A proposal to discuss the next steps of the $IDLE incentivization programs ending in early 2023: the Liquidity Mining program for the Best Yield strategy and the Gauges distribution for the Perpetual Yield Tranches.
With IIP-25, the DAO voted for extending the current programs length up to February 2023 with these specs
Both programs will soon end, specifically:
- Liquidity Mining program for Best Yield strategy on 2023-01-31T23:00:00Z
- Gauges distribution for Perpetual Yield Tranches on 2023-01-15T23:00:00Z
We will then analyze how the two programs performed and list some incentivization proposals for the future.
To be complete, we need to remember that the DAO trasury manages these two funds for incentivization purposes:
For an analysis focused on the governance participation among IDLE token holders, we refer to the one done in August 2022. We do not expect to see significant drifts from the trend seen given the bear market conditions affecting the crypto ecosystem for the whole last year.
It can still be interesting to see how the financial performances of the two programs evolved since the last analysis.
To understand the financial performance of the incentives programs, it can be useful to understand the dollar cost, aka the acquisition cost, of the fees generated by the Idle strategies for every $IDLE incentive distributed.
How many fees were generated by the Idle strategies vs the $ amount of IDLE distributed?
We considered two different distribution periods:
- Distribution 1 from 01/01/2021 until 08/06/2022 with 3,205 IDLE/day
- Distribution 2 from 08/07/2022 until 12/31/2022 with 1,990 IDLE/day
The Best Yield strategy received around 1.8m $IDLE incentives (for an average dollar value of $7.4m with IDLE price equal to $4.12**) and generated around $2.0m in fees for the DAO.
- For every $1 spent in $IDLE incentives, the BY strategies generated $0.27 in fees for an overall acquisition cost of $0.73.
The PYTs strategies received around 156k $IDLE incentives (for an average dollar value of $643k with IDLE price equal to $4.12) and generated around $175k in fees for the DAO.
- For every $1 spent in $IDLE incentives, the PYTs strategies generated $0.27 in fees for an overall acquisition cost of $0.73.
Please note that Idle Perpetual Yield Tranches were released in September 2021 (guarded launch) and started receiving incentives through the Gauges system from April 2022, i.e. for 5 months out of the 20 of the first wave of incentives distribution.
The Best Yield strategy received around 116k $IDLE incentives (for an average dollar value of $478k with IDLE price equal to $4.12) and generated around $225k in fees for the DAO.
- For every $1 spent in $IDLE incentives, the BY strategies generated $0.47 in fees for an overall acquisition cost of $0.53.
The PYTs strategies received around 115k $IDLE incentives (for an average dollar value of $473k with IDLE price equal to $4.12) and generated around $426k in fees for the DAO.
- For every $1 spent in $IDLE incentives, the PYTs strategies generated $0.90 in fees for an overall acquisition cost of $0.10.
These results seem to suggest that the incentivization program for the Idle Tranches performed equally with respect to the Liquidity Mining program during the first distribution window and better during the second one. We need to consider though, that the average APYs offered by the Tranches are far higher (by design) than the ones of the Best Yield strategy: 14.97% vs 4.46% during the first distribution and 7.27% vs 1.82% during the second one.
We will list two ideas as next steps for the IDLE incentive programs:
The Best Yield strategy has been incentivised through the Liquidity Mining program with different distribution rates (3205 → 2215 → 1000 IDLE/Day). We suggest continuing its incentivization but also decreasing its distribution rate.
- From 1000 IDLE/day to 500 IDLE/day for the next 3 months
The IDLE needed to fund this extension can be taken from the Ecosystem fund.
Extending the incentivization length of the LM program can be strategically smart to retain the current liquidity (mainly sitting in the DAI, USDC and USDT BY markets). Even more, now that the Leagues are working to leverage the synergies between the Best Yield and the Perpetual Yield Tranches.
This emission reduction would affect the rewards return for the BY strategy (from the current +0.4% to +0.2% at current prices). Nonetheless, we see this decrease as minimal and easily overcome with the soon-to-be-released new strategies under the aggregation layer of the BY.
From a DAO treasury perspective, this proposal, if executed, would cut by half the daily emission of IDLE and reduce significantly the selling pressure on the DAO governance token.
The Perpetual Yield Tranches have been incentivised through the Gauges system for over ten months at a constant distribution rate of 990 IDLE/day. We suggest pausing this distribution.
- From 990 IDLE/day to 0 IDLE/day.
The performances of the Gauges distribution for PYTs are encouraging, but we see side disadvantages that made us think to pause the rewards on this strategy. Specifically, the Gauges architecture breaks composability with integrators calling for ad-hoc solutions and increases the effort needed to ship new partnerships. Due to this composability issue, integrators are benefitting only minimally from the rewards distributed to the Tranches.
We should remember that the majority of Idle’s TVL comes from integrators, hence creating a smoother onboarding process could be beneficial in the long term.
Once again, we think that the IDLE return loss will have a subtle effect thanks to the new smart strategies that we expect to perform better than the underlying yield that the strategy is tranching. We expect to see Senior returns higher than the Base APYs.
Additionally, the Gauges system is prone to inefficiencies such as the agEUR case. The agEUR PYTs receive ~25% of the current IDLE emission, though, they do generate almost zero fees for the DAO.
The Gauges system implemented will anyway stay in place and can be re-activated in the future if the DAO agrees. We may think to discuss its re-activation at the end of the 3 months extension for the BY rewards.
Although minimal with respect to the other two programs, it’s worth mentioning also the Governance Mining campaign that is distributing as well IDLE incentives.
As stated by @Teo, we are analyzing the performances of the program to better inform the DAO when choosing whether to extend it or not.
We would like to gather the sentiment of Idle DAO toward these proposals.
Overall the two would create a 75% reduction in IDLE emission. BY integrators will still have incentives to keep active the BY vaults with prospective higher APYs incoming with the new strategies (e.g. Euler staking).
This post will be open for discussion and in about 3 days, if there are no objections, we will proceed with the Temperature Check.
* For a matter of clarity, in this analysis, we are showing daily distribution rates. $IDLE incentives distribution happens instead on a per-block basis, hence some rounding has been applied.
** In this analysis we used average prices for the whole period under study such as IDLE = $4.12, WETH = $2,386, WBTC = $37, 869.