Greetings everyone,
Been a very long and busy month or two for me.
Previously governance discussed and voted in a change in IPT rewards. Proposal to change USDi rewards
Governance made this change and the actual liquidity in the protocol barely moved. In fact for a short time it went down instead of going up.
@Getty please check my numbers taking these from various places.
On current writing the protocol is giving away about 56K IPT weekly for about 900K USDI liquidity (which 85% is sitting in 5 wallets https://etherscan.io/token/0x2a54ba2964c8cd459dc568853f79813a60761b58#balances ).
This at current IPT price of .08 is about $4.4K/week for 900K USDI giving an effective return (on top of the 1.5%) of about 25% to USDI holders. This is more than 15x current 1.5% return due to fees.
Similarly the protocol has about 1.25M worth of collateral borrowing perhaps 500K USDI and paying currently just over 3%. The IPT return to borrowers here (remember borrowers are not just putting up collateral but paying interest) is about 46K IPT/week or about $3.7K/week on 500K worth of USDI borrowing (net return ~38%-3% fees or +35% for borrowers on the USDI borrowed) with the IPT rewards. If you look at this from collateral standpoint return is about 15% (value of collateral deposited is about 1.25M)
The reasons for this post are as follows:
- Open up discussion regarding how IPT rewards really are not increasing liquidity (recent changes didn’t really help this).
- Open up a discussion about possibilities to alter these rewards.
There are a number of approaches one can take here and ultimately what we would like to see is growth of USDI and USDC liquidity. It is a significantly difficult problem to address growth but what we have already seen is that shifting the IPT rewards from borrowers to holders hasn’t really addressed the USDI growth issue or the USDC liquidity issue.
Given the limited number of USDI holders and overall liquidity what I want to propose is that IPT rewards be modulated by some formula related to overall average USDI liquidity. Right now rewards are basically being given out as a 60/40 holders/borrowers split based on USDI held/borrowed. This number currently totals something north of 1.5M and total rewards are giving a rough average of 30% APR/APY return. What I want to propose is that IPT rewards be capped at the current inflation curve but dispensed to maintain a reasonable return APR/APY. Lets just call this IPT_REWARD (how it is split between USDI borrowers and USDI holders we can debate elsewhere).
If we set this IPT_REWARD to 10% (still pretty generous but realize this would be a 11.5% return for USDI holders and an effective 10-3% or 7% return for borrowers) of the total USDI borrowed and held this would be about $1.5M worth of USDI earning $150K worth of IPT rewards a year or 150/52=$2.88K/week IPT rewards in $$. At current price of .082 this would be about 35.1K IPT rewards instead of current 100K saving the protocol about 65K/week IPT that it spends for this liquidity
The amount of USDI both borrowed and held would have to triple to bring this up to current 100K cap on rewards and then APR/APY returns would begin to drop from that 10% (it would have to double to 9M to be 5%, and 18M to be 2.5% if I am doing my math right here)
Realize if IPT price goes up to $.25 (initial sale price) the amount of IPT rewards would drop. If the IPT price drops then the IPT rewards go up. The whole point being trying to maintain a more fixed rate of IPT reward return in $$ value and APR to $$ value of USDI liquidity/borrowed and repurpose the extra IPT to perhaps some different incentives (like rewarding IPT/USDC or IPT/ETH liquidity providers) to try to drive some IPT and USDC liquidity into a market somewhere.
Pros of above.
- Gives a more consistent return to liquidity providers between 0M and 5M worth of liquidity.
- Right now if above parameters are used at current IPT price of .082 would decrease IPT inflation by over 60%.
- Extra IPT can be used for other incentives or initiatives.
- A useful test in whether rewards APR/APY are driving liquidity in the protocol at all.
Cons
- Decreases IPT rewards which may lose some liquidity.
- More complex to implement rewards claims because average USDI borrowed/held and IPT price would need to be calculated over the rewards period.
- This rewards early adopters who got higher IPT rewards
Comments/thoughts/discussion?
