Liquidity Staking: Strengthening the Balancer Ecosystem
As some of you may be aware, an exciting new proposal has been created by members of the community, and we wanted to take the time to explain it and its potential benefits. To read the formal proposal, please use the following link:
https://forum.balancer.finance/t/proposal-liquidity-staking/243
Current BAL token distribution is set to 145k coins per week. At current valuation, this is about $2.9M, distributed to liquidity providers across all Balancer pools. The proposed change would designate 45k of these coins — about $1M of value per week — specifically to certain BAL pools. Eligible pairs would be limited to BAL/Uncapped tokens (BAL/WETH, BAL/DAI, BAL/WBTC, BAL/USDC).
It should be noted that these “staking” rewards would NOT be given to wallets flagged as Balancer Labs shareholders.
If the proposal were to pass, a number of potential effects could benefit the community. Namely:
- Increased decentralization
- Increased liquidity for BAL
- Higher BAL price
One main counter argument to this proposal is that shifting away incentive from non-BAL pools will lead to a decrease in “useful” liquidity on the platform. My response to this? While ~31% of BAL incentives would be removed from non-BAL pools, BAL token gaining strength would ensure a sustainable ecosystem. The increased incentives would lead to a boost in BAL liquidity — and probably price — which would offset any ROI loss from the new distribution split.
The proof is in the pudding.
BAL coin was launched on June 23 of this year. Let’s take a look at how the release of the token impacted AUM (Assets under Management).
As you can see, when BAL token was launched is when the platform began to see explosive growth, increasing over 500% from about $54M AUM to $263M today. This is almost certainly due to people chasing yields. Rather than fighting against this trend, why not work with the trend to the benefit of the coin and platform?
In the early days of BAL coin, there was little reason for LP’s to hold their rewards. Voting had not yet been released, BAL LP’s received the same incentive as other LP’s, and every week rewards were surreptitiously dumped after distribution. This issue was partially addressed with the addition of voting and a “BAL-Factor” of 1.5. Prior to this, the value of BAL (and yield for LP’s) was declining with each passing day.
By passing this proposal, we are giving LP’s more reason to HODL their yield, strengthening the value proposition of BAL, and ensuring Balancer’s competitiveness in the market. While a non-BAL LP will see a reduction in their weekly BAL rewards, their ROI in USD will likely be unchanged (or actually increase) due to BAL’s gains on the dollar.
To me, it’s a no brainer.
Disclaimer: The information in this article is the opinion of the author and should not be considered investment advice. Always do your own research, and consult your financial adviser before making any investment decision.
To learn more about Balancer Labs, use the following links:
Forum: https://forum.balancer.finance/
Twitter: https://twitter.com/balancerlabs?lang=en
Discord: https://discord.com/invite/ARJWaeF
CoinGecko: https://www.coingecko.com/en/coins/balancer
