[Circle of Tokens] Liquid SOV rewards study

Hello Sovryn’s,

changes to LM rewards need to be well thought out. In this thread

there is first subgraph data on the AMM pools available.
There was also a motivation and a formulation of the problem written down here:

Now I would like to present a small study with respect to liquid SOV rewards.
I took a look at what would happen to the liquid supply from the LM rewards if we changed the 15,000 weekly SOV rewards with the known vesting duration of 10 months to immediately liquid 5,000 SOV weekly for one pool.

The first image represents the current curve. The blue graph shows the total reward SOV paid for the BNB pool liquidity. The orange graph shows the typical liquid SOV curve resulting from the 10-month vesting. The liquid SOV tracks the total SOV to be distributed with a delay. For the sake of simplicity, I have combined 4 weeks into one time period in the x-axis.
Since the BNB pool has existed for just under a year and the SOV rewards have been largely constant at 15,000, we are currently somewhere in period 12 or 13. The pool has existed for longer than 10 months, so the liquid reward payouts have already reached the maximum of 60,000 SOV per period (4x15,000/week). If we were to simply reduce the rewards to 0 at period 30, as shown in the figure, the orange curve would track as shown above. Please note that the step in period 30 is not proposed here, it is just here for presenting the remaining SOV payouts from the 10 month vesting.

Figure 2 simulates what would happen if we change the rewards from 15,000 vested SOV to 5,000 liquid SOV per week at time period 12. The vested SOV payouts continue to unlock over the next periods and yet more liquid SOV is added.

Of course, it is easy to see that the total number of SOV that needs to be paid out will be drastically reduced. But we are approaching the blue line much faster. What about short term liquid supply?

Figure 3 shows that we would have an increased liquid SOV supply in the short term. The next 3 time periods there would be 20,000 more liquid SOV per period before the number of liquid SOV is drastically reduced. After 6 periods, we are at break-even with regard to liquid supply change. After that, there is a significant reduction of new SOV on the market. Finally, it settles at -40,000 SOV per time period (4x15,000 vs. 4*5,000 SOV).

Figure 4 shows the total change in liquid SOV that we would obtain by [15k vested => 5k liquid]. The short term increase in liquid SOV would be less than 100,000 SOV. This shock would be completely offset within one year. After that, a significant reduction in liquid SOV would be achieved.

This analysis shows that the often demanded liquid pool rewards should be approached with caution. In combination with the vested SOV that is still to be paid out, an even stronger oversupply of liquid SOV can quickly arise. However, it is also important to realize that this variant should have little impact with less than 100,000 SOV additional short-term supply. BUT the implementation of this measure for several pools at the same time could mean a significant risk for the SOV price.

Immediately liquid SOV rewards would have the advantage in the future that they can be changed quickly without having to pay attention to the complex effects of the 10-month vesting. The bitocracy could act much faster based on subgraph data in order to add/remove pool incentives.

Perhaps the current market situation is the right time to make these changes. Then we could get tokenomics under better control by next year. Better $150,000 more possible selling pressure now, than $1,000,000 next year when SOV is back at $10 :wink:
I would like to try this measure in one pool (BNB/BTC). After all, a good 15 months after this measure, we would have reduced the total AMM pool liquidity cost by 700,000 SOV. The Sovryn Circle is ready to monitor such changes and report how these will affect the real pool.

Please note that the following data for BNB/BTC pool staker revenue is a bit older and taken from the wiki.


Please add thoughts and feedback!

Stay Sovryn!


In my opinion, you can test this pool and measure the consequences. I think it is the right pool to do it.

I can think of two effects:

a) Loss of investor interest. Liquidity in the pool would fall to some extent, but not totally. Would this be a problem?

b) Sale of all rewards to market. I don’t think it would affect the sov price, and if it did, is it a problem?

It needs to be tested.

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