Features and Potential of Balancer DAO | veBAL Token Economics
This article is written by Joey Wong, a member of Balancer DAO, and is not financial advice. Note: All figures are denominated in US dollars.
Table of Contents
Background
It has been almost two years since the governance token BAL of Balancer was issued in June 2020. During this period, the cryptocurrency industry has seen rapid development, with many new tokenomics emerging. Among them, the Voting Escrow mechanism ve mechanism derived from Curve has undergone practical tests involving billions of dollars and has attracted a thriving ecosystem around it. Meanwhile, the Balancer community believes that there is room for further improvement in the tokenomics of BAL. In order to avoid spending additional time on non-core development, Balancer drew inspiration from Curve's experience and made modifications, implementing the veBAL tokenomics, along with a new inflation schedule.
Features
The features of veBAL + new inflation mechanism are as follows:
- Lock the BPT or LP tokens of the 80/20 BAL/ETH pool on the mainnet into veBAL.
- Only veBAL users have voting rights in Balancer's governance.
- The lock-up period for veBAL ranges from 1 week to 1 year.
- Qualifying LP tokens of veBAL holders on the Ethereum mainnet can have up to a 2.5x multiplier.
- 145,000 BAL is newly emitted weekly, and 100% is decided by veBAL holders where to allocate.
- The veBAL pool has a cap of 10% on newly issued tokens, with the excess being allocated to the DAO treasury.
- 75% of the protocol fees collected by Balancer will be distributed to veBAL holders in bbaUSD form. Currently, Balancer charges 50% as protocol fees.
- 25% will be held as a reserve in the DAO treasury.
- The currency inflation will halve every 4 years.
- The total supply limit of BAL is 94,000,000.
Benefits
Locking the 80/20 BAL/ETH LP tokens instead of a single token lock-up can increase market liquidity and reduce volatility. The maximum lock-up period of 1 year is to adapt to the rapidly changing market environment. In addition to receiving 75% of the protocol fee income, veBAL holders can also vote for their own veBAL pool, with a cap of 10% of the new emission. These are all more user-friendly than the general ve mechanisms in the market for veBAL holders.
Under the new mechanism, voting rights are equivalent to decision-making power over profit distribution. Token holders have more reasons to hold BAL for the long term, as they can not only enhance their annualized returns in the Ethereum mainnet pools but also rent out voting rights in a "bribery" form. This is the foundation of the ve mechanism.
Advantages of the 80/20 pool:
"Bribery" Model
Why would projects rent out voting rights to veBAL holders in a "bribery" model?
Let's take a look at the previous "bribery" by Qi DAO.
Let's look at the ROI of @QiDaoProtocol's bribe👇
Here's how for every $1 invested in bribes, they've got ~$3.43 in liquidity mining rewards directed to their pools on Balancer:#BALbattles
— Balancer DAO (@balancer) April 29, 2022
Qi DAO promised to airdrop 20,000 QI, with 90% in the Polygon pool and 10% in the Arbitrum pool, to veBAL holders who voted for their MAI pool.
$MAI is joining the $veBAL wars!
Vote for $MAI pools on @arbitrum and @0xPolygon to get rewarded in $QI 🪙
Details in 🧵
1/3
— Qi Dao (@QiDaoProtocol) April 21, 2022
As a result, the MAI Polygon pool received 2.11% of BAL emissions, while the MAI Arbitrum pool received 0.18%, totaling 2.29% of the weekly emissions.
145,000 BAL * 2.29% = 3320.5 BAL
Calculating at 1 BAL = $13.84, Qi DAO received BAL rewards worth $45,995.
Compared to QI's price of $0.67 at the time, Qi DAO only spent the equivalent of $13,400 in QI to receive $45,955 in rewards, resulting in a 242% ROI.
For Qi DAO, this maximizes their QI and alleviates token selling pressure. Not only on the Ethereum mainnet, but projects can also incentivize their Polygon and Arbitrum pools with "bribery" now. For Balancer, we offer liquidity rental services, opening up additional income opportunities for BAL holders. The weekly voting by veBAL holders affects the direction of BAL token reward emissions in Balancer's mining pools. Whether the rewards go to the Ethereum mainnet, Polygon, or Arbitrum is decided by veBAL holders. They can receive "bribery" rewards by renting out voting rights.
In addition to quickly integrating the Balancer veBAL into the Hidden Hand "bribery" market, looking at projects such as Curve, Beethoven X, which have already adopted the gauge vote mechanism, we expect more projects and platforms to maximize rewards by offering "bribery" incentives through Balancer.
Looking forward to the battle for BAL.
Hidden Hand's Balancer "bribery" market above
