Lower Curve Rewards or Lower C-Ratio:
I had promised to some that I would be proposing an SCCP to lower SNX rewards paid on curve every other week in order to take advantage of the increase in the price of SNX, the announcement of the distribution of the CRV tokens. The final objective being to decrease these incentives to the minimum possible that achieve a stable peg. However, incoming data need more careful analysis, so below I lay out the pros and cons of each action for discussion:
Lower Rewards on Curve:
- We will be better equipped in the medium and long-run, to increase SNX rewards to defend the peg, if we start from a lower rewards level.
- The gradual decrease in weekly SNX inflation requires that rewards paid to maintain the peg are decreased to the minimum possible in order for SNX staking to be sustainable.
- In case the peg is oversold as a result of a decision to further decrease SNX rewards, historical data has shown that the size of the pool is very responsive to incentives offered. Therefore, we have a fair amount of flexibility to push back rewards up in we need to.
- The negative impact on $APY of Curve is 3.3% (to around 10%), assuming the pool size and snx price are both stable. Given the farming rewards offered by competing platforms and factoring in the uncertainty on the state of Curve distribution the decline in $APY is considered to be steep.
Lower Collateralization Ratio:
- The impact on APY is less steep, as a decrease in the c-ratio of 50% will allow current SNX stakers to mint around 4.3 million of extra synths. Assuming this entirely goes to Curve as a worst case scenario. The impact on $APY is much lower (-1.3%), taking into account the current network collateralization ratio.
- Decreasing the c-ratio increases the size of the pool on Curve and this is often reflected positively on the price of SNX due to the deepness of the Curve pool.
- Finally, it’s important to note that with a lower c-ratio minters can take advantage of other farming opportunities by selling their synths. Therefore this helps spread more coins into new wallets and spurs more adoption.
- Lowering the c-ratio eats up from our flexibility to lower curve rewards in the future, since both c-ratio adjustments and SNX rewards changes impact the peg, although not by the same extent.
- Increasing the amount of synths in circulation increases the instability of the network in general and opens the system up for more risks in case of a steep price decline in SNX.
- The c-ratio is often laggy, and therefore any effect might be delayed, especially due to the high price of gas. If we overshoot on the c-ratio and the peg is negatively impacted, raising the c-ratio back up might not automatically correct sUSD discount observed.
- Keeping the system with the current parameters would provide us with more information on the value of the CRV token distribution and the willingness of LP providers on curve to stake on that platform in anticipation of these tokens.
- The current stability of the peg, which has been hovering at a 1% premium and 1% discount provides us with some confidence on the current parameters.
- Delaying the inevitable of having a lower c-ratio and lower rewards pushes these important matters to the future. Eventually we will need to lower both Curve rewards and C-ratio, in the in order to put the project on a more sustainable footing in the long-run.