this is a proposal from the Circle of Tokens for the new era Sovryn is entering. If you want to just read the proposal, scroll down. Before we get to where the journey is going, however, I’d like to take a quick look at the road that lies behind us.
Where we are coming from
For well over a year, Core team, Exchequer and CoT have been working incrementally to reduce SOV rewards for lending, various AMM pools, and staking in order to become more sustainable. We aimed to provide SOV subsidies only in pools where was demand and volume. Our long-term goal has always been to offer long-term Sovryn stakers a good and realistic yield, in BTC and USD.
However, this is only possible with existing protocol income if there are not too many SOV in circulation and that can be staked. Accordingly, the transformation phase with many SOV in expiring vesting contracts was very long and difficult.
But we are getting closer to the goal. SOV rewards have been cut considerably, and circulating supply inflation rate has been massively curbed. At the same time, for the dire market conditions of 2022, some liquidity and trading volume could be ensured.
We have also worked to ensure that the protocol does not sell under value and generates much-needed revenue. With SIP-51, the AMM fee for the protocol and its stakers was doubled.
Just today the SIP, which raises the origination fee for Zero to 2.5%, has been passed.
Where we are going
In the last weeks a lot of work has been put into calculations for the future subsidies in the Sovryn protocol. The above mentioned points have been taken into account and the data of the last year has been used as a basis to bring the protocol on a good track.
As you surely know, the launch of DLLR and Zero open access completes a long development phase.
This means that the SOV subsidies for XUSD should come to an end. DLLR will henceforth be the preferred stablecoin for the AMM and lending pools. Liquidity should be encouraged here.
The goal of this new proposal is for Sovryn to have a positive balance sheet for the first time in terms of subsidies and protocol revenue.
We want to take advantage of 3 things in particular:
- The increased SOV price and associated increase in APY in the AMM pools.
- Liquid rewards instead of linear 10-month vesting periods.
- Increased protocol revenue as discussed above.
These points enable us to cut SOV rewards and still offer an attractive yield that is paid out directly rather than over a long period of time.
We believe that the increased AMM revenue and the expected Zero revenue for stakers will be able to at least absorb the weekly SOV subsidies.
CAUTION: the liquid SOV rewards described here are only 90% liquid. the remaining 10% are still in a 10-month vesting contract. According to Ororo, 90% is the maximum that is technically possible with the existing contracts.
Reduce weekly XUSD/BTC AMM SOV-rewards from 25k => 10k (liquid) => 5k (liquid) => 0
Following the DLLR launch, with each week there will be less rewards for XUSD/BTC. The rewards will be liquid to ensure that some liquidity remains while the DLLR/BTC AMM ramps up.
Reduce weekly SOV/BTC AMM SOV-rewards from 25k => 7.5k (liquid) until end of 2023.
At current SOV price and pool size, this is about 10-12% APY, but with the ability to compound rewards on a weekly basis.
Provide 15k SOV/week (liquid rewards) for the DLLR/BTC AMM pool until end of 2023.
The liquid SOV should incentivize a kickstart of the DLLR/BTC pool. Weekly liquid rewards should
also help to reduce the risk of impermanent loss and delayed rewards that have reduced in value
due to long vesting periods.
In total, this would reduce weekly AMM subsidies from 50k SOV to 22.5k SOV. We’d like to reserve an additional 2.5k SOV/week for further actions, but suggest that total subsidies do not exceed 25k SOV/week. This would essentially be a halving on the issuance rate of new SOV on the open market based on subsidies.