Move to Volume-Weighted Incentives

[gorg]

Background

The current incentive program which is scaled to interest paid has, in my opinion, not done much to generate the organic activity on the trading side that would lead to a self sustaining level of protocol activity.

Currently the borrowing APR is 60%+ which is offset by the interest spent being (at least in part) paid back by vBZRX weekly rewards. However, this high APR seems to have negative affects on the usability of fulcrum from an end user trader’s perspective.

Due to the set-aside that is done to ensure a trader meets interest payments without accidental liquidation, the more leverage they use the more collateral is set-aside to cover interest. Because this is not intuitive (it seems the UI even gets confused when calculating profit) and lowers the amount of capital actually put to use in a position, I believe this is a deterrent to users.

Idea: Volume-Weighted Incentives

It seems fine to use the interest-based incentive for Torque users. For fulcrum traders, I propose moving to volume weighted incentives which would be more attractive to traders.

The idea would be to allow the rates for traders borrowing on margin to reach a more natural equilibrium, simultaneously diverting a portion of the weekly vBZRX rewards to Volume-weighted incentives - pay out vBZRX weighted to the amount of trade volume any user puts out.

Due to gas costs and originations fees, volume-weighted incentives seem like a low risk incentive that would also make more sense to traders than farming does.

• Yes, interested in seeing a detailed proposal
• No, not an idea worth pursuing

[BadriNat]

This is a great proposal and I voted yes, but I want to add a couple of higher level points that help me think about the details of what you are proposing.

1. My main takeaway is that the yield farming incentives appear to have stopped working as currently designed and need to be reworked. This has nothing to do with the hack - the TVL got back to ATH very soon after the attack, but we are stuck in the $21-24m range for weeks now (which has included both good and bad days for the overall crypto market and high and low gas fees days) and the yield farming isn’t helping. So we should stop wasting such a large percentage of token supply each week and try something else.

2. I know TVL is not a perfect metric for a variety of reasons, but it is important for a self-fulfilling reason - everyone looks at it and projects are ranked on it. Besides, the picture is the same by other metrics - we have been stuck on daily fees in the $2-3k range for weeks (with a few exceptions) and daily trading volumes in the tens of thousands to low hundreds of thousands range (although there were a few really good days even after the hack where we were at multiple millions per day in trading volume).

3. Although a large chunk of the daily fees are from loans (a breakdown between trading fees and loan fees on bzxstats.com would be really useful), what really makes BZX unique is Fulcrum, not Torque, so the focus should be on bringing more traders to Fulcrum.

As a result I think VWI sound like a great idea, subject to the details. Basically if we start with the question “how do we draw more traders to come and use Fulcrum”, then we can look at the answers we get. There are some obvious points which are already coming, the sooner the better (Fulcrum Pro with limit orders, permissionless listing, general UI fixes), but what else? Also, while not directly connected to this, it just looks bad to not have full staking and governance in place, so that should be prioritized too (and in fact, if I remember the last governance call correctly, these last points are the team’s top priority right now, for exactly that reason).

[gorg]

So we should stop wasting such a large percentage of token supply each week and try something else.

I’ve seen teams with successful incentive programs (like Balancer) relentlessly tinker with the incentives until the offered rewards start to yield the desired behaviors. While the current program is not useless, I think it’s not a good use of 0.5%/week at this time.

…what really makes BZX unique is Fulcrum, not Torque, so the focus should be on bringing more traders to Fulcrum.

This is the most important point to make I think - Fulcrum is the unique value-add of BZX. At this point the incentives are driving activity to Torque and not doing much for, or perhaps actually disincentivizing, use of Fulcrum.

Basically if we start with the question “how do we draw more traders to come and use Fulcrum”, then we can look at the answers we get

Yes – This is the core premise. Re-weighting incentives on Fulcrum to be aligned with Volume is just one of the quick ways that I see that isn’t contingent on new features/development.

I suspect that traders are not a perfect overlap with the yield farming community. Importantly, it looks like the high APRs along with the friction they create with interest set-asides paint Fulcrum in a bad light with new traders.

Clarification

I should be more clear – my view is that the activities on Torque and Fulcrum are so disparate that the current program doesn’t work for driving activity to both.

I think that toque activity should remain interest-weighted, and we should return to the drawing board for Fulcrum incentives. This is just one possible idea on how to incentivize Fulcrum activity.

[audax]

Great points and I agree with both! Personally, I think the timing for new incentives is essential.

It is really important to have great products before you incentivize them. Torque works fine, incentives work good, but Fulcrum trade has its flaws and the incentives are maybe even counterproductive.

Staking and governance are the team’s priorities, I believe they’re waiting for the audits to finish, so that shouldn’t take much longer now.

Fulcrum Pro is up next, but this should be working without any hiccups before we incentivize this. When it works as desired, the rebrand can start with new and better incentives for fulcrum traders.

One way to incentivize fulcrum traders is to have their collateral earn interest, paid out in the form of vBZRX.

I have to admit, I copied this from another post on this forum that suggested this for the use of Torque but it could work!