Reflexer DAO: New Incentive Strategy for Curve RAI Pools

General Discussion
1

Overview

As part of the protocol’s transition to ungovernance, the DAO will manage any remaining (still governed) parts of the protocol which includes incentive distributions for Curve RAI pools. At the moment, incentives are handled through Votium which is incompatible with DAO votes that distribute incentives. This means that at least for now (starting on 15th of August 2022), RAI-3CRV LPs will start to receive monthly incentive distributions similar to the ones for Uniswap v2 & v3.

Foreword

First, I want to highlight the exceptional progress made toward the protocol’s UNgovernance. Part of shared and fostered culture of our community stems from a belief that better outcomes are begotten of better systems. I’m happy to be a part of a community that shares in the first-principals approach of letting the protocol “just work”, and perhaps most importantly, turning OFF any party’s ability to mute the immutable.

This approach is not without its own quirks as there are some incentive campaigns that will require tweaking.

Moving Away from Votium

Ungovernance requires all FLX emissions from the DAO needing a full proposal on Tally (on a monthly basis). For this reason, it has become untenable to continue Votium bribes, which is the mechanism RAI has used to participate in the “Curve War” and boost yield for RAI-3CRV LPs. The main reason why the DAO’s participation in Votium is unlikely to continue is because there are mechanical hurdles preventing the correct administration of the FLX. The Votium protocol is incompatible with DAO voting meant to regularly distribute incentives .

Direct Incentivization of RAI-3CRV LP Holders

RAI-3CRV is constructive for protocol stability (along with its sister pools of UNI v2 RAI-ETH and UNI v3 RAI-DAI). Each of RAI’s three primary pools have different characteristics which make them both important for protocol stability and attractive to users of RAI. With that in mind, it may be a good idea to continue incentivizing RAI-3CRV.

Currently, the DAO directs 40 FLX per day to Votium, which is the second most incentivized campaign, excluding FLX staking. Stakers of RAI-3CRV on Convex have historically yielded APRs in the high-single-digit to low-double-digit range. The extent of variables affecting this yield (both now and after this proposed change) are myriad and make forecasting yields a tenuous exercise.

I propose that for the next months we directly incentivize holders of RAI-3CRV LPs with 40 FLX per day. Importantly, I propose to exclude large wallets like Convex, who I presume to be unlikely to claim and will dilute the APY for other parties. However, I do not support excluding general LP lockers that are designed to aggregate smaller user’s funds to claim FLX in order to offset transaction costs (if these aggregators are to exist). Within the next months, I would support that the 40 FLX per day for this proposed campaign could only be reduced proportionally to all other campaigns (excepting FLX staking).

Although there is a good chance the FLX generated from holding RAI-3CRV could remain an attractive opportunity, the DAO should be revisiting this arrangement in three months’ time and will gather feedback from the community on alternatives that may be both feasible and more efficient.

Conclusion

Although I expect that there will still be a relatively attractive yield on Convex for RAI-3CRV holders, Reflexer’s support of the Convex ecosystem through Votium bribes will be moving away for the time being.

We ask the community to voice their opinions on this matter.

2

I understand the Votium dilemma, but as an LP in the RAI-3CRV pool on Convex, I would likely withdraw my LP if this proposal were implemented (assuming I understand it correctly). Frankly, as FRAXBP spools up, I am considering withdrawing all my liquidity paired with 3CRV since I would rather have FRAX exposure over USDT exposure.

It looks to me like I would no longer receive CRV/CVX emissions for my RAI-3CRV LP and instead have to claim (and dump) FLX through a separate process which I am guessing would cost me more in gas than my current process. Sorry for dumping FLX (which is what Votium does), but I like to keep the number of tokens in my bags to a minimum and I just don’t have room to add FLX to my bags.

I understand why you want/have to change it, but understand that it will reduce the RAI liquidity on Curve, although I obviously can’t say by how much.

3

It looks to me like I would no longer receive CRV/CVX emissions for my RAI-3CRV LP and instead have to claim (and dump) FLX through a separate process which I am guessing would cost me more in gas than my current process.

Keeping your existing rai-3crv on convex would still accrue crv/cvx emissions. However, these emissions have been “bribed up” by giving votium FLX to dump. It is unclear what the APY will be after this (proposed) change, but it won’t be zero.

You could try and apply some market forces calculus to assume that the FLX apy will likely be pretty good, and take an appropriate risk discount/premium to what you think the convex apy should be. The market should balance itself out accordingly in theory.

My primary point is that this does not change your ability to farm on convex, and I do not believe that APYs will change such that rai-3crv becomes entirely uncompetitive.

4

Thanks for the clarification! I will definitely look at how the APY plays out if this proposal passes before making a change because I like the purity of RAI.

5

Alternatives to Votium - Proposal for “Custom” Solution

Though Votium has been a mostly effective mechanism to incentivize votes for the RAI-3CRV gauge and increase demand for RAI, I fully agree with the move towards further ungovernance. In addition to the mechanical hurdles preventing administration of FLX, the inability for this mechanism to generate sustainable yields also make it an inadequate solution over the long term. Finally, Votium charges a sizable 4% fee for managing the 2-sided marketplace.

As an alternative I am proposing a straightforward custom solution that will allow the DAO to administer FLX rewards in a manner more consistent with ungovernance, achieve greater efficiency with incentives, and create sustainable yields over time.

Overview

The custom solution would have the basic elements of a 2-sided marketplace like Votium: vote delegation (for voters) and the ability to deposit incentives (for buyers aka Reflexer). The custom solution would then take a smaller fee (2%) and redirect it towards accumulating more of the voting token in its own treasury. To compensate both sides of the marketplace, each party would earn tokens that represent a share of the treasury and that will boost their future interests. For Reflexer, this means we can deposit less incentives each round to achieve the same outcome (although this only one variable). For buyers, they have their voting power boosted as well.

One option to record these “tokens” would be with a ERC-20 token, which might have some advantages for the DAO and vote buyers later down the road.

Pros

  1. Potential for longer term sustainable emissions
  2. Greater Efficiency
  3. Ability to write custom smart contracts compatible with ungovernance goals

Cons

  1. Full ungovernance might not be technically possible
  2. Custom solutions also require monitoring overhead

Additional Considerations

  1. Going directly with veCRV incentives (bribes) would allow the process to be completely on-chain rather than with snapshot votes.
  2. Prior to composing this post I also began working on a prototype, and believe the technical requirements are reasonable enough for a “light” custom solution. Since voters only have to delegate it is not a high risk decision.
  3. There may be some CVX needed to “jumpstart” the process, am happy to delegate some of my own to get it started and am sure others would volunteer too.