Balancer – the automated liquidity and asset management protocol – has unveiled it’s first BAL-based governance polls this weekend.
There will be voting this weekend!
Make sure you have your BAL on a wallet you control (e.g. Metamask/ledger) at 16:00 UTC on Saturday July 18th to be able to vote on community proposals.
Links to each of the 3 proposals below:
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— Balancer Labs (@BalancerLabs) July 17, 2020
The MVP voting solution comes as a solution to a continued discussion around a variety of Factors influencing BAL liquidity mining.
For those who missed it, Balancer allocates 145,000 BAL each week to those who provide liquidity to the platform. In an attempt to prioritize valuable liquidity, the protocol uses a number of factors to incentivize (and disincentivize) different actions. To date, this has included:
- feeFactor – Pools with smaller swap fees earn more BAL
- ratioFactor – Pools with even weighting earn more BAL
- wrapFactor – Pools with hard pegs (Dai<>cDAI) earn 10x less BAL
- capFactor – Capped tokens (everything outside of top assets like ETH, USDC) are limited to a maximum of $10M in adjusted liquidity when calculating rewards.
- Whitelist – Only tokens whitelisted by the community are eligible to earn BAL
While these factors have all been working great to mitigate those looking to game the system, there was one issue – there was no way for BAL holders to vote on these decisions with more weight than someone who did not hold BAL. That is, until now.
Minimum Viable Governance
This weekend, Balancer launched a minimum governance tool that uses an account’s BAL balance to Approve or Reject a proposal. Rather than using onchain voting, a snapshot was taken just prior to the voting window opening, allowing BAL holders to simply sign a transaction rather than pay transaction fees to vote. In total, three different proposals were lofted up with a 24-hour voting window. Here’s how they shaped out.
Proposal 1: balFactor (PASSED)
The most common issue for liquidity mining is that the vast majority of farmers chose to simply sell their DeFi token allocation the second it is distributed. Given there was no tangible use for them, many decided to cash in on high ROL rather than wait to participate in governance. With this new proposal, BAL provided as liquidity to “useful” pairs (ETH, USDC, DAI, WBTC) will receive a 1.5x multiplier – the highest of any factor to date. Additionally, BAL will benefit from a capFactor of $50M – 5x more than other tokens outside of the capless ones described in the last sentence.
With 54 Yes votes to 3 No votes at the time of writing, it’s safe to assume the balFactor will pass.
Proposal 2: Modified feeFactor (PASSED)
Remember how we said that pools with lower fees would earn more BAL than those with higher fees? While this will still be the case, this proposal looks to cut some more slack to those with higher fees. In particular, the higher the fees got, the steeper the penalty became. This basically disincentivized creators from making pools with high fees as they missed out on virtually all the fun BAL rewards. Furthermore, pools with high fees can add significant value and make Balancer more competitive to other AMMs, hence why they should be encouraged in specific situations.
The new proposal will change the formula to feeFactor = exp(-(k*fee)^2) with a coefficient of 0.25 instead of its current value of 0.5. Here’s how this shifts the Factor for pools with higher fees.
0.1% : 1.00 => 1.00
0.2% : 0.99 => 1.00
0.3% : 0.98 => 0.99
0.5% : 0.94 => 0.98
1.0% : 0.78 => 0.94
2.0% : 0.37 => 0.78
3.0% : 0.11 => 0.57
5.0% : 0.00 => 0.21
10.0% : 0.00 => 0.00
As you can see, pools with fees above 1% are no longer at a significant disadvantage to those below 1%. With 43 Yes votes and 2 No Votes, it’s safe to say this will pass as well.
Proposal 3: Modified wrapFactor (PASSED)
Last but not least, we have the most contentious of the three proposals. While there was a hard 0.1 multiplier for hard pegged assets, there was currently no factor for soft pegged assets (sETH/ETH, USDC/mUSD) which (for the most part) saw little trading volume and incurred no impermanent loss. The TLDR is that one side argued that these pairs should receive a 0.3 multiplier while others argued it shouldn’t apply at all. In the end, the community came to a compromise of a 0.7 multiplier – slightly penalizing soft-pegged pools without completing cucking them.
While the votes on this one ended up being a little less unified (37 Yes to 13 No) the modified wrapFactor is set to pass.
Next Steps
Following the passing of all three polls on Sunday afternoon, the changes will be applied to liquidity mining the week of July 20th.
Beyond anything else, it’s great to see BAL holders voting to pass all three of the first proposals. While this was a small step towards wider BAL governance, it’s a good starting point and one we were happy to see.
To add a slightly more contentious note, it is interesting that a “governance” token took until now to have voting, with a half-hazard solution at best. The voting tool certainly got the job done, and it should come as no surprise that BAL holders voted to pass proposals in their own self-interest. Moving forward, we’re eager to see a more well-developed governance platform in tandem with other proposals that do not only apply to liquidity mining.
However, beggars can’t be choosers and we’re excited to see Balancer governance kick off on a high note.
To stay up with the project follow them on Twitter. To get involved with the conversation, join the Discord, or keep an eye on the governance forum.
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Cooper is the Editor of DeFi Rate and a contributor to leading DeFi outlets like the Defiant and Bankless. He is active in the DAO ecosystem through projects like MetaCartel and Raid Guild where he seeks to incubate governance models and grassroots community development. He is an ambassador of Set Protocol and the Director of Fitzner Blockchain Consulting where he authors a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.
