Title: Re-balancing of WELL Token Liquidity Incentives
Author(s): Xavier D’Mello
Submission Date: 10/29/2022
This proposal has been submitted to governance and is now up for voting! Check it out: MIP-5: Re-balancing of WELL Token Liquidity Incentives
Last month, MIP-2 was passed, which adjusted reward speeds and re-balanced the allocations of WELL liquidity incentives across the Core lending protocol, the Safety Module, and the StellaSwap WELL/GLMR farm. This proposal serves as a continuation of MIP-2, 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-2 was 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. Since the execution of MIP-2, WELL liquidity in the Safety Module has grown ~27.377% from ~61M WELL to ~77.7M WELL. Based on this success, I am suggesting to further raise the reward allocation to the Safety Module from 29% to 35%.
Similar to MIP-2, 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.
- Safety Module: 29% → 35%
- DEX LP: 38% → 35%
- Core: 33% → 30%
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.
On October 3rd, 2022, the ratio of WELL rewards between the 3 components was set as follows:
As of October 27th, 2022, a new ratio is recommended. These numbers are based on TVL changes in the DEX LP (StellaSwap farm) and 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 October 3rd, 2022, the last time the Safety Module reward speed was updated, there was ~61M WELL staked in the Safety Module, which was valued at $503,136.52. An estimate was made that the TVL in the Safety Module might grow to approximately $560,000 by November 3rd (4 weeks). The target APR for the Safety Module is 80%. Therefore, the reward speed was set to 1.73 WELL per second.
As of October 27th, 2022, the Safety Module had ~77.7M WELL staked in it, valued at $500,506.96. The price of WELL has dropped from $0.0082 to $0.00644. It is estimated that the TVL in the Safety Module might grow to approximately $525,000 by December 1st. It is recommended that the reward speed for the safety module be increased from the current rate of 1.73 WELL per second to a new rate of 2.09 WELL per second in order to maintain an 80.78% APR at $525,000 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 September 27th, 2022, the TVL in the farm was ~$508,200 and it was estimated TVL growth over the next 8 weeks would result in a TVL of approximately $580,000 on November 3rd, 2022. The target APR for the farm was 100%. This resulted in a reward speed of 2.27 WELL per second. An end timestamp of 1667532600 was set, which is equal to Fri Nov 04 2022 03:30:00 GMT+0000.
As of October 27th, 2022, the TVL in the farm was $452,410. The price of WELL had dropped from $0.0082 to $0.00644. It is estimated that the TVL in the farm might grow to approximately $475,000 by December 1st, 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 100% to 90%. The new recommended reward speed is 2.09 WELL per second, with an end timestamp of 1669951800, which is equal to Fri Dec 02 2022 03:30:00 GMT+0000.
Core Protocol Rewards
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 October 3rd, 2022, the following reward emission ratios were set:
As of October 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.
To date, the decentralization of the Moonwell Artemis protocol has been a success. If passed, MIP-5 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.