Use Treasury to Provide Liquidity Mining Rewards

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Executive Summary

Currently, to support the expansion to new chains such as the ETH mainnet and other EVM-compatible chains, the protocol provides incentives in $XVS by releasing tokens into the market. This practice dilutes the circulating supply and damages the price of XVS in the long run. The aim of this proposal is to shift our incentives model to a more sustainable approach, where the $XVS rewards provided for the new markets are purchased instead of releasing it out of thin air.

Proposal Details

The current liquidity mining rewards for the newly introduced markets are not sustainable for the long-term price of the $XVS token. The total XVS emission per quarter is almost 200k.

BNB Chain Emission Ethereum Chain Emission Arbi one Emission Total Emission per quarter Total cost of Emission per Quarter
102,600 $XVS 59,800 $XVS 30,000 $XVS 192400 $XVS 1,200,000 - 1,600,000 $USDT

According to the Venus protocol documents, one of the main purposes of the treasury is to fund future developments of the protocol. The current revenue of the protocol for 2024 averages around $3 million per month, meaning the treasury grows by $9 million per quarter. The current size of the treasury (funds that are sitting idle) is over $13 million, excluding the $10 million allocated to the risk management funds.

When expanding to a new chain, Venus must provide liquidity mining rewards to attract new users, which should be part of the treasury expenses rather than minting/releasing $XVS out of thin air.

The aim of this proposal is to stop harming the community’s investment in $XVS by releasing free tokens to the market. Instead, we should use the ample treasury we have to fund developments. If this demand is too high, we may need to significantly reduce the emissions in the first place.

Possible Arguments to the Current Proposal (All kinds of feedback are welcome)

Argument No. 1

Argument: If we provide limited emissions on newly deployed chains, we won’t see any increase in the TVL (Total Value Locked).

Counter: The current TVL on the ETH chain is leveraged TVL, not real TVL. Certain whales are supplying their assets, borrowing the same asset (since emission makes the borrow APY negative), and re-supplying their borrowings. This means the real number is much less than what’s displayed on the dashboard. Moreover, the number of Ethereum chain users is very disappointing when compared to other competitors/native BNB Chain numbers.

For example, the pool receiving the most $XVS liquidity mining rewards has only 17 borrowers after almost 100 days of mainnet deployment. It’s clear as daylight that a few whales are exploiting the liquidity mining rewards and taking advantage of the current situation.

Argument No. 2

Argument: Most of the whales farming $XVS are just re-staking their rewards, so it doesn’t hurt the price.

Counter: Incorrect! The point of the liquidity rewards is to achieve mass adoption on the mainnet, not to spoil a few whales with extremely high rewards–we already have Prime for that!

Additionally, by releasing new coins into the circulating supply market, we are damaging the long-term price of XVS by making it less scarce.

Argument No. 3

Argument: The treasury funds should not be used to buy back $XVS and should focus more on development instead.

Counter: Providing liquidity mining rewards is part of the protocol’s long-term development progress. Furthermore, our treasury is substantial and is at a very safe level after we have just finished paying off all the bad debt. There should be no harm in rewarding the loyal XVS holders a little bit more!

Argument No. 4

Argument: The buybacks could be front-run by bots and traders, therefore it will be a waste of funds.

Counter: To prevent front-running, the buybacks could be spread over 90 days of the next quarter, with 1.1% daily purchases of the daily amount. This will prevent any kind of front-running. Our AIA buybacks are already designed to do something similar, so it should not be too difficult.

Finally

I really want to thank the XVS team for their hard work and effort. We, as a community, are beyond grateful for growing the revenue of this protocol to an incredible level and making this project one of the top in DeFi. There is no doubt about the product’s performance, but the price of XVS, after years of holding, has not seen any significant increase and is still far from its all-time high. I hope we can eventually stop giving away free $XVS like a candy to limited amount of whales

Please consider my proposal as a community member, and everyone, feel free to provide any kind of feedback, whether it’s negative or positive.

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Interesting , should be considered

+1

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I understand your vision mate, but to me emissions are really not the biggest issue compared to the amount sold by a few whales for personal reasons. Everyone is now looking for improvements because of decrease of XVS value, so i fully understand why you came up with your idea but to me is still much better to focus on other things if we should use Treasury. Adding liquidity for DEX XVS pairs is to me much better solution as we also need to increase that liquidity. Especially when we are exapnding to other blockchains. Will see what will others say about it. :wink:

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You didn’t specify the exact amout of treasury/monthly income that would be spend for the buybacks. Should it be fixed in terms of dollar value/percentage of income/fixed amount of xvs?

I would personally prefer the fixed amout of xvs so the revards would be the same across different periods of time. Yes the more expensive XVS the more would be tequired to spend but I think there would be strict correlation between XVS demand(price) and protocol income.

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Maybe 50% for incentives and 50% to lock liquidity on ETH/ARBI dexes? both ideas are great and will result in price improvement.

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I appreciate you joining the discussion!

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I can agree that increasing liquidy is also good idea. The only bad idea is not using this enormous amout of money protocol has to support it. Decent portion should be spend for buybacks (for liquidity, rewards, reserve(limiting supply)) but also for promotion. Money has to be invested so it can multiply. The worst thing is to keep it idle without specific plan for it. We have to do everything that is possible to attract more users and give protocol the recognition. With this kind of money we have/are earning constantly its a foolish thing to gather in on pile like some greedy dragon.

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Hi wonderomg, I appreciate you joining the discussion,

Adding liquidity to dexes is also a great way to improve price action, so we won’t move like a memecoin everytime a whale decides to liquidate his assets, I don’t see the problem of allocating part of the revenue to that purpose, both ideas can go on, we have fat treasury and it could handle a 20% decrease or so.

Hopefully you see that the emission is part of the problem and not the main problem, if it was up to me, I’d completely remove the XVS lending vault from core pool on BNB chain, the volatility that comes from liquidation is crazy sometimes.

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The amount is the same as the amount the data analyst suggests, if he suggests giving 200k XVS per quarter, then we should buyback 200k XVS, if he suggests 0, then we should buy 0, our decisions should be based on data and not random numbers,

Appreciate you joining the discussion.

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I’m not against the idea of adding liquidity on DEXES, it’s needed sooner or later, imo it’s good to do it at this cheap price.

Thank you for Joining the discussion.

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Hi mate, nice, interesting proposal. Its defo on the right tracks, we all want near 0 (zero) inflation and 0 XVS emissions.

Unfortunately, we do need some inflation to support the existing markets and enter new markets at this early stage of the protcol. Yes we are still early!

I would like to see the effect of the new tokenomics, starting next week. We should be able to reduce the 2.5% inflation rate (XVS Emissions) on BnbChain using 20% of the daily income for XVS buyback.

Inflation on ETH/ARB is currently high - almost accounting for another 2.3% inflation (XVS Emissions). This to be expected while we go to new chains and new markets but I hope to see XVS inflation lowered on new chains as Venus Prime rewards become available after 90 days.

The current price action is disappointing, and Venus does have a healthy treasury! We could look at using 10% of the reserves for XVS buyback and save it to the treasury for future incentives, or use it for onchain liquidity.

Any XVS buyback to treasury, needs to be over a period of time (say 12 months), and when XVS is below a certain price (say $8).

If on-chain liquidity is a priority, a more DRAMATIC approach would be to mint an addition 200,000 XVS today, and combine it with $1.2M from the treasury (assuming 6$ per XVS).

This new liquidity should be in our OWN swap pool where Venus receives 100% of a 0.25% swap fee!

Best regards,
Dav

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Mate we dont need to mint another 200k xvs out of thin air to add it to liquidity, we have enough funds to buy and pair without the need to cause more Xvs inflation, the purpose of the proposal is to eliminate emission and focus on a new and more sustainable model of incentives, something reflects the earnings of our protocol.

Thank you for joining the discussion, appreciate you.

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I suggested (in support of your proposal) that 10% of treasury be used for buyback to treasury!

I only suggested minting 200k as a DRAMATIC step if the community thought onchain liquidity is a higher priority than a overall inflation rate of 4.8%, and I have made other comments reasoning how the inflation rate will be reduced but is necessary in the short term.

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I am against your proposal because i believe we are in a strong adoption phase with multichain expansion into a secular bull market. We should favor adoption rate and i see nothing wrong having XVS emission distributed to new power users. If the XVS price become too high we may also have the inverse problem where not enough XVS could be buyback for new users… When XVS price rise high we should still be able to boost adoption with the same capacity. I agree that in a low adoption environment (bear market) XVS emission should be tightly controlled and i would be in favor of your proposal in such conditions.

I prefer to choose a strategy where our treasury counter some market bad behavior, generate more revenues and compound our capacity over time.
The idea would be to buy XVS with stablecoins from treasury when XVS price is very low compared to revenues.

As example, if last 12 months trailing P/E < 5 a bot dedicated to this strategy would buyback progressively XVS onchain as long as PE < 5.
Then proceed to add liquidity onchain (ETH/ARB/BSC…) proportionally to TVL.

P/E > 20 we should progressively remove liquidity from the pool when the demand is strong to be more effective for the next worst events.

In between 5 < PE < 20 stablecoins liquidity from our treasury revenues keep adding stablecoins reserve.

How much of protocol we allocate for this stategy TBD.

We could vote to change P/E parameters.

What are the positive effects:

  • For many users Venus is used as an onchain solution to leverage. This is the reason why XVS price is so volatile. When the market is falling hard, XVS lenders start to be liquidated or have to protect their account, they are forced sellers when liquidity and market sentiment are the worst. Adding buyback when P/E fall under a certain amount would help to protect users in extreme conditions as we have now with a P/E = 3.

  • Some market participants may try to hunt some big XVS lenders whales to liquidate them and induce a liquidation cascade where their short could bigly profits. To counter such toxic behavior, the buyback would occurs and add liquidity automatically.

  • traders and whales need liquidity to trade or invest with confidence, over time our liquidity would become stronger and stronger. Our protocol would get a better reputation and attractivity.

  • It would decrease our dependency to CEX and possible FUD impact from regulations. We have to be the most decentralized and antifragile possible.

-It would diversify our source of income with trading fees generated from XVS volatility.

-It would remove XVS supply when it is the most necessary. It would also balance our emission from our locked supply for adoption.

-We have multichain expansion but our liquidity there are very weak ATM, some users don’t use CEX anymore and they should be able to buy XVS on ETH,ARB chain… I believe we also need liquidity there for liquidations.

  • this stategy would help investors to have a more rational decision making process thinking more about fundamental value than short term volatility. We have to tamper this repetitive destructive cycle of boom and liquidation bust.
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Thank you for your detailed insights and thoughtful proposal!

These emissions are crucial for the initial growth and boost of our deployments and are expected to be reduced gradually to minimize the impact on TVL.

The protocol’s treasury aims to fund community-driven initiatives and essential protocol expenses for the proper development and maintenance of the protocol in the long run. Using the treasury to fund liquidity mining would significantly affect our capacity for new developments, maintainability, and security expenses, so it is not advised.

Furthermore, the XVS distributor currently holds 13.8M XVS, which were created and stored for liquidity mining purposes.

Regarding Argument No. 4, the buyback is now happening gradually thanks to the deployment of the income allocator and converters. More details can be found here.

We appreciate your feedback and welcome any further discussions on this matter!

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Thank you for your response. Here are some clarifications:

Based on our tokenomics, approved by the community, the XVS Distributor funds liquidity mining incentives, while the treasury supports community initiatives and protocol expenses. While it’s an interesting proposition to consider treasury funds for emissions, this is not what the community decided the treasury is for.

Regarding users on each deployment, ETH has fewer users compared to BNB Chain and Arbitrum due to higher gas fees, a trend seen across all of DeFi. In Venus, there are more than 6,600 monthly users on BNB Chain, ETH Mainnet has 140 monthly active users, and Arbitrum has 92 after one week.

It’s important to consider that emissions helped ETH’s TVL grow to $150M in two months and over $6M in one week for Arbitrum. As you mentioned, emissions are a temporary measure to bootstrap liquidity. They have been successful in the past and are proving effective with our recent deployments.

Lastly, if we account for vault emissions, your data is correct. Thanks for clearing that up. It’s important to consider the recent community-approved reductions: 13% on ETH and 40% on the BNB Vault. We will keep working together with the community to reduce them at a healthy rate to prevent a negative effect on our TVL.

We value your input but please be respectful; the forum is for constructive dialogue to enhance our community and protocol.

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Perfectly agree on having emissions for new chain , and I believe it’s a must.

Right now , I believe boosting our dex liquidity is a must

And we can do it by using some of treasury to buyback and add to dex liquidity

As Huaporta said , could eventually add New income for protocol.

Definitely something important and good Xvs