CIP-draft: Using COW to boost BAL rewards for COW LPs

CIP: <to be assigned when moved to phase 2>
title: Using COW to boost BAL rewards for COW LPs
author: @middleway.eth
status: Draft
created: 2022-03-31
requires:

Simple Summary

Balancer DAO have introduce the veBAL voting mechanism for BAL liquidity rewards. This proposal will outline the benefits of using this system for boosing rewards for COW liquidity pools.This might represent an opportunity for better and more efficient use of COW allocated for liquidity rewards. Overall this should increase COW liquidity while spending less COW on rewards.

Motivation

Liquidity is important for virtually every traded asset. It is in CowDAOs benefit to try and optimize its COW spending to achieve the highest liquidity possible for the COW token.
Balancer DAOs veBAL voting system is planned to go live on March 28th, so it is still early to have very concrete calculations on the benefit in the form of BAL rewards resulting from the COW bounty.
This represent an opportunity for CowDAO to be among the first to participate and capture veBAL holders attention.
Looking at similar opportunities, it is expected to generate 1.5-3.5$ of BAL reward for every 1$ of COW incentive for veBAL voters. This proposal is intended to be an experiment to test the actual benefit CowDAO will get.

Specification

CowDAO will use 240k COW tokens (over twelve weeks) as a bounty for veBAL token holders to vote for boosting BAL rewards for COW liquidity pools.

This would equate to 20k COW tokens per week and we can equate this to an estimated ROI for the COW DAO using BEETS (a friendly fork of Balancer of Fantom network) as a baseline. Typically first movers are benefitted the most in the incetivazation of liquidity pools when examining CRV and BEETS Wars models. Note in this BeethovenX Incentivization Tracker we can see the lowest average ROI for a round of positive 33% which favors the projects which moved earlier on the process. Early rounds tend to produce ROI’s greater than 100%, in many cases much more.

Benefits

Based upon these assumptions, COW Protocol can expect to provide less COW tokens as capital for a higher liquidity mining incentive APR in the form of BAL tokens. With this net positive investment the expectation is deeper pool liquidity and buy pressure on the COW token due to the increased APR on the liquidity pools containing COW token.

There is an apparent concern of sell pressure from these mechanisms from distributing COW tokens to veBAL holders however, historically the positive reinvestment and buy pressure outweighs the negative forces. See the veBAL incentivization cycle outlined in the Balancer DAO community documentation.

Execution

At this time an incentivization platform has not yet been released for Balancer Protocol’s veBAL mechanism. We can assume a similar process to Votium for veCRV will be launched to facilitate the interface the COW DAO will utilize in executing this transaction. Essentially the pool we wish to incentivize and amount will be selected with rewards being distributed to those who vote to incentivize pools sponsored by COW. See Votium Interface for further reference.

Safe Transaction Hash

TBD

Safe Transaction Data

TBD

Tenderly Simulation

TBD

Rationale

  • Liquidity is essential for any token. This program will likely boost rewards for COW pools and thus increase its liquidiy
  • Decent liquidity will enable new participants to buy COW with minimal friction.
  • Dampen COW token volatility

Snapshot

Phase 2 proposal: TBD

11 Likes

Profitability fell on the Balancer. Let’s implement this proposal as soon as possible.

3 Likes

Great proposal, couldn’t agree more that we should strengthen our relationship with Balancer, especially because many gnosis/cow investors are invested in the Balancer community.

1 Like

Great,lets get it done!

1 Like

Love to see this. I support strengthening our ties and I suspect as early movers we will gain a large amount of traction (and ROI) from veBAL voters.

2 Likes

Fully support being early movers in veBAL.

1 Like

This proposal was effectively voted on in CIP9, I’ll archive this thread

1 Like