Why you should vote to reduce rewards for softpegged assets?
Balancer and BAL will succeed when we get trading volume on the exchange. BAL rewards are bringing liquidity which generates volume. Unfortunately BAL rewards for soft pegged asset pools (USD-USD and ETH-ETH) are even better than rewards for other pools. Other pools generate a lot of useful volume while the stable pools generate significantly less volume. As a result, it makes more sense to farm BAL with soft pegged assets because:
-BAL reward is even better (higher, 1.00 fee factor which other pools can’t afford)
-No permanent loss (unfortunately called impermanent loss)
-Additional rewards from other platforms like weekly MTA from mStable
example:
The $4.5m BAL-WETH pool with 0.95% fee has a BAL fee factor of 0.80,
while the $22m USDC 50% mUSD 50% pool with 0.05% fee has a fee factor of 1.00 + MTA rewards
This incentive misalignment has resulted in a bizarre and unsustainable liquidity composition on Balancer. Uniswap has only occasional small soft pegged pools while on Balancer’s No 1. $22m pool and 3/10 biggest pools are soft pegged. For example, the biggest pool is bootstrapping mStable more than it bootstraps Balancer.
I think that this liquidity composition problem significantly contributes to the fact, that we have 3x more liquidity than Uniswap and we have 6x LESS volume than Uniswap. I believe that if we make and incentive for the softpegged liquidity to move to normal, natural pools, we’ll see less slippage and more volume, a win for Balancer.
Balancer is an exchange designed for volatile assets while other exchanges like Curve have way better design for soft pegged assets (less slippage, more tailored price curve). We should not try to claim that Balancer is well suited for soft pegged asset trading in the long run.
How do you feel about your flagship $7.9m BAL pool being down -3.5%, earning BAL at 0.64 ratio…
…and this $4.5m BAL pool down 6.8% due to volatility, earning BAL at 0.80 ratio…
…while at the same time there are guys coming from outside with no interest in the platform, following guides for 5 year olds telling exactly where to click to split ETH into WETH + sETH and grab BAL at sweet 1.00 ratio with no risk?? Same for USD-USD pools?
Enjoy the memes:
