As most of you already know, ANGLE emissions are a very important aspect in the protocol. It is a way for the protocol to grow, and to distribute the tokens to a wide user base. However, it also affects the token price as some of incentivized users dump their rewards.
After this recent tweet from Dan Robinson, we decided to revise our original distribution efficiency analysis available here (see V1 - April 2022).
The new version is available in the V2 - October 2022 page. Here, we lay down our conclusions, which will be split into two votes: AIP 31 #1, and AIP 31 #2. The goal is to discuss and move to a vote with AIP 31 #1 in priority, and then follow with AIP 31 #2.
AIP 31 #1 - Kill ANGLE rewards for Perp
The complete study can be consulted publicly here.
This is a screenshot of the analysis of ANGLE distribution on USDC, DAI, and FRAX Perpetuals, though DAI receive almost no rewards anymore.
Basically, our thinking is that ANGLE paid to Angle Perpetuals is not what is attracting them, as we can see from the low payout yield for USDC Perps, currently at 0.62%. This means that the position size of a USDC Perp is only getting paid 0.62% / year in ANGLE, which is relatively insignificant compared to recent EURUSD price action.
On FRAX’s side, there is an additional negative component: the hedge ratio is at a maximum but veANGLE/sdANGLE holders keep voting fro FRAX Perps, so that we have been overpaying them for a while.
We think all Perps gauges should be killed, so that Perps stop receiving ANGLE rewards.
AIP 31 #2 - Reduce global emissions
In general, we think there is a case to reduce emissions by 20 - 30%.
ANGLE emissions are a tool for growth and decentralization of the user base. In the middle of this bear market, we can see that not many new users are coming to DeFi, and people receiving those incentives are mainly returning users.
For this reason, and to keep tokens to be distributed in the future when growth comes back to DeFi, we think the protocol should reduce its emission rate by 20-30%.
setRate() function can be called in the AngleDistributor to reduce the emission rate by a specific factor. This would reduce the weekly quantity of ANGLE tokens taken from the AngleDistributor. The remainder could be used to keep distributing tokens for a longer period of time at the same rate, or increase the emissions in the future when growth and users come back to DeFi.
Other aspect of the analysis
The agEUR pools analysis tells us that agEUR-USDC UniV3 is well above average in terms in terms of TVL (agEUR) / $ANGLE and revenue, while agEUR-ETH is well below. The lower TVL could be coming from the fact that it’s much harder to be profitable by LPing on agEUR-ETH in general, especially with decreasing ETH prices.
Another important point is that any trade above 100,000 agEUR with ETH is routed at least at 90% through the agEUR/USDC - USDC/ETH path.
We think we should increase agEUR-USDC rewards and lower agEUR-ETH ones.
Looking forward to hear your thoughts and feedbacks! That would help a lot if you could split your comments in two parts, one for each vote of the AIP. Thanks!