Voting Escrow Configuration (BIP-XX) ROUGH DRAFT

ABSTRACT:

Following the passing of the token migration and distribution proposal (BIP-14) we need to vote on how we want our voting escrow system to be configured.


Decisions that need to be made:

-BAOv2 initial supply and emissions function to determine overtime how much supply will be created

-Max Lock time for veBAO holders (currently 4 years)

-Max Boost for LPs getting BAO emissions from gauges (currently 2.5x)

-Liquidity Gauge weightings for starting gauges determined in BIP-14

-Multi-sig operations


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IMPLEMENTATION:

Current emissions function for BAOv2 token

Proposed function:

In the graph above, at time = 0 years, we will start with an initial supply based on the total BAOv2 supply number we get from the token migration/distribution (this number will be roughly 1.1 Billion to 1.5 Billion BAOv2 tokens based on when we end BAOv1 farms after BIP-14 goes through governance). As time moves forward beyond the starting point of the new token, each year the slope will reduce the supply emissions rate by 2^(¼) based on current emissions function. This means overtime less and less BAOv2 supply emissions will be given out to LPs staked in gauges as it is with curve finance’s model.

-Initial Supply of BAOv2 =

(total locked BAOv1 tokens across main-net and xDAI) / 1000 +

(all circulating BAOv1 across main-net and xDAI) / 1000


-Pre Mine: (given the initial supply, what percentage of the total supply as time heads to 999 years should we allocate to the initial supply of BAOv2 tokens)

Pre Mine will be determined by the INITIAL RATE

Reference to veCRV: Curve Finance gave 43% of all the CRV tokens that will ever be minted to the initial supply of the token. This left 57% of the supply to be minted over time to the LP tokens staked in their liquidity gauges which is still happening currently as veCRV/the curve emissions process continues to their CRV token’s theoretical maximum supply.

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Max Lock time for veBAO

-The proposed max lock time is 4 years. That is how the contracts are currently configured.

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Max LP Boost (currently 2.5x)

-The proposed max LP boost is set to 2.5x. That is how the contracts are currently configured.

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Liquidity gauge weightings for the starting gauges voted upon in BIP-14

Starting gauges:

-baoUSD/3CRV Curve LP (highest gauge weight)

-bSTBL/DAI Curve LP (second highest gauge weight)

-BAOv2/ETH UNI LP (third highest gauge weighting)

-The more baoUSD is used, the more revenue/profits the protocol generates, so having liquidity for baoUSD at the highest makes the most sense for profits.

-bSTBL will be used as collateral in Bao-Markets to take out loans in baoUSD. Everytime a liquidation event occurs we need ample incentive for liquidation bots to make a swap back to DAI profitably, so incentivizing liquidity around the basket is also necessary to make running liquidation strategies to keep our lending market healthy easier.

-BAO/ETH liquidity is necessary to keep our governance token liquid. Historically the most used pool for swaps in and out of BAO has been to ETH so that is the pool proposed to incentivize.

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Multi-Sig operations for veBAO and fee distribution process:

-Set all emergency returns and admin actions for contracts across the veBAO governance system to the DAO multi-sig

ideally we should move this to a governance proposal in the next week or so.

The key points Bao holders should consider in my opinion are:

  • Initial supply: This will determine how much of the token supply is distributed to current holders vs what is left as rewards for liquidity incentives. In order to maintain your relative governance power, you will be required to provide liquidity to pools with gauges and stake BAO. This means that Bao holders that are not active participants in the protocol will be diluted over time. more supply left to be minted will increase this effect and less will decrease it. My current feeling is that we have no real reason to change it from the 43/57 ratio used by Curve.

  • Max lock time for veBAO: I dont think we can have lower than 3 years as that is the length of the disribution period for locked tokens. It would provide a loophole to unlock Bao early. 5 years feels like a long time to ask people to lock tokens. In my opinion 4 years gives us an extra year beyond the unlock distribution period to help flatten the number of tokens hitting the market at any one time, but other members of the community could feasibly make arguments for anything 3 years+.

  • max LP boost: Adjusting this parameter will effect how easy it is for current participants to increase their control over the protocol and the incentive to keep bao tokens locked vs a more decentralized distribution but less incentive to lock. This can be demonstrated by looking at the extremes - a 1.5x max boost would provide little additional incentive to lock BAO tokens because the additional rewards provide less compensation for the potential opportunity cost of having to purchase and make your Bao tokens illiquid. A 10x boost would make it easy for whales or projects similar to convex to gain a lions share of governance because locking Bao tokens significantly increases your ability to earn more. A 2.5x max boost may provide a balanced approach.

  • Liquidity gauge weightings: This will be effective for the first epoch, afterwards bao holders will control which pools receive rewards. Guardians have identified what we believe are the highest importance pools to the protocol to start with. Something like a 50/30/20 split for the 3 suggested pools seems reasonable to start with, then we holders can adjust from there as necessary.

If there are no more comments in the next few days I’ll assume everyone is happy with the suggested parameters and proceed with moving this to a BIP. If there is an active conversation, i’ll wait.

I the parameters has worked for Curve it is very difficult to argue for something different… It is the best guess to go with. Depend so much on an unknown future… So I say go.

If I understand this correctly there are going to be an additional 500 million tokens out of the cap of 1.5 billion tokens. Out of the 43/57 ratio for distribution does this mean a portion of the 43% of those 500 million will be airdropped to existing token holders?

For the Initial supply, I would suggest to have it decreased slightly to 37/63

Increase max lp boost to 3x

Mostly as minor tweaks to increase incentives