Proposed changes to staking rewards

#highlights bZx Community Call 9 20th November 2020 by Dr. Bitcoin.

  1. Tokenomics update – New direction:
  • BZX have been building up the staking module, and as they’ve been building it, they found as it stands, the balancer pool approach has some things to be desired. Basically, most ERC20 volatile assets, they’re not generating a lot of them and they’re not generating them in a constant proportion. Imbalances occur when they try to sweep all of these ERC20s, which leads to arbitrage, which again leads to seeding value in that sense. There’s a difficulty getting it into the balancer pool properly. So BZX have thought about several options for how they could address that. One is to use a private pool: If you have a private pool then you could use the admin key to push a weight update every time you’re depositing. But then this has some drawbacks in terms of BAL mining, trading volume, and general usability, you can use a balance or smart pool.

So, Kyle and BZX found out that there is a bunch of ERC20 dust and it’s kind of tricky to work with. In the meanwhile, while BZX were trying to get balancer to work, BZX had put stablecoins generated by the protocol into Curve. And Curve is actually a very great place to put the stablecoins, and the farming there is much better than Balancer overall.
So in terms of what makes most sense for the protocol, BZX want to propose a new direction out of what they feel are some technical constraints, by depositing the stablecoins into curve, where it is farming which BZX believe is the best use of the stablecoins at this moment. And they’d also like to propose another thing to the community, which is that they take the misc. ERC20s and they use it to purchase BZRX with it. So changing it all into one denomination and distribute that to the users.
So you will get Curve liquidity pool tokens, and you will get BZRX which you can further stake and start up a virtuous cycle of more staking and more stablecoins.
In BZX’s staking module, it has all this built in automatically, and they’re sweeped automatically. BZX are automatic market buy on uniswap BZRX, and that compounds the BZRX. Like, you’re staking BZRX, you’re going to earn more BZRX and earn Curve 3 pool curve token, which is USDC, DAI and USDT. So you will get your stabletokens and be earning BRZX on top. The nice thing about that is that there will be constant buy pressure on the token as well.

-“which Curve pool?” Answer: 3 pool, but BZX can move it around. Kyle thinks maybe USDN is better, but they are not locked in, so they can do that intelligently.
-“Is BZX team are doing the eCurve for higher APY?” Answer: That’s a possibility for sure, Governance should weigh in on this. The only tricky thing is that the APYs on the different pools move around a bit. So right now USDN is good, and then if they lock a bunch of ve Curve there and then what if another pool gets a better APY, do we switch over? So Kyle thinks it is an interesting direction having governance oversee which pool we’re mining and how we’re mining it exactly.
-“The ERC20s are small proportion of the fees anyway” Answer: True, most of the fees are in stablecoins, but the nonstablecoins will be swapped. And that is what the team is proposing.
follow up question
-“Did you consider just burning the BZRX?” Answer: Kyle says BZX are generally not a huge fan of burn mechanics, but if community really wants it to be burned then that is the prerogative. For now, fee sharing but feel free to make a proposal if there’s a community energy around that then there’s no reason that that can’t be implemented.
-“Why Uniswap and not Balancer where the staking pool liquidity is?” Answer: Because all of this is going automatically when you sweep fees, it’s doing a lot of swaps, it’s converting and adding to rewards in the staking pool… A lot of this is gas intensive, so Uniswap because basically it uses less gas, and also the liquidity is unmatched. There’s deep liquidity in all these different pools with all these tokens they’ll be swapping
-“Why not auto-buy on the Balancer?” Answer: BZX do auto-buy on Uniswap because of already mentioned reasons.
-“When is the staking dashboard going to be automatically update?” Answer: That’s coming in December with the staking update. When the full staking module goes in, that’s when the data gets fed in by the blockchain and all of that. Right now, it’s sort of like a data repository for retroactive disperse of the fees. When the full staking module kicks in, it’s going to be completely up to date, running very smooth, updating all the time, it’ll be beautiful.


The fees from stablecoins go to a Curve stablecoin pool (Curve #3 USDT, DAI, USDC).
The fees from ERC20s will be sold on Uniswap to buy BZRX.

The new staking rewards will consist of Curve 3 LP tokens and BZRX.

1 Like

Generally I like this idea. The stablecoins could go to any pool, whichever has the preference at a certain time. With a working DAO, this could easily be switched around.

In another threat on this forum, we also saw the problems with the ERC20 pool, so I’m glad we are moving away from the Balancer solution.

The buyback of bzrx sounds great, but there’s a small drawback. Liquidity providers of bzrx will be more susceptible to imp. loss, so although they are receiving most staking rewards, this change will actually not benefit them, but it will benefit mostly the bzrx holders (normal stakers and the non-stakers!), since price goes up.

Remember, liquidity providers no longer hold BZRX, they already sold their stack to the pool at a certain price, so price increases won’t benefit them.
Still, they will get a higher share of the staking rewards, which will be partly in BZRX, so it’s not all that bad.

Market selling the ERC20s on Uniswap due to deep liquidity sounds reasonable, but it’s here where I would propose a change.

Most ERC20s fees are probably in ETH, so why not at least sell the ETH for BZRX in the pool which we also use for staking? The liquidity is higher than in Uniswap, the fees are lower in the official balancer pool (0,2%) compared to 0,3% in Uniswap, and we support our official liquidity providers.

Gas-wise shouldn’t make a huge difference either, it’s just 1 swap.

For the other ERC20s I’m not sure if (for example) a LINK-ETH-BZRX routing on Uniswap would be cheaper than on Balancer, liquidity is good on both. The fees on Uniswap are always 0,3%, on Balancer it can be anything from 0 to 10%, that could be an issue.

Does anybody has more insight on this?

Hi everyone. Regarding this new proposal:

I agree that’s a good proposal, but not for NOW, for several reasons

  • first it would delay some other things that should be finished first (priorities should be known) platform is already 3 months live without possibility to cash out earned staking profit

  • second it would create artifical pump with market buy from all the fees protocol collected over past 3 months. Considering protocol is collecting several towsands of dollars daily (in fees), mutiply that with number of days and that is pretty big amount of money and it would be unsustainable artificial pump.

Overall, I don’t want team to sell my ETH fees (for example) into BZX (even though I was told I would collect native protocol fees) so you would sell my ETH and pump BZX and then I would sell BZX and buy back ETH which I was told I would get.

This proposal should be taken in consideration (on governance) after new staking contract goes live, and after all the previous fees are paid out

I love this proposal! Maybe later when yearn’s v2 3pool vault launches we can use that as it would have some boost factor enable over just regular staking in curve, but the v1 vaults are probably not worth it for now. I say let’s go with curve instead of balancer.