Title: MIP-21: Re-balancing of WELL Token Liquidity Incentives
Author(s): Xavier D’Mello
Submission Date: 01/20/2023
Summary
Over the past few months, multiple Moonwell Improvement Proposals have adjusted reward speeds and re-balanced the allocations of WELL and MFAM liquidity incentives across Moonwell’s sister protocols, Apollo and Artemis. This proposal serves as a continuation, as reward speeds must be adjusted on a 4 week basis.
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.
One focus of MIP-21 is to maintain a rewarding incentive for 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. Based on the fluctuating market price of WELL, I am suggesting to further raise the reward allocation to the Safety Module from 38.5% to 42%, which supports a target reward APR of 60%.
Similar to the other reward adjustment MIPs, I have also included a one time grant of 100,000 WELL tokens in this proposal 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.
Proposed Changes
Core
- This proposal adds both GLMR and WELL rewards to the newly added BUSD.wh market.
Distribution Weighting
-
Safety Module: 38.5% → 42% (~60% APR)
-
DEX LP: 31.5 → 28% (~60% APR)
-
Core: Unchanged at 30%
Definitions
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 (Moonwell: DeFi's Liquidity Well).
DEX LP - StellaSwap’s WELL/GLMR farm (StellaSwap - Leading Moonbeam DEX & DeFi Gateway).
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.
Overview
On November 29th, 2022, the ratio of WELL rewards between the 3 components were set as follows:
As of January 17th, 2023, a new ratio is recommended. These numbers are based on TVL changes in the Safety Module and a decrease in the price of the WELL token:
Core Protocol Rewards
This proposal adds both GLMR and WELL rewards to the newly added BUSD.wh market. No other changes have been made to core rewards.
Safety Module
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 November 29th, 2022, the last time the Safety Module reward speed was updated, the WELL rewards were set as follows:
As of January 17th, 2023, the Safety Module had ~127.8M WELL staked in it, valued at $438,608.87. The price of WELL has dropped from $0.00462 to $0.0032 since the last Artemis MIP. It is recommended that the reward speed for the safety module be increased from the current rate of 2.3 WELL per second to a new rate of 2.5 WELL per second in order to maintain a target APR of 60% APR at $450,000 TVL.
DEX LP
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 January 17th, 2023, the TVL in the farm was $301,370. The price of WELL has dropped from $0.00462 to $0.0032 since the last Artemis MIP. In order to maintain healthy liquidity incentives for both Core protocol users and Safety Module stakers after a decrease in the price of WELL, it is recommended that the target APR be reduced to 60%. The new recommended reward speed is 1.67 WELL per second, with an end timestamp of 1677209400, which is equal to Fri Feb 24 2023 03:30:00 GMT+0000.
Conclusion
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.
To date, the decentralization of the Moonwell Artemis protocol has been a success. If passed, MIP-21 will join a series of successful governance proposals that have been executed successfully thanks to insight, feedback and voting from the Moonwell community.
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.