Reflexer Monetary Policy Change

Sounds good. :+1:

One other “integration” I’d like to see in the slightly more distant future is more uniswap liquidity in different pairs. e.g. LINK/RAI.

It creates valuable network effects and could cause more uniswap transactions to get routed through RAI/DAI and RAI/ETH which would make LPing more profitable which means we’ll have to rely less on FLX subsidy for RAI/ETH LP.

No idea how to make this happen – hopefully once the community grows we can find some like-minded projects that would rather do their pool2 LP token vs RAI as opposed to USDC or DAI.

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I am conflicted. In principle I agree that if something needs to be improved, by all means do it. But on the other hand, I hate monetary policy changes that essentially change everything, including the characteristics of the asset you hold (in this case FLX).

Inflation seems high for the first year, and it also seems that there will no mechanisms in place to counter its effects (although that could be discussed in the future by the DAO). I also think that it is better to allow 2% perpetual inflation which could be later adjusted to 0 by the DAO. I prefer monetary policies that can be tightened if needed, not expanded.

Be careful with the minting contract, even after audit. I like the two contract structure. Make sure that there is no possibility of infinite minting, that the newly minted tokens can only be distributed to the second contract and that there is no possibility to drain or exploit that, game the system, etc.

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Personally I think it boils down to: a smaller cut out of something successful is better than 100% of something that’s not. This proposal is meant to boost RAI and give it a better fighting chance over the next few years.

You’re not the first to say you’re unsure about it so I think a smart way to go forward is to treat this as an experiment. We can have a 6 month window for example where we let the system mint more tokens and see if we get more capital and people who use the system.

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Why not continue with integrations, add degen friendly metrics, and be a slightly more aggressive with the current supply distribution? Drip rewards are more attractive. Instant gratification. Also allowing FLX to accrue. Let the user decide when to claim FLX.

Also to consider Rai isn’t even on Aave, compound, or coinbase yet.

If TVL fails to meet X requirement by a specified date then enable the inflation contract? Or maybe inflation always occurs when TVL is always under a specified value for the foreseeable future?

Newly minted FLX can also be escrowed like Synthetix.

Also, what is the result in lowering the minimum 800 rai required for mint? Maybe reward active safes with some small equal distribution for limited time? This gets more people in the door to learn about RAI.

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I appreciate your comments and I agree with you. Reflexer is just starting and if you, together with the team, advisors and investors believe that this change in the monetary policy will positively affect growth, usage, and protocol revenue, let’s try it. Full support.

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My thoughts exactly. Alternatively to maintain some more ‘degen friendliness’ you could take the PieDAO approach that they use with their native DOUGH token. Allow instant access to a portion of rewards and the rest is escrowed for a reasonable time period. Allow long-term holders that are interested in the future of the protocol to maintain governance rights through some non-tradeable escrowed FLX token, analogous to eDOUGH.

Another thought I have is if you experiment with using inflation to drive adoption, I think it’d be much better to do that with key metrics and milestones you wish to achieve in mind. How much RAI would you like to see minted? How much liquidity in key AMM/lending markets? What integrations? With these in mind this could be a good opportunity to take advantage of UMA’s KPI options, rather than arbitrary inflation schedules. Mint new FLX, create KPI options with that and then distribute those.

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Escrowing is really interesting, we’ll look into that.

With the current distribution, rewards will end 12, maybe 18 months from now if we decrease emissions. The ideal future is one where Reflexer is a DAO and we need to keep 5-10% of the initialy supply for that.

The min amount to mint is already pretty low, especially when gas prices are sky high and there’s little incentive to liquidate.

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I agree with KPIs, will revise the post and publish those.

I’m not sure about KPIs options, didn’t UMA have limited success with those? I recall seeing about 200M TVL a couple weeks ago and now it’s a bit more than 100M. Kinda far from the 1B+ TVL ideal target that gave max payout.

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Success has been limited, but I’m not sure if that’s inherently to do with KPI options in and of themselves or if it’s a broader issue with UMA. With them being a building block and having several other apps built on top of them that drive adoption/TVL it’s much more convoluted on how exactly to achieve their goals. For Reflexer it seems like it would be a lot more straight forward, especially if the key metric you’re aiming for is more RAI minted.

Not giving a max payout is not necessarily a bad thing either. Say for example you did quarterly KPI options, for the first quarter you mint 50,000FLX (arbitrarily chosen) and create KPI options with those. If the KPIs are hit, the entire 50,000FLX is distributed to the options holders and the number of FLX minted for the next quarter is reduced by X%. If they aren’t hit, only a portion of the total 50,000FLX is distributed to options holders based on how close to hitting the KPIs they were. All excess FLX is then sent to a grants DAO governed by FLX holders with the intention of being spent of what you believe will help grow the ecosystem the best. Be that marketing, paying for work to be done to get integrated into other projects, CEXs etc. Either the metrics are hit or funding is secured for fixing the issues that’ll help hit said metrics down the line.

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I need to think about this more, but my gut feeling is this is a bad move for the project. As someone who bought into the FLX token believing in the importance of this project it doesn’t fill me with confidence.

You’re for sure going to nail the price lower with this, investors that might have previously supported the price at higher levels will look to bail and in effect the APY will probably not be too much different. The two criteria for APY are price and supply. Just because you increase the supply doesn’t mean you’re going to increase the APY. The opposite can even happen.

Just to give some added feedback, I was seeding ETH/RAI for the FLX reward. Uniswap v3 caused me to unstake it. The returns were much more attactive in the ETH/USDC pool which doesn’t have LM rewards, but my ETH was better placed there and RAI better placed in USDC. Maybe it’s changed since, but ultimately, you’re not going to fix the problem by nuking the market with supply. You’re going to alienate investors that bought into this after the launch, maybe your VCs are happy with it but for new ones coming in, you’re going to have to wait quite a while and for quite a drop in price before they show up. That’s just my brutally honest opinion. I would feel screwed over by this change tbh. You’re nuking the price after I’ve bought it at levels I may have continued buying at.

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You also need to ask: is having rewards left for only a year from now enough for RAI to become sustainable? Because our opinion is that they’re not.

So is the risk of becoming completely irrelevant in a year better than giving the protocol enough runaway?

It boils down to this.

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I personally am all for this proposal. I think it will allow the project to be more fairly distributed and more nimble in how it gets adoption.

I would like to make sure that the degen metrics are available and easily calculate-able as others have said.

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I think having inflation occur indefinitely as an incentive when a key metric is under preforming might be a good idea. Perhaps the value of this metric can be changed by the future DAO. Could it be as simple as RAI supply minted is under X.

I also like the idea that FLX minted after the original supply is escrowed and can still be used for governance.

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Maybe we start simple and see how it performs during the initial 3-6 months?

I like the ideas, just thinking about how we tranche development so we ship it this summer.

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To allay some concerns from investors. It is important to consider that ethereums own tokenomics were(are) inflationary initially. Initial inflation fueled rewards mechanisms for protocol participants ensures greater equity in distribution of a given token and as discussed already can potentially fuel growth of the protocol.

Even if FLX were to experience some short to medium term price depreciation this is ultimately irrelevant to the long term value of the protocol. The inflation schedule proposed isn’t even 100% of the previous total supply. If investors are eyeing a top 100 market cap ranking for reflexer in the long term, than any minor volatility the inflation schedule may cause is noise.

Should the inflation schedule drive growth overall price appreciation would produce outsized gains making the minor supply increase a non-factor for long term holders.

With marketing to degens. It is a good idea to make reflexers metrics as readily understandable as possible. Perhaps that means omitting specific explanations of how the protocol works in favor of others that are more accessible. This said, in terms of developer documentation it is critical that all relevant information be maintained and or explained.

Meaning, should an analogy with SAI make sense to use in developer documentation that analogy should be used. The actual documentation and technical discussion should never cater to people who are not willing to put the time in to understand the history and progression of the ethereum ecosystem of which reflexer is part. Demonstrating an awareness of that history is at least part of what lended reflexer legitimacy to begin with in my opinion.

All said the new proposal has my full support and I think the above 3-6 month trial period for the inflation schedule is a good idea. Leaning towards the 6th month timeframe because 3 months may not provide enough data.

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Extremely reasonable, agree with the 6 month timeframe and with making the explainers accessible.

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My concern is stationary or deflationary supply theses are a dominant force in the token market today, for that reason I like the trial period with community negotiated KPIs approach.

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I have morphed my view over a time that token inflation is actually really accretive to protocol value if done “right”. You can farm through incentivized rates…or lower c-ratio…or inflationary rewards. The nice thing about inflation, is that it is easier to target certain behaviors with the incentives. But in some ways, the system works like this in a crash anyway. ETH crashes, margin call on vaults. If they blow passed the stop sign, mint more FLX. Difference here is that it is possible to nudge before a crash and avoid the inflation when it does the least good.

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Why not reduce the rewards distributed instead to give the protocol longer?

IMO, one of the big problems the protocol currently has is it’s not only paying for users to provide liquidity, it also is paying users to open vaults. You have designed your liquidity mining campaign to be very expensive. Ballparking, If you want to seed 100 ETH and 76,666 RAI you also need to have *250-300 ETH locked in a vault. Roughly, 3/5ths of the LP reward is designated towards opening vaults. Most of the liquidity mining reward isn’t even distributed towards providing liquidity. There are users that take out vaults to go long the market so what is the sense in incentivising vault creation when the capital requirements are so high?

(I know you need to do both at the same time to qualify, that is besides the point though, it should just be allocated towards liquidity providers and seperately you could provide a small incentive for vault creators.)

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We allocated to LPs only and it made no sense, the system was crashing because the market was bidding RAI up.

Only incentivizing mints is an econ no-op. Paying people to sit around brings no value to RAI.

Minting must be there, of course no one wants to mint because “capital efficiency” but the point of RAI is to mint it.

Decreasing rewards now instead of increasing won’t help at all with any integrations/adoption.

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