Are Gauges increasing mSOL adoption?

Tokenomics
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#1

Hi mDAO and community,

After following Marinade since the launch of NFT-governance I have noticed a few failures in the intention of the system that I think can be resolved. I was active in various Convex bribe strategy designs, and noticed that there’s poor maintenance of governance after things are left to the gauges with Marinade so hope my proposals and insights will be valuable.

Issue: Gauge weights are skewed ~50% towards a highly underutilized lending pool (Solend)

Context: Solend is a Compound style lending platform which uses a piecewise interest rate curve.

While skewed weights in isolation with gauges are not a problem,
This is nonproductive for mSOL growth in the ecosystem. This is a simple case of the mDAO being outsmarted and outvoted by Solend who own a good share of MNDE (maybe someone can share a link to the Solend account!).

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Current mSOL Utilization on Solend is 0.26%, and has been <1% for a while now :man_facepalming:. Is that a sign that there’s nowhere to use borrow mSOL to use in Solana DeFi? Clearly not, it’s a classic effect of gauge bribes - a large actor just farms-to-dump MNDE rewards (Solend). In Convex/Curve wars, gauges triggered a highly competitive marketplace for multiple DAOs to increase emissions for their native assets, but in mDAOs case it has just centralized the entire gauges system around Solend…

Where is the current 1.6% interest rate for mSOL lenders on Solend coming from?

  • 75% (1.2% APY) is coming from $MNDE liquidity mining
  • 24% (0.39% APY) is coming from $SLND liquidity mining
  • <1% is coming from actual use of Solend’s product!

Unsustainable yield shouldn’t be overincentivized

  • At the current rate, mDAO is emitting 2.5% of TOTAL MNDE supply PER YEAR into an idle pool (that is more than 4x the proposed Marketing budget @btuck made for the next year and the entire TokenExchangeProgram amount; both you would think bring more new users to Marinade than Solend emissions)
  • This is $815k USDC/year spent on incentivizing an idle pool, given what I have read about Marinade needing a larger USDC treasury it seems like a drain of capital
  • Solend has tactically pitted Marinade vs Lido as the 2 most competitive liquid staking projects in Solana to compete for emissions. Lido has a larger capital base and multi-chain adoption, so mDAO has an uphill climb that shouldn’t be drained with emitting MNDE with unknown impacts

Actions/proposals:

  1. Change next Reward Cycle’s max voting share to 30% to avoid getting governance hacked

  2. Issue a MNDE grant for a Governance Researcher to evaluate and report on the impact of mSOL growth per platform due to Gauges. I think someone from Flipside will be a great candidate, cc: @dobby and team!
    Deliverables:

  • What is the pre- vs post- $MNDE liquidity mining impact on Solend’s mSOL deposits (measuring new users, retention, and # mSOL deposit changes)
  • What is the mSOL user acquisition cost per $MNDE paid with Gauges?
  • Build a “live mSOL DeFi dashboard” for mSOL users to be able to transparently track present and historical mSOL yields across Solana DeFi (this would be very useful for Marketing as well I expect).

  1. Engage a Risk Management platform such as Gauntlet Research (note they are quite expensive) or a Treasury Management program such as Friktion’s Circuits or Llama to help with liquidity mining management among other needs.

  2. Evaluate quadratic vote weights to limit unsustainable yield distribution

Gauges for reference:

Thanks - I am looking forward to a productive conversation on this matter!

~y00ts

7 Likes
Rethinking Liquidity Mining Gauges
#2

Links:

2 Likes
#3

Hi @y00ts, thanks for the post! If the liquidity mining gauges are doing a good job or not is a valid question, but for context, they have been active only for a bit over a month. It remains to be seen if they will incentivize staking with Marinade, but I’m not sure they have been out for long enough for there to be enough data.

There is also an on-going discussion regarding incentives on this thread, where you’ll see I asked a similar question.

This is something that I’d be happy to see, even if I suspect that this early the end result will be that liquidity mining gauges correlate more with where mSOL ends up than with mSOL minting.

You can see the mSOL mint supply for the last 90 days on this chart:

Screenshot 2022-08-21 at 10.20.17

Liquidity gauges launched on July 5, but the first voted-on incentives were claimable after July 15.

While there has been a large mSOL increase in that period, I believe it is unrelated - there were two large deposits, iirc 1M and 400K SOL respectively.

Let me process your other points further before replying. However, something to keep in mind:

For background, the Liquidity Mining Gauges passed through a governance vote (see this proposal). Changing liquidity incentives to work in a different way would also require a DAO vote - it’s not something that the MasterChefs can decide unilaterally.

That means we should discuss further in the DAO, come up with a workable mechanic, and hopefully get a community proposal out of it.

Are you on Marinade’s Discord? We have a Governance channel that is usually more active than the forum, and where you could drum up support for these ideas.

3 Likes
#4

Hello
great post.

  • I agree that Solend is getting a disproportionate share of the incentives at the moment.
  • I think the pool might not be underutilized: mSOL is skewed to be a better collaral. I believe the play is depositing the asset the that appreciates with time and borrow a stable or other low volatility asset against it.
  • I think the lack of high competition is because of Solend being ahead of the game. Other protocols either fail to see the value proposition (and had not participated in Marinade’s Token Exchange while Solend together with Port, Friktion and Raydium had), failed to engage their communities, or generally have their limited attention elsewhere.

This was debated from the original gauges proposal and got cut due to the technical complexity of implementing it. While from cost effectivity perspective this backstop makes sense, it would result into a compensation mechanism for protocols that stay passive. I believe the correct solution lies in decreasing the overall incentives (easy to implement) and trying to engage other protocols to participate (very hard :smiley: ).

This is of course the correct approach that did not have infrastructure support at the time.

I’d like to invite you to liquidity-gauges in Discord where weekly incentives votes are debated.

2 Likes
#5

hi, contributor of solend here, I appreciate your post but the basic premise is flawed. The utilization is how much msol is borrowed, marinade should prefer that to be closer to 0 (which it effectively is), the thing that would best tell you how much msol is being used on solend is how much is borrowed using mSOL as collateral not how much msol is being shorted using solend.

I will comment back with some harder numbers in a bit but my first estimate is that there are probably something like 30~50 million worth of borrows using msol as collateral in part or whole.

As for if solend has TO many rewards, i think it’s debatable but it has probably the lowest reward rate because it has so many deposits so it’s a pretty efficient use of rewards relative to others. eg port is getting 9,676.999 mnde/day to sustain 57300 msol deposits a rate of 0.16888 mnde per msol deposited each day. compared to solend which gets 67,248.50 mnde/day but maintains 1853000 msol deposited gets us 0.03629. this means solend MNDE rewards are 4.65x as efficient as port MNDE rewards.

5 Likes
#6

ok finally got some data, I think it’s accurate but might be off by 5~10% because of daily fluctuations. 32% of users with msol deposits are borrowing 1 or more assets on solend. in aggregate they are borrowing 18~19 million worth of other assets (typically sol). To be honest this was slightly lower than i thought originally thought but not too bad, more room for improvement :slight_smile:

1 Like
#7

If DAO participants chose to vote for this gauge, I think it is their right to receive such a share of incentives. IMO healthy long term, as it signals to other protocols that they too can benefit similarly by acquiring the necessary votes

To get there, acquiring votes must be easier (bribing markets)

4 Likes
#8

tbh im pretty receptive that solend could in theory be getting too many incentives, like things don’t have to strictly be a plutocracy. It is interesting however that solend is getting 18998576.1 total votes when the solend dao is only providing 5000000 votes, so 73.6% of votes are coming from other players, should look into who they are sometime.

4 Likes
#9

Here’s an alternate approach that @repe posted a few weeks ago on the Discord:

What about a “treasury gauge” that would allow the voters to send MNDE back to the treasury = and control the emission rate?

When Marinade is more advanced with the governance, I was thinking about the same approach for validators gauges to introduce the “algo Marinade baseline delegation strategy” gauge to allow the MNDE DAO to decide on the split between the algorithmic and directed votes.

(Discord source)

Thoughts?

1 Like
#10

Treasury gauge makes sense to me, if a majority (>80%) of MNDE rewards are currently being distributed via gauges.

Can’t seem to think of the number now. I do think that MNDE holders who are not farming large amounts of mSOL at DeFi protocols (Solend/Raydium etc) should have an opportunity to vote on decreasing inflation.

2 Likes
#11

It is currently 100% - Marinade distributes all MNDE rewards based on the choices people make on the gauges.

Conceivably, we could selectively use some of the MNDE from the marketing budget for specific MNDE rewards, but the entire marketing budget on that proposal equals only 6 weeks of gauge emissions.

Thanks for the feedback! That’s exactly the spirit behind the idea.

#12

Happy to do this! Have any about more specifics and if this would be a one-time project?
[/quote]

Deliverables:

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Growth dashboard grant suggestion / bounty
#13

Not bringing much to the topic but I just wanted to mention that we currently have a proposal about installing a grant committee. If this proposal passes, those details could be discussed in the context of a MNDE grant!

1 Like
#14

This thread got me thinking about how people perceive the gauges. I didn’t want to hijack it, but I’ve created a separate discussion topic: Rethinking Liquidity Mining Gauges. Would love to read what you folks think.

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#15

Great! This sounds like something that could be built using the data available on Flipside, created as an auto-updating dashboard. Pinging @dobby.

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#16

Ya it very much so is. As long as data isn’t time sensitive (can have 24 hour lag). Thoughts on how much $mnde to ask for? Looking for a fair request.

2 Likes
#17

Thanks @PlayerOfBits! Sent you a DM on Discord Chief.

Also good news - we’re making some upgrades :wink:

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#18

A lag is to be expected - I believe that Flipside only ingests data once a day right now, but besides, this is data that is likely to be relevant across days or weeks, not hours.

You would probably be the first grant request coming in, so we don’t have any parameters. :smiley: I’d just say value your time.

To manage expectations, though: while the grant committee proposal passed, we have yet to form it. I expect we’ll propose the two Masterchef members and open up a conversation about electing the community representative next week.

1 Like
#19

Let me get some notes on other queries that it would be great to see out of this and write back. Are you on the Discord? Its search sucks and I can’t find people half the time. If so, please send a friend request to PlayerOfBits#2280.

#20

Out of my head, this splits into two views

mSOL DeFI

  • Current and historical yields (no incentives)
  • -//- with incentives (aggregated)
  • AMM pools liquidity and volume
  • Lending: deposited/borrowed per protocol

Incentives

  • per gauge delta votes to delta liquidity
  • per AMM liquidity/volume
  • mSOL acquisition cost
1 Like