borrows is entitled to claim these rewards from the Rewards modal found at the top of the Moonwell Artemis application. These rewards are meant to incentivize liquidity providers for providing useful liquidity to the protocol. Rewards can be split between each of the money markets, and can also be split between suppliers and borrowers at any arbitrary ratio.
As of August 11th, 2022, the following reward emission ratios were set:
As of September 27th, 2022, it’s recommended that the following reward emissions ratios be changed. The emission weightage has not changed, however, due to the ratio between the 3 overall reward components (Core lending protocol, Safety Module, and WELL/GLMR farm), it is recommended that the emissions per day change to match the new ratios:
Thank you for taking the time to read through my recommended updates to the distribution of WELL liquidity incentives. Please feel free to provide feedback and commentary and let me know what changes you agree or disagree with.
The governance of the Moonwell Artemis protocol has been decentralized and it is now up to community members like ourselves to propose changes, share our feedback, and vote on proposals. With this in mind and as mentioned in the summary, I have requested a one time grant of 100,000 WELL tokens as payment for the time and effort it took to analyze this data and create the proposal. I would encourage other community members who take on the responsibility of submitting proposals for the betterment of Moonwell to do the same.
Also, please note that though I am an independent member of the Moonwell community, I have consulted with other contributors to the Moonwell protocol in order to source past reward distribution data and sanity check the recommended changes.