PDP 24: MTA rewards distribution on Polygon

Posted on behalf of the mStable ProtocolDAO

Summary

It is proposed to amend MCCP-4 to carve out 20% of base emissions (~50K MTA per week) for liquidity mining on Polygon, with incentives going to the Save Vault and Feeder Pools. Incentives could be used for joint-liquidity mining programs with partners.

Abstract

MCCP-4 proposed a prospective emission schedule over the next few years and a set of rules to follow in order to calculate weekly distributions.

The current emissions schedule on MTA is approximately ~250K MTA per week on Ethereum Mainnet, distributed across 4 Feeder Pools, 2 Savings Vault, MTA/WETH Uniswap LP and MTA Staking.

MCCP-4 also proposed mStable incentivises liquidity in-house instead of third party protocols in order to promote boost in-house liquidity and channel fees within the protocol. Since MCCP-4 was passed, mStable has deployed on Polygon and accumulated deposits to Save even without incentives.

In this amendment, we propose that mStable carves out 20% of base emissions as incentives to attract liquidity on Polygon for 3 months, with a renewed vote after.

The Polygon team has agreed to launch a joint-liquidity mining program on Polygon with MATIC rewards from their #DeFiForAll fund, with more potential partners in the pipeline. It is proposed that the carved out emissions will go to both the Save Vault and Feeder Pools on Polygon.

Motivation

Polygon offers users an affordable way to interact with DeFi protocols, and mStable is at the forefront of this space with a best-in-class savings product with integrated liquidity pooling and same-asset swaps. We were also among the first protocols to deploy on Polygon, demonstrating our commitment to make DeFi more accessible to all.

Next Steps

Pending no significant changes to its content, this proposal will be taken to snapshot vote on Monday, 15th June 2021. Voting will be open for a 5 days window to give adequate time for a concurrent discussion. Governors can change their vote at any time should the discussion sway their decision. We look forward to hearing what MTA token holders have to say and seeing how they cast their votes.

4 Likes

Love it! Only question: how did you arrive at the 20% number? Why not higher? Why not lower? Is this based on current relative usage of mStable polygon vs mStable eth mainnet? Based on how we’re trying to shape/drive usage? Coupled with the shared-incentive program we’ve agreed on with Polygon folks?

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In addition to Java’s questions, is there some sort of value accrual mechanism in place on Polygon? Given that this move will shift emissions from eth mainnet (where there is a value accrual mechanism via staking/boost and buy & make) and likely reduce liquidity on eth mainnet, I think it’s important that we accrue value with the additional growth that will result on Polygon from these emissions. Otherwise, we’d be giving away tokens without creating value for MTA holders or mStable. Good idea, just want to make sure we’re being thoughtful about our token, particularly since 90%+ of our treasury is in MTA.

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Good question sir - the 20% number comes from the amount of tokens needed to match Polygon and the FRAX teams on co-incentivisation commitment on Polygon from our end. The collaboration hinges around the token contribution from each project feeling “equal”. I wish we had more data or research into usage stats on Polygon vs EthL1, but I’ve personally not approached the numbers that way (perhaps shamefully).

From a topline perspective, I think we certainly want other L2 incentives being possible in the future, so the number also deliberately keeps some space free for other rewards in future.

@Cold_Summer. To your point. I do not know if we have a conclusive answer to this - the mStable infrastructure on Polygon is more nascent relative to Eth Mainnet, so short of piping value back from Polygon to the value accrual mechanisms on L1, this should be addressed. We need somewhere to lock up MTA on Polygon, ideally for a yield of some variety.

It makes me think that Staking v2 should consider what staking on other chains looks like. We should also look at how a buyback and make pool on polygon would function. Thats a question for the devs however and not me.

Thanks for elaborating. A few things to consider further, then:

  • Eyeballing very roughly, it looks like imUSD Save on polygon today has about 5% the TVL of imUSD Save on eth mainnet. A 20% base MTA emission shift to polygon feels quite substantial.
  • I would encourage us to learn from the marketing/hype cycle and fairly brief usage pop of the initial launch of mStable on Polygon [300% APY listed etc.]. My takeaway from that experience is that it’s easy to temporarily buy a usage spike (whether through marketing buzz or through literally buying it with MTA and other incentives), but that by default that spike will be fleeting. This pattern would be especially painful+disheartening if it boils down to: divert MTA from longer-term users on mainnet to insta-sellers on polygon; watch usage rise for N weeks of incentives; see it fall immediately after; don’t grow the community or reflexivity of the project in the long term.
  • So we can get folks’ attention with a press cycle around this, AND we can get people to engage in some way with mStable via the MTA+Matic(+FRAX?) incentives… But the critical question for this go-around is: “so what?” As in, say we’ve got a new person engaged because they heard about an attractive APY … what is the hook that is now going to keep them engaged over the long term, or make them engage more deeply, add more value to the platform, keep their MTA locked, etc.? What is our end goal here; what behavior are we trying to funnel users toward; and do we have the elements in place to succeed at that?
  • I would love to see a marketing plan (even very small / bare-bones) attached to this before voting if at all possible. I think for a move like this it’s useful to “start with the press release” to see if it feels like it’s going to hold water, and then work backward from there to the implementation details. Plus there have been times in the past where mStable’s implementation raced ahead of its marketing/comms, and I think it’s prudent to reduce the risk of this.

Thanks as always.

3 Likes

Appreciate the honesty. To be candid, I’d need to see some sort of value accrual mechanism before being comfortable voting for this. We must ensure that we protect our treasury and holders. Without any value accrual, we are not channeling the activity on Polygon towards anything that benefits mStable. If anything, we will reduce liquidity on L1 by reducing emissions going there (where there is some return on investment/utility for MTA) and increase selling pressure by sending MTA to a place with no buy & make and no staking/locking/boosting. While I am for experimentation, we need to be thoughtful about ensuring that experimentation actually creates value for mStable and its community. This implementation, as it stands, could harm more than help.

1 Like

I share similar concerns with Javalasers and Cold_Summers. As Javalasers points out, the difference in scale on ethereum and polygon is not insignificant. Suppose we carve out 20% base MTA emissions. In that case, the reward system will not only attract new users to lock their assets on polygon but also encourage existing members on ethereum to shift their assets to polygon, until the MTA rewards APYs on the two chains are comparable.

I think our members on polygon should be rewarded MTAs. However, as MCCP-4 notes, the rewards given to any vaults and pools should be proportionate to their performance. We may need a more strategic plan if we are going to give out more rewards than their performance.

3 Likes

We are currently running 242k of MTA incentives weekly on the mainnet to attract that amount of liquidity, or 2.9m MTA for 3 months.

In contrast, there’s currently no incentives on Polygon. During Polygon launch we saw 20m of liquidity (without incentives to sustain deposits so users obviously go to where they can maximise their yields for a similar risk profile i.e. Curve or Aave). So I think having MTA rewards on Polygon is a great opportunity for mStable to 1) become a more accessible protocol for retail on a low cost chain like Polygon, 2) attract liquidity across multiple chains for mStable to eventually set up cross chain value bridging; 3) increase the number of MTA holders and governors and 4) expand partnerships with protocols working outside of Ethereum.

If we bridge 20% over for 3 months, that’s 580k MTA, or 2 weeks equivalent of current emissions. We are not changing top line emission numbers.

Overall, I see more pros than cons. We haven’t been able to reach the masses because of high gas fees on Eth mainnet, but we seem to be targeting “set and forget” less sophisticated users with our product.

I fully support bridging MTA to polygon, and at the same time I agree we should think about value accrual back to token holders. But if there’s limited value to accrue then it would be quite a wasted opportunity.

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Are you saying that you think less-sophisticated “set and forget” users may be on Polygon, and thus having a bigger footprint on Polygon may bring mStable closer to its core potential userbase? If so, this doesn’t match my mental model for Polygon users FWIW. I think of people going to Polygon so that they can scratch the itch to move funds around, try lots of protocols, etc., without taking huge hits on gas fees. I don’t expect may users on Polygon to “set and forget.” @derc do you have a different picture of the polygon usage pattern / userbase?

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I think there’s always this one group of users that will exist on all chains - just hopping around looking for the best yields. There’s another group of users, those that were on BSC, and maybe some on Eth mainnet that might be priced out of high gas fees to deposit $1000 into protocols like mStable earning 20% APY but have returns already eroded from mint/deposit fees.

I am inclined to believe that cheaper fees for farming stables will boost mStable’s core user base and bring good exposure with the partnership with Polygon. I think that having some footprint on a lower cost chain has benefits and protocols must pay to incentivise this.

Lastly capital is not loyal so I’m also inclined to believe that once the yields are gone capital will move somewhere else with an equivalent risk profile and brand equity.

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With all due respect, I think one of the reasons mStable has not seen its best days is the crazy market: people are chasing after projects offering 50%+, if not jaw-dropping three-digit APY, projects. The higher gas fee on ethereum actually discourage these (irresponsible) behaviors.

Don’t get me wrong: I like low gas fees to save me money when putting money on board and claiming my MTA rewards. However, we need to assess if the marketing strategy can attract the people who are similar to our risk profiles. We may need to further evaluate the marketing plan if we anticipate the retention rate may be not so satisfying.

I think our competitors are CeFi, like BlockFi, Celsius Network, Gemini Earn, and Nexo. They offer stablecoin deposits with either native or platform token APY around 10%. Deposit and withdrawal usually cost zero in CeFi, and the process to deal with a ‘bank’ fits people’s daily routines. It also requires minimal knowledge in crypto.

To attract retail customers, we may need a more user-friendly manual and user interface. To be honest, I try Defi because I want a higher APY. Later on, I start to appreciate what permissionless and trustless features could offer.

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I agree with java’s characterization, which is partially my motivation for ensuring there is value accrual on polygon. Like java and derc mentioned, this is speculative/highly nimble/non-loyal capital. These users need a place to use MTA, otherwise they will dump the MTA rewards and move on.

While these rewards will generate activity, what good is the activity if it’s actively diluting our treasury and not returning value to mStable or MTA holders?

If we port over a buy & make pool and/or staking + boost, I’m happy to support, but I cannot support the current implementation.

1 Like

A healthy and diverse discussion here, I love it. To be honest, I’m not quite sure where I stand in this debate, as I’m not necessarily a deep believer in using Polygon as a sidechain for moving my funds to and interact on as my main DeFI hub, but would rather see it as a programmable commit-chain for mission uncritical tasks, such as paying salaries, and other low-key things where a commit and timestamp back to the main chain is sufficient.

Having said that, I believe it stands its ground when it comes to testing out different DeFi waters, playing around with protocol 2 protocol interactions, as well as storing funds of non-critical nature there. I could also see it work really well for future governance and voting systems, as it will finalize much easier than L2 solutions built on Ethereum, but that is just my personal take on this controversial ongoing debate in the wider crypto community.

Therefore, I’ll try to simply evaluate the neutral part of this deployment and incentivization, which I think has some merits other than simply diverting some treasury funds to an ecosystem that is currently being developed and still being built out from the sides of our protocol (to acknowledge the legitimate concerns from @Cold_Summer in regards to value accrual and lock-in of farmed MTA).

I think I would concur with @derc in that the numbers seem small enough to do a test run with 20% of the funds, summing up to 2 weeks of mainnet rewards. I feel the upside we create by collaborating with Polygon and other actors is in itself a way to bootstrap and set the staging ground for future collaborations that might outweight the initial cost.

Having said that, I’d welcome that such potential partnerships and collaborations are transparently and openly discussed in the Discord & Forum first in the future, so everyone can chime in and start the discussion with the core team and other parties in tandem, and not as it is now at the end of the discussion when most agreements and deals have already been struck (which is also only good for overall protocol 2 protocol health, as if this public vote now receives an unfavorable outcome, the message received on the other end by the protocols will probably cause a negative sentiment towards the entire mStable decision-making process being judged as highly volatile until the last moment.)

I’m definitely very much aligned with the words of @JoshL and think that if we were to continue rewards down the line after the initial 3-month test period, we should do so dynamically with TVL dynamically checked on each of the products across both chains, and then perhaps an added slight boost for the mainnet deployment simply for composability reasons existing today.

I’d also start discussing indicators and benchmarks now of what we’re hoping for in terms of results considering this trial run and when to consider it a successful run and when to consider it a failed attempt. Not setting key indicators and correct expectations will ultimately always result in a skewed result that is hard to evaluate and cause further fragmentation in opinions of how to proceed. We should catch such traps early before they become a bigger issue.

Finally, I think we should also start research & possible deployment of our solution on Arbitrum and Optimism immediately. Without trying to hijack the thread, the highest permissionlessness and most decentralized fruits are hanging without a doubt and argument on the Arbitrum and Optimism trees, since they are a natural Ethereum-native L2 technology, and the developer whitelist has already begun for Arbitrum, so we’re already late to the party there.

With everything said and done, I’ll personally Abstain from this vote, since my own alignment is too biased as to paint a clear picture, and I personally feel we should focus actual developer power to mainnet related tasks right now that seem more crucial and important to delay in favor of this.

We should craft a solid business case for Polygon moving forward, with timeframes, developer hours required, goal-oriented KPIs to judge the deployment and partnership on, and overall a framework that can be used as more and more collaborations with more L2s and sidechains will fly towards us, so we can become effective asset managers and custodians of our MTA treasury, and know when something is going to be a positive EV and when it’s not.

2 Likes

Hi everyone, great discussion going on here.

As a summary, it seems these are the principle concerns:

  • Why 20% of top line emissions and not some other number
  • How do these incentives fit into a broader L2/multichain incentive strategy
  • Expressing that there should be more transparency over BD pipeline that impact discussion points
  • Ensuring that there is a clear value accrual mechanism or reflexivity strategy for MTA and its emissions on Polygon to a) counter the short termist capital there and b) protect Eth layer 1 users
  • Setting of benchmarks or targets on TVL after the end of the period so that there is a clear point from which to compare success/failure

I personally am very much for placing incentives on Polygon, a commit chain that is significantly cheaper to use and where there is still a relatevely nacent stablecoin to stablecoin swap market (no Uniswap v3 there for example).

I would be open to voting for this if:

  • benchmarks and goals were clearer
  • MTA had a clear value mechanism on Polygon
  • Way to stake MTA on Polygon (at least in roadmap)

I think the collaborations with FRAX and Polygon are fantastic opportunities and we should be aggressive in getting market share in these new jurisdictions

3 Likes

I’ve just gotten in touch with the Sushi team to ask them how they are handing the redirection of what looks to be fees from Polygon back to L1. If anyone knows about this too chime in!

3 Likes

This proposal is now up for voting on Snapshot.