MDP20.2 MTA/WETH Earn reward changes

From the mStableDAO

Summary

As set out in MCCP-4, it has been proposed previously that MTA’s token emission can be optimised. However, whilst MCCP-4 detailed changes to mAssets (mUSD and mBTC) it did not address the rewards going to incentivising the MTA/WETH Uniswap Pool’s liquidity, or Staking V1 rewards. Emissions to these two destinations account for c52% of total outgoing rewards (68,750 of 133,250 MTA each week).

The mStableDAO is seeking to open a discussion around the potential reduction of rewards for the MTA/WETH Uniswap pool in order to reduce the total amount of MTA being emitted, and to focus incentives upon mStable’s new Feeder pool architecture.

Specification

This proposal suggests that rewards to the MTA/WETH Uniswap pool be reduces over time to some new target amount for weekly emission. This could be a round number, or a percentage of the current reward emission:

As MTA liquidity is a critical piece of the broader mStable ecosystem, it is recommended that any changes made should be considered over some sort of transition period that allows LP’s time to move their capital.

Some options are provided below to serve as examples, and begin the conversation on what a potential reduction could look like. Due to the number of variables, they do not intend to capture the full scope of possibilities, and Governors should arrive at their own conclusions about that an appropriate reduction could be:

  • A reduction to 50% of current weekly rewards (14,375 MTA) over a 4 week transition period
  • A reduction to 17,500 MTA per week over a 2 week transition period
  • A reduction to no rewards over an 8 week transition period

Rationale

This is being proposed as part of the broader overhaul that was started with MCCP-4, with the intention of comprehensively restructuring MTA reward incentives. This echoes the communicated desire from the Genesis team to lower MTA emission toward liquidity pools outside of the mStable ecosystem, and to refocus rewards where they produce the most utility.

It should be noted too that any loss of liquidity can be partially or fully offset by MTA/DAI liquidity bolstering from the mStableDAO treasury as outlined in MDP20.1 should it be successful.

Conclusion

mStable is at a juncture where MTA’s token emissions are being overhauled with the desire to create more utility for mAsset users, and long term value for MTA token holders. As part of this broader process that was begun with MCCP4, the MTA/WETH Uniswap pool’s rewards can be scrutinised to see if any beneficial changes can be made.

We look forward to any and all feedback from Meta governors.

3 Likes

Given that redirecting most of the volume to mStable app is a first priority in my opinion and given that the rationale behind this proposal is the following:

I find myself in agreement with the proposal, although before voting I’d like to hear how those rewards are going to incentivize the new Feeder pools.

I support this for a number of reasons, and would vote for a large reduction (to ~10k) or removal over 2-4 weeks.

Currently the rewards are being used to incentivise ~$5.185m liquidity at current rates. MDP-20.1 will incentivise at least ~$4.7m, which is almost equivalent and thus market liquidity would not suffer greatly if rewards were removed.

mStable rewards have been heavily skewed to 3rd party and MTA liquidity instead of focusing on TVL on our own platform (with 52% going to MTA sources). We are paying 28.75k MTA per week (~$83.k) to this pool at an 80% APY (APY is high in order to incentivise a pool with 2 volatile tokens). Given that there is no lockup on this reward contract, if sold immediately on the market it would equate to ~2.4% of negative sell pressure each week (based on Uniswap slippage). At ~20% APY which is more reasonable for pools with no IL (i.e. feeder pools), this amount could contribute to ~$21.7m liquidity at $2.9 MTA. Any MTA reduced here will have a positive effect on mStable TVL over the next 16 weeks with the funds going directly to feeder pools as per MCCP-4.

The pool does provide utility for MTA holders given that it is a place to earn yield, however in its current form it is inefficient IMO. In addition, its worth considering that if the pool were removed, there may be some short term sell pressure from pool members.

In addition to the options above, should the rewards not be removed entirely we could also float the idea of moving to a contract with a rewards lockup, or moving it to incentivise the MTA/DAI pair with less IL.

1 Like

Personally I don’t think it’s a good idea to kill this pool with no rewards given that this pool with high APY has also potential to attract MTA buy orders and liquidity provision by LPs.

Instead we should look at the right amount of liquidity to incentivise coupled with the new MTA/DAI proposal that would probably double the liquidity of MTA on secondary markets.

MTA/ETH liquidity on Uniswap is cornerstone to MTA liquidity.

A query on Dune shows that most ETH <> MTA swaps range from 3-10 ETH - we can probably bin the distribution to see where the swaps are concentrated within 1 sd (i.e. 68% swaps) or 2 sd (i.e. 95% of swaps).

Then we can factor that to target the amount of liquidity with 0.1-0.2% slippage which is in line with CEX standards.

Currently 5m of liquidity gives 0.3% slippage for a 5.5 ETH (~10k USD) swap from ETH to MTA, which is not bad.

With the upcoming MTA/DAI pool we can probably half the rewards on this pool? Just some high level estimations.

2 Likes

Definitely think a quantitative and methodical approach here is the best, so Derc you’re on the right path.

Any of these changes too should be with a transition period too, to avoid any sudden shocks from large chunks of liquidity being pulled out in response to changes that are too sudden.

1 Like

We discussed this topic internally, and came to the conclusion and overall agreement that we ought to approach this change in MTA/WETH reward emission very carefully, as many movable parts are going to be affected by this.

First and foremost, we felt that we should make changes to this pool over a longer period of time and smaller amounts, as to be able to carefully observe market reactions in response to reduction in these rewards, and adjust parameters conservatively at first, before taking a more aggressive stance in lowering rewards to a desired number.

Consesus was reached that we should not completely wind down rewards for now in the MTA/WETH pool, as it provides critical trading infrastructure by allowing to enter and exit MTA from the ETH position, which is a de-facto standard in the space.

We were also not disinclined to consider a similar vesting schedule for rewards emission as already proposed in MCCP-4, as this would reduce downward sell pressure for the MTA token, and incentivise long-term believers in the protocol, albeit it might need to be implemented at a later stage, as not to upset the current yield farmers in the system too much, with both a reduction in rewards and a change in the rewards contract itself.

As incentives for the new pools begin to roll out, we’re aware that rewards need to be taken from the current pools, and reallocation optimised where it is most useful for the broader mStable protocol, so we’re in favour of this happening in general.

We’re especially interested in feedback from current yield farmers in the MTA/WETH pool, and would like to hear their opinion on what they would deem a fair period of time, as well as a bearable reduction in emission, especially if we were to introduce a boost of rewards for MTA stakers, similar to the one that was proposed in MCCP-4.

2 Likes

I echo what @derc and @mZeroNine have said - we need to wind down the rewards slowly and carefully to allow the market to digest this change in a way that is not too disruptive.

I would also be in favor of keeping some rewards on this pool (maybe 5k MTA week?) because I believe having a healthy MTA/WETH pool is ideal.

2 Likes

This has gone to voting on the mStable Snapshot as MDP-20.2

Votes close on April 6th!

I think we should wind down the pool over 8 weeks instead of 4 as it’ll lead to a smoother transition. Something like ~2.9k MTA reduction per week for 8 weeks (from ~28k to ~5k) and then keep 5k MTA on this pool for the foreseeable future.

It nets out the same result but just over 8 weeks instead of 4.

1 Like

I think this makes sense given how important this pools if for the mStable community. I am for doing it over 8 weeks as described above @ScarceJim @sassal0x

1 Like

I don’t see any logic in killing incentives for one of the most important pools. ETH-MTA is the entry for most ppl buying MTA, no? 5k~10k MTA is the same as nothing, anyone paying attention will leave it and anyone intending on farming some MTA with their MTA will not join it.
As an LP on Uni the slightest change to the MTA allocated will make me leave the pool and join a better one, in or out of mStable.
I understand the idea behind it, moving liquidity into mStable, I just don’t agree it should be done with this pool.