Over the weekend, Balancer Labs initiated its first rounds of Can blockchain be used for Voting? Across the globe, decisions made about many of societies issues are decided upon by… More to address liquidity mining. The move is the Decentralized Finance (DeFi) is a term that is being used to describe the world of financial services that are increasingly… More protocol’s first steps towards full community-driven decentralized governance.
Following in the footsteps of Compound Finance, Balancer Labs launched its own governance token and liquidity mining incentive at the end of May, with the first ‘harvest’ of BAL tokens occurring in late June. Token prices and total value locked on the platform shot skywards as expected.
Balancer Liquidity Mining Proposals Approved
This weekend Balancer held the first round of voting for its new governance proposals, with all three submissions getting approval from stakeholders. Balancer Labs tweeted more details on the voting;
All three proposals have been approved by the vast majority of voters. A more detailed outcome of the voting will be published later this week.
The automated liquidity and asset management protocols allocate 145,000 BAL each week to those who provide liquidity to the platform. The token distribution is proportional to the amount of liquidity each address contributed relative to the total liquidity on Balancer. Several factors are taken into consideration in order to come up with a formula to manage the distribution.
Three proposals regarding this calculation were voted on over the weekend when Balancer launched its minimum governance tool. This takes a snapshot of each account’s BAL balance to approve or reject proposals while allowing the token holders to sign a transaction rather than pay transaction fees to vote.
The first proposal was something called ‘balFactor’ which incentivizes holders to use their BAL tokens for liquidity rather than simply cashing out. The idea was to apply a 1.5x multiplier to BAL that is provided as liquidity for ‘useful’ pairs including ETH, DAI, USDC, and wBTC. There was also a ‘capFactor’ of $50 million to correct down eventual excessive-adjusted liquidity for each capped token. The proposal explained;
The $50M cap is more of a safety measure, in place just for the unlikely scenario where the balFactor results in huge and unnecessary BAL liquidity coupled with an unreasonable BAL price spike. Such a scenario is automatically neutered by the cap.
Voting was unanimously in favor with 99.95% of the token balance, or 88 votes for, and 4 against.
The second proposal was to modify the ‘feeFactor’ by reducing the mining penalty for high-fee pools. A formula was proposed to calculate pool fees with a coefficient of 0.25 instead of its current value of 0.5. This would effectively incentivize a shift toward more profitable fees for liquidity providers. This proposal also received almost 100% of the votes in its favor which equated to 247k BAL tokens.
Thirdly, there was a proposal to apply a ‘wrapFactor’ of 0.7 to the liquidity of every pair of soft-pegged tokens in an effort to attract more useful liquidity to the protocol. Soft pegged pairs are highly correlated and are in pools that track the same asset, such as USDC and mUSD. These pairs have low liquidity and trading volume so a higher multiplier was agreed upon following the deliberation. The proposal elaborated;
Many community members have expressed their concerns about this type of liquidity being unfairly highly compensated by the current mining distribution rules with their less useful liquidity. Some believe the wrapFactor for the soft-pegged pairs should be as low as 0.3. Others believe it should not apply at all.
Voting for this proposal was slightly more divisive, tallying 63 votes for and 17 against, with the majority of 281.4k BAL tokens sitting in the ‘approval’ camp.
The changes are due to go live on July 20, following the successful passing of all three proposals. With the weekend voting Balancer has taken its first steps towards decentralized governance while improving its liquidity mining system.
Balancer TVL at ATH, Maker Dethrones Compound
Balancer is currently ranked fifth place in the total value locked (TVL) charts according to DeFi Pulse. This marks another all-time high of $217 million, an increase of 430% since the same time last month.
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