Summary
Gauntlet consistently monitors the ROI of rewards distribution. Should the community choose to proceed with the reward budget renewal, Gauntlet recommends further adjustments based on our July recommendations to better align with evolving market conditions. The recommended rewards allocation is provided below, along with an in-depth analysis.
Additionally, we encourage the community to periodically adjust the IR curve to maintain competitive rates and promote balanced growth on both sides.
| token_symbol | Reward Token | Side | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount |
|---|---|---|---|---|
| USDC | esSEAM | Supply | 4635 | 2318 |
| WETH | esSEAM | Supply | 1004 | 502 |
| AERO | esSEAM | Supply | 478 | 359 |
| wstETH | esSEAM | Supply | 49 | 49 |
| cbETH | esSEAM | Supply | 24 | 12 |
| DAI | esSEAM | Supply | 10 | 5 |
| SEAM | esSEAM | Supply | 7 | 7 |
| USDC | SEAM | Supply | 124 | 0 |
| AERO | SEAM | Supply | 24 | 12 |
| USDC | esSEAM | Borrow | 0 | 2616 |
| USDC | SEAM | Borrow | 0 | 116 |
| WETH | esSEAM | Borrow | 151 | 300 |
| AERO | esSEAM | Borrow | 35 | 365 |
- Total Recommended Daily Reward Emission: 6,661 (Current: 6,541)
- Total Recommended Daily esSEAM Emission: 6,533 (Current: 6,393)
- Total Recommended Daily SEAM Emission: 128 (Current: 148)
- Total Recommended Daily Reward Emission for Suppliers: 3,264 (Current: 6,355)
- Total Recommended Daily Reward Emission for Borrowers: 3,397 (Current: 186)
Gauntlet recommends allocations based on the current daily expense amount. A slight reduction in SEAM allocation is suggested, as our analysis indicates that the impact would be minimal. Should the community opt to follow the reward budget, allocations can be proportionally increased as necessary.
Analysis
Supply Incentives
To determine rewards allocations, we utilize the historical growth metric. This metric is defined as the incremental growth in the objective function (Total Value Locked, TVL) per dollar spent. The formula for this metric is as follows.
esSEAM ROI
Using the ROI metric above, we can calculate the ROI gained from esSEAM incentives for all incentivized assets from July 20 through Aug 16. Below shows ROI trends and density plots.
The table below shows the distribution statistics of ROI distributions.
| symbol | mean | std | min | 25% | 50% | 75% | max |
|---|---|---|---|---|---|---|---|
| AERO | -22.12 | 142.44 | -254.32 | -120.21 | -31.93 | 35.62 | 372 |
| DAI | -235.17 | 763.29 | -2147.15 | -629.03 | -149.65 | 0.88 | 1724.39 |
| SEAM | 8996.77 | 97011.5 | -82014.1 | -25475.7 | -16828.7 | 7483.64 | 411468 |
| USDC | -31.6 | 137.54 | -534.55 | -44.27 | -1.56 | 31.88 | 161.55 |
| WETH | -223.51 | 600.58 | -2312.87 | -427.18 | -134.84 | 10.15 | 1116.6 |
| cbETH | -428.65 | 1063.1 | -3688.7 | -971.96 | -223.85 | 95.44 | 2177.54 |
| wstETH | 64.44 | 718.2 | -1393.95 | -184.24 | -90.45 | 73.49 | 2454.03 |
We use the mean value to assess general ROI over the period in question. However, we recognize that ROI exhibit highly skewed distributions with large standard deviations, especially for SEAM. This implies that the mean value may not accurately represent the underlying distribution and can be significantly affected by outliers. Therefore, we scale the mean value with standard deviation as adjusted ROI.
This adjusted metric allows us to normalize the mean ROI, making it less sensitive to outliers and providing a more accurate representation of the performance of each asset. By doing so, we can better compare assets with varying levels of volatility and ensure that our rewards distribution more accurately reflects their “uncertainty-adjusted” returns.
| symbol | Adjusted ROI | Current APR |
|---|---|---|
| AERO | -0.1553 | 0.2175 |
| DAI | -0.3081 | 0.0857 |
| SEAM | 0.0927 | 0.0004 |
| USDC | -0.2297 | 0.0649 |
| WETH | -0.3722 | 0.0454 |
| cbETH | -0.4032 | 0.0226 |
| wstETH | 0.0897 | 0.0495 |
Adjusted ROI for all assets, except wstETH and SEAM, was negative during the period in question. ROI saw immediates spike in the first weekdays following the implementation of the July rewards refresh. However, a significant downturn occurred around August 5, aligning with the crypto market sell-off.
To promote sustainable growth and optimize incentives, we make targeted adjustments to assets with negative returns. Daily rewards for SEAM and wstETH remain unchanged, while rewards for other assets are halved. The adjusted ROI-based allocations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 4635 | 2318 | 6.5% | 3.25% |
| WETH | 1004 | 502 | 4.5% | 2.25% |
| AERO | 478 | 239 | 21.8% | 10.9% |
| wstETH | 49 | 49 | 5.0% | 5.0% |
| cbETH | 24 | 12 | 2.3% | 1.15% |
| DAI | 10 | 5 | 8.6% | 4.3% |
| SEAM | 7 | 7 | 0.0% | 0.0% |
| DEGEN | 0 | 0 | 0.0% | 0.0% |
Note: Target APR is calculated using most recent supply and price data. We expect it to dilute over time if supply increases.
We also verify whether variable supply rates for key assets remain competitive with the proposed changes.
The chart below indicates that Seamless USDC and WETH supply rates have remained competitive, AERO rates have fluctuated but stayed close to those of another leading B/S platform on Base, while wstETH rates have continued to be lower but with spreads within 100bps.
esSEAM ROI in Token terms
We recognize that price volatility can impact the analysis during the time period in question. As a result, we also refer to an alternative ROI metric. This metric measures the change in Total Value Locked (TVL) in token terms relative to the incentives (rewards) spent. It is defined as:
Applying the same logic used for ROI in USD terms, we derive the adjusted ROI in token terms.
| symbol | Adjusted ROI | Current APR |
|---|---|---|
| AERO | 0.0177 | 0.2175 |
| DAI | -0.3081 | 0.0857 |
| SEAM | 0.2603 | 0.0004 |
| USDC | -0.2297 | 0.0649 |
| WETH | -0.2708 | 0.0454 |
| cbETH | -0.4088 | 0.0226 |
| wstETH | 0.1832 | 0.0495 |
We conclude that the insights from ROI in token terms are generally consistent with those in USD terms, except for AERO, which demonstrated positive returns in token terms. Consequently, we recommend applying a discretionary 1.5x scale to the previous recommendations for AERO. The final recommended allocations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 4635 | 2318 | 6.5% | 3.25% |
| WETH | 1004 | 502 | 4.5% | 2.25% |
| AERO | 478 | 359 | 21.8% | 16.4% |
| wstETH | 49 | 49 | 5.0% | 5.0% |
| cbETH | 24 | 12 | 2.3% | 1.15% |
| DAI | 10 | 5 | 8.6% | 4.3% |
| SEAM | 7 | 7 | 0.0% | 0.0% |
| DEGEN | 0 | 0 | 0.0% | 0.0% |
Note: Target APR is calculated using most recent supply and price data. We expect it to dilute over time if supply increases.
SEAM ROI
Using the same methodology, we have SEAM ROI and recommendations as follows:
| symbol | Adjusted ROI | Current APR |
|---|---|---|
| AERO | -0.1774 | 0.011 |
| USDC | -0.2305 | 0.0017 |
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 124 | 0 | 0.2% | 0.0% |
| AERO | 24 | 0 | 1.1% | 0.0% |
Given the competitive USDC supply rate, we can confidently discontinue SEAM rewards for USDC.
However, to maintain competitive AERO supply rates, we recommend halving the current rewards for AERO instead of terminating them entirely.
The final recommended allocations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 124 | 0 | 0.2% | 0.0% |
| AERO | 24 | 12 | 1.1% | 0.6% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.
Borrower Incentives
As stated in our initial rewards allocation recommendation, encouraging borrowing is crucial for several reasons: it enhances the utility of supplied assets, stimulates economic activity, and can result in higher organic returns for both borrowers and suppliers. Since initiating borrow incentives during the last emission round, we have observed improved utilization for WETH and AERO, reflected in higher levels and reduced volatility.
However, we also observe a decrease in USDC utilization, as indicated by the lower levels.
The spread between borrow and supply rates reflects the platform’s efficiency in balancing supply and demand. A large spread might indicate an inefficiency where borrowers are disincentivized to borrow, and suppliers may not be earning optimal returns. By providing targeted borrower incentives, we can narrow this spread, promoting a more balanced and efficient market.
We rank the assets based on the size of the spread and utilization rates, focus on assets with the largest spreads and lowest utilization and create borrower incentives aimed at reducing the spread.
USDC
USDC spreads have exhibited two significant spikes, the first occurring around July 16 and the second on August 5. Currently, the spread between borrow and supply rates stands at just below 1.2%. To bring this spread down to under 1%, we recommend setting the target APR for SEAM at 0.2%. Additionally, a 2% APR for esSEAM rewards will effectively cover the entire spread.
The difference between USDC borrow rates on Seamless and those on another leading B/S platform remains within 3%.
To further encourage borrowing and drive more liquidity, we suggest increasing the esSEAM rewards with a target APR of 4.5%. This approach should provide the necessary incentive to attract more borrowing activity.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| USDC | esSEAM | 0 | 2616 | 4.5% |
| USDC | SEAM | 0 | 116 | 0.2% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.
WETH
Since the initial rewards refresh, the spread for WETH has consistently remained below 1%. Additionally, borrow rates for WETH on Seamless are approximately 1% higher than those offered by competitors. Given these conditions, we recommend setting the current esSEAM rewards target APR at 2%. This strategy should help sustain the competitive edge while keeping the spread stable.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| WETH | esSEAM | 151 | 300 | 2% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.
AERO
The spread for AERO has been experiencing volatile increases, reaching up to 30% since the last rewards refresh. This fluctuation is largely due to continued volatility in both supply and borrow rates. Additionally, the current borrow rates are not competitive when compared to those on another leading B/S platform on Base. To address this issue, we recommend raising the esSEAM target APR to 30%. This adjustment would fully cover the existing spread and provide a stronger incentive for increased borrowing, helping to stabilize rates and attract more activity to the platform.
We also acknowledge the increasing contribution of AERO to reserves, justifying a strategic increase in rewards allocation to further support its growth.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| AERO | esSEAM | 35 | 365 | 30% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.
IR Curve Review
We believe that accurate Interest Rate (IR) curve settings should, among other objectives, achieve the following:
- Enable Market-Driven Rates: Ensure that market-implied rates are accurately reflected to allow a balanced equilibrium between borrowing and supply activities.
- Maintain Rate Stability: Promote low volatility in interest rates to enhance the overall user experience by providing predictable and stable returns.
- Remain Competitive: Ensure that the rates offered remain competitive in the market, attracting both borrowers and suppliers to the platform.
We have observed consistently higher volatility in AERO rates and encourage the community to assess the current AERO IR curve.
