Proposal to Modify FLX Emission Schedule (July 2022)

Executive Summary

Currently, there is just over 1-year of FLX emissions left at the emissions current rate. This proposal’s aim is to create additional runway for the Protocol and DAO activities by reducing daily FLX emissions. This change to emissions is one prong of the two-part proposal outlined here.

  • I propose the following changes to daily FLX emissions:
    • Eliminate FLX emissions to Fuse pool #9
    • Eliminate FLX emissions to the Idle Finance RAI pool
    • Slightly reduce emissions to FLX/ETH Uniswap V2 Stakers
    • Slightly reduce emissions to the RAI/DAI Uniswap V3 pool
    • No change to emissions to the RAI/ETH Uniswap V2 pool

Why Reflexer Needs to Slightly Reduce Net FLX Emissions

  • In the community post above, you can see in detail why Reflexer has to slightly reduce FLX emissions to grant the community at least two years of runway for DAO expenses and RAI incentives
  • In brief, there is ~131K FLX left to emit under current parameters – this represents just over 1-year of emissions at our current inflation rate. A forward-looking restructuring is required
  • We need to (i) reduce emissions from 340 FLX per day to 300 FLX per day and (ii) mint and allocate 169K FLX to the DAO which will grant enough runway to extend FLX emissions to two years as well as ear-mark a portion of FLX for DAO activities and expenses
  • Understandably, no one enjoys a reduction of emissions, but the DAO must be enabled to encourage protocol growth and adoption; further, we must find a way to extend emissions for at least 24 additional months to support RAI adoption activities

Remove Fuse Incentive

  • Eliminate FLX emissions to the RAI borrow-side of Fuse pool #9 from 10 FLX per day to 0 FLX per day
  • Currently, Reflexer spends 10 FLX per day incentivizing the borrow-side of Fuse pool #9
  • The market benefitted from ~$10M of RAI lending depth support from FEI through their PCV operations until approximately May of 2022, wherein FEI disposed of almost all of their PCV-held RAI
  • Given that there is now a pattern of exploits on the Fuse platform (explore here), and that FEI, which has merged with Rari, has pulled their support of RAI vis a vis their PCV we should consider refreshing our stance on the protocol as a whole
  • Further, since the Fuse hack in May 2022, Fuse has yet to re-engage any and all borrowing on the platform; combined with the disposition of FEI’s RAI and the borrowing freeze, there is virtually negligible RAI liquidity within the pool and the current borrowers are yielding an inappropriate amount of FLX that other users are unable to utilize themselves

Remove IDLE Incentive

  • Eliminate FLX emissions to the RAI pool on Idle Finance from 10 FLX per day to 0 FLX per day
  • Given the proposed elimination of the Fuse incentive, it would also make sense to eliminate the 10 FLX per day that Reflexer currently pays to the Idle RAI pool
  • Reflexer’s initial support of Idle was predicated upon the expectation that Idle would load-balance lending pools that used RAI in order to promote stable borrow rates across protocols for users
  • In reality, Idle habitually caused issues with RAI rate volatility spikes as the pool would move it’s entire deposited balance of RAI to either Aave or Fuse pool #9, causing an imbalance in whatever pool Idle had just left
  • Given my proposal to end support for Fuse, and the seemingly deprecated pool, Idle is now just an additional layer for lend-side Aave activity
  • For the past several months, RAI depositors to Idle Finance have been earning yield at an approximate 10% rate, which is considerably higher than other lend-side RAI activity and significantly higher than the APY of the RAI Curve pool which carries what I believe to be a higher risk premium. Therefore, I believe that the FLX currently spent to support that pool is inefficiently allocated and can be deprecated

Slightly Reduce FLX/ETH Staker Incentive

  • Slightly reduce FLX emissions to FLX/ETH Uni v2 stakers from 110 FLX per day to 100 FLX per day
  • Eliminating emissions to Fuse and Idle bridges only 50% of our desired goal of a 40 FLX per day reduction. As such, I propose a small reduction to the staker incentive as well
  • At today’s yield, a reduction of 10 FLX per day would still represent an FLX APR of >50% to stakers, which I believe is healthy compensation for IL risk and their position of lender-of-first-resort should the protocol incur bad debts unable to be cured by the protocol’s internal treasury or auction mechanics

Slightly Reduce RAI/DAI Incentive

  • Slightly reduce FLX emissions to RAI/DAI Uni v3 + Mint from 120 FLX per day to 110 FLX per day
  • This is the final part of achieving a more sustainable runway for FLX emissions for the next few years. UNI v3 activity has been very popular with the community and synergistic with protocol health
  • The incentive has supported a very healthy RAI/DAI pool with tight liquidity given the circulating supply of RAI; I believe that reducing the FLX incentive by 10 FLX per day (~8% reduction) will still incentivize healthy participation in the pool and should command a slightly higher yield than the Curve pool without exposing users to the risks of the curve ecosystem

No Change to the RAI/ETH Uni v2 Incentive

  • I do not support a change to the 20 FLX per day assigned to the RAI/ETH Uni v2 pool
  • The RAI/ETH Uni v2 pool is still a critical liquidity source for the protocol and as such should be supported by the DAO in a non-zero way
  • **Please note that as of 15th May 2022, the mint requirement to receive the incentive from RAI/ETH Uni v2 has been dropped
4 Likes

Seems obvious that we should reduce the FLX incentives that go towards IDLE and FUSE, I agree with that. Are we going to keep the votium spending the same? Just curious as it wasn’t mentioned. We are currently spending 840 FLX every 2 weeks I believe, so maybe just scale that down in line with RAI/DAI v3 spending, so take it down approximately 10%.

One thing I was wondering about, and didn’t know if anyone had a feel for this, how is the size of our staking pool relative to current RAI marketcap? I feel the incentives for the staking pool should scale with how big the pool is. If the staking pool is above what people here think is currently appropriate, maybe we scale those incentives back more? I say that because I think the most important thing is that we grow RAI, and maybe it’s worse to cut RAI/DAI than it is to cut the staking pool.

3 Likes

This is a really good point I hadn’t quite thought about. I’ve been working on getting a budget together and measuring out the resource flows. I’ll talk with K1ngfish and Stefan about it. You might be right about scaling back the staking incentives, although if we do those funds would probably go to the DAO instead of directly towards incentives.

1 Like

You’re correct - I intentionally avoided the cvx bribes for right now. I believe that chunk will be addressed in short order, but we’re still discussing about what to do (if anything) with that chunk of FLX. You can refer to Bacon’s original candidate post to get an idea of the different options we are considering.

1 Like

All,

I wanted to propose an additional change here. With respect to the goal of increasing RAI liquidity through minting activity and to further strengthen our most robust capital market, Aave, I propose to move the 10 FLX pd currently directed to Idle Finance to a mint + lend incentive on Aave.

This will encourage RAI minting, increase liquidity on Aave, which is currently already highly utilized (i.e., needs additional lend-side activity), and give further liquidity to arbers who will aim to stabilize prices. For example, additional lend side liquidity should drop RAI borrow rates, which will reduce carrying costs for arbers who want to short rai back to redemption prices.

Please let me know if other’s have any thoughts here.

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I am wondering what others think about scaling back some of the rewards for the staking in the FLX/ETH uniswap v2 pool. For a long time, stakers received 110 FLX. That seemed to be working fine. Now though, with the introduction of surplus auctions stakers have been getting paid a lot more than they did previously. I think it would be a good idea to shave off a bit of the incentives stakers are getting and move them to RAI/ETH or RAI/DAI uni v3 or Votium. In the current environment, its hard to get people to mint RAI, its a bit scary opening up a safe with this volatility. So I don’t think its bad to give people an extra push.

I’m thinking that stakers instead of getting the 100 per day proposed, they should get 80 or 90 and the extra incentives could go elsewhere.

In the past 4 days or so, we collected over 6000 FLX from surplus auctions. Stakers receive half of this, which equals about 3000 FLX. That nearly doubles what they used to get paid. I realize this won’t be the scenario all the time, but it probably makes sense to take down incentives a notch, as I view growing the amount of RAI in circulation as being more important in the near term than returning rewards to stakers.

1 Like

I am generally in favor of the suggestions above however wanted to suggest something a bit more radical:

Could we test a small FLX subsidy to RAI minters? Like start out with 3-4% vs RAI minted (subsidy paid in FLX). At 6,000,000 RAI (current RAI supply), and $30 FLX, this would come out to about 33 FLX per day.

Early on, we had such a subsidy and got rid of it because people just minted and didn’t do anything with the RAI they minted. However that would not be an issue with this small subsidy: at ~2% APR vs the value of ETH locked in Reflexer (assuming 200% collateral factor), simply minting and holding RAI be riskier, more illiquid and lower yield than simply holding stETH, so farmers would farm stETH.

The goal here is to tip the balance in RAI’s favor vs alternatives, so that adventurous traders and orgs may consider minting some RAI and using it in actual economic activity (as opposed to perpetual motion machine yield farming).This will keep RAI in use and aid in getting integrations from other serious projects.

I suspect that giving DeFi natives a small subsidy and the freedom to allocate RAI however they see fit would be more capital efficient than picking a specific protocol and driving volume towards it (Idle, Aave, Fuse, Uniswap, etc). It also has the added bonus of giving real Reflexer users a say in the ungovernance process, while avoiding farm+dumpers.

I am pretty confident that a lot of projects will not survive this bear market but those that do will emerge extremely strong – we need to make sure Reflexer is one of those projects!

I didn’t even have to read this whole thing to know I agreed with it.

In the past I’ve brainstormed a “rebate” mechanism for minters to offset the SF with some mechanism involving stFLX. However, your proposal is the same “cost” to the DAO and much simpler to implement. I support this.

1 Like