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.
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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