As detailed in this discussion, the current distribution of ANGLE incentives seem to be under-effective.
Another finding of the research is that the decrease of 20% in ANGLE distribution voted in AIP-31 in mid-October incentives apparently had a negligible impact on TVL.
This seem to indicate that it would be interesting to lower ANGLE incentives at the moment, before finding a more efficient way to distribute the tokens. This proposal aims to reduce incentives by 15%.
Risk and implications
The main risk of this proposal would be that a portion of liquidity on Angle pools leaves, indirectly reducing the protocol TVL. The research linked above seem to indicate that the impact should be relatively small.
The positive aspect of the proposal is for the protocol to save ANGLE tokens in order to use them later in a more efficient way.
As for AIP-31, the setRate() function from the AngleDistributor contract will be called by the Governor address to reduce it by 15%.
Could we suggest an alternative proposal that redenominates all incentive payments in agEUR going forward, whether they are paid out in ANGLE or otherwise? Otherwise reduction percentage targets won’t be meaningful.
Would also suggest considering using agEUR directly as a payment token for liquidity incentives.
As the DAO / Governance, we are looking at this from the number of ANGLE tokens available to distribute. From this perspective, the reduction will have the desired effect of saving 15% of the current amount of ANGLE tokens we are distributing.
Fixing those to agEUR would be positive for the DAO when ANGLE price is high, and negative when it is low. It would also prevent a potential growth of pools TVL from an increase in price, and require manual management of the issuance rate.
Many arguments that are making me think that it’s not a good idea to fix the issuance in agEUR.
Using agEUR as a payment token for liquidity incentives
I personally like this option, as it would make all LPs de facto agEUR holders. Their choice then becomes to 1) reinvest agEUR in the pools (increasing agEUR marketcap), 2) sell the agEUR, or 3) buy ANGLE (or any other token) using the agEUR.
The big inconvenient is that it would require to either:
draw from the protocol reserves / surplus / revenue
or sell the ANGLE tokens for agEUR.
Drawing from the protocol reserves would limit our ability to use revenue for other purposes. This is also limited by the protocol’s ability to earn yield on-chain. We would also have to find another way to distribute the ANGLE tokens in a fair and beneficial way for the DAO.
Selling the ANGLE tokens directly for agEUR would allow us to control this sale, rather than having LPs dump themselves. On the other hand, we would need to ensure that the market can absorb the continuous sell pressure.
It’s also important to keep in mind that some LPs provide liquidity to dump ANGLE tokens (-), while others do it to accumulate the tokens (+). The big question is which one has more impact on the protocol, and if the whole is positive or negative.
This is an incorrect framing imo. You should be looking at the liquidity expense that is required to maintain a desired pool size as a multiple of daily trading volume. This assumes you can estimate the elasticity of pool size to liquidity expense. A hypothesis is that this is quite low unless the pool is starting from 0.
You should absolutely be looking at it in agEUR terms. If you believe that ANGLE is at any moment overvalued, you could consider paying for the liquidity expense in ANGLE tokens. The rest of the time it should be in agEUR.
This is unit bias–ANGLE is the lifeblood of this DAO and should be treated like a source of funding. When you separate it from your operating expenses you are treating it junior to, say, salaries.
This doesn’t mean you need to aim at running at a positive surplus at this stage of growth. If you don’t have enough surplus to draw from, the right approach is to estimate the budget you will need for the period for liquidity and raise that capital.
My theory is that the proportion of instadumpers is overwhelmingly high , unless you can say there is an increase of new activity on Snapshot in line with LM rewards.
Many LPs are farming fees in a delta-neutral way. They may not even notice you are adding extra expenses into the pool to line their returns.
I don’t understand if you consider that we should treat ANGLE conservatively (and not sell it for agEUR) or on the contrary be more agressive in how we spend it. Which one is it?
About this, I think our goal should be to have the smallest pool for the highest trading volume (i.e. the best liquidity efficiency, which is why Merkl was built). However, we can’t control how much liquidity or volume there is on a pool: only what we distribute.