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 November recommendations to better align with evolving market conditions. The recommended rewards allocation is provided below, along with an in-depth analysis.
Our analysis of protocol profitability suggests that a carefully targeted increase in SEAM rewards is financially sustainable. We recommend implementing a gradual increase in SEAM rewards to capitalize on the current bullish market sentiment, while closely monitoring demand dynamics before making further adjustments in the next cycle.
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 | 3,690 | 2,583 |
| WETH | esSEAM | Supply | 330 | 461 |
| cbBTC | esSEAM | Supply | 364 | 364 |
| wstETH | esSEAM | Supply | 190 | 300 |
| EURC | esSEAM | Supply | 221 | 155 |
| AERO | esSEAM | Supply | 180 | 126 |
| cbETH | esSEAM | Supply | 99 | 99 |
| DAI | esSEAM | Supply | 13 | 6 |
| SEAM | esSEAM | Supply | 7 | 7 |
| USDC | SEAM | Supply | 0 | 224 |
| cbBTC | SEAM | Supply | 15 | 30 |
| wstETH | SEAM | Supply | 7 | 14 |
| EURC | SEAM | Supply | 9 | 9 |
| AERO | SEAM | Supply | 6 | 6 |
| USDC | esSEAM | Borrow | 2,945 | 2,838 |
| WETH | esSEAM | Borrow | 184 | 370 |
| EURC | esSEAM | Borrow | 127 | 127 |
| AERO | esSEAM | Borrow | 95 | 65 |
| cbBTC | esSEAM | Borrow | 60 | 102 |
| USDC | SEAM | Borrow | 116 | 140 |
| WETH | SEAM | Borrow | 0 | 49 |
| cbBTC | SEAM | Borrow | 15 | 30 |
| EURC | SEAM | Borrow | 0 | 5 |
- Total Recommended Daily Reward Emission: 8,110 (Current: 8,673)
- Total Recommended Daily esSEAM Emission: 7,603 (Current: 8,505)
- Total Recommended Daily SEAM Emission: 507 (Current: 168)
- Total Recommended Daily Reward Emission for Suppliers: 4,384 (Current: 5,131)
- Total Recommended Daily Reward Emission for Borrowers: 3,726 (Current: 3,542)
Notes：
The total estimated emission cost over two months, based on the recommended daily rate of 8,110, amounts to 495K. The recommendations have been structured to remain within the 500K budget. If the community opts to increase the total budget, additional rewards can be allocated proportionally across assets.
Analysis
Retro
We assess the protocol’s profitability by measuring the net growth in daily reserves.
Net daily reserve growth is calculated by subtracting daily SEAM distribution costs and time-weighted esSEAM distribution expenses from daily reserve gained.
Given the one-year linear unlock period for esSEAM, their expense are not realized immediately but instead gradually over the lock duration. The time-weighted cost for any given day is calculated as follows:
The chart below illustrates the protocol’s profit performance from October 16 to December 15, showcasing significant profitability growth during the recent evaluation cycle. Average daily net reserve growth increased from 220 to 660, despite higher expenses, with SEAM distribution continuing to be the larger cost.
The increased positive net profit demonstrates that the protocol has the flexibility to raise reward expenses as a potential strategy to drive further growth if needed. However, given the volatility in daily net profit, which ranges from $400 to $1200, we recommend a gradual and steady increase in expenses to ensure sustainability and mitigate the risk of overextending during periods of fluctuation.
At the current level of reserve growth, the protocol could increase SEAM reward distribution by a factor of 5 and still maintain positive daily net reserve growth.
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 Nov 18 through Dec 15. 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 | -26.93 | 271.65 | -603.79 | -127.45 | 18.85 | 108.44 | 524.3 |
| DAI | -10.9 | 234.03 | -524.7 | -68.16 | 0.32 | 85.52 | 698.93 |
| EURC | -11.5 | 236.22 | -449.55 | -159.26 | 0.1 | 111.69 | 560.97 |
| SEAM | 1582.09 | 49913.9 | -168183 | -16703.2 | 14714.7 | 23755 | 119069 |
| USDC | -131.16 | 565.5 | -2254.72 | -52.19 | 4.87 | 46.58 | 621.18 |
| WETH | 75.23 | 608.09 | -1003.12 | -366.31 | -5.68 | 434.78 | 1428.32 |
| cbBTC | 25.68 | 361.18 | -1259.74 | -31.3 | 48.75 | 164 | 797.8 |
| cbETH | 87.38 | 467.01 | -654.43 | -122.48 | 17.05 | 248.69 | 1351.2 |
| wstETH | 158.92 | 415.17 | -557.28 | -73.38 | 58.62 | 300.47 | 1450.51 |
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 WETH and 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 | -0.0991 | 0.1181 |
| DAI | -0.0466 | 0.1604 |
| EURC | -0.0487 | 0.1855 |
| SEAM | 0.0317 | 0.0004 |
| USDC | -0.2319 | 0.0592 |
| WETH | 0.1237 | 0.0226 |
| cbBTC | 0.0711 | 0.0934 |
| cbETH | 0.1871 | 0.0554 |
| wstETH | 0.3828 | 0.0459 |
Best performed assets are wstETH, cbETH and WETH.
To allocate incentives for assets, we analyze their current reward APR alongside their adjusted ROI. We then scale those values by USDC equivalents to ensure comparability. We compare the ROI weight and the current reward APR for each asset. If the ROI weight is significantly higher than the current APR, it suggests that the asset is performing well and might benefit from increased rewards to attract more deposits. Conversely, if the ROI weight is lower, it may indicate that the asset is underperforming, and rewards might need to be adjusted downward.
After scaling by USDC equivalents, the values are as follows.
| symbol (Scaled) | Adjusted ROI (Scaled) | Current APR (Scaled) |
|---|---|---|
| AERO | -0.43 | 1.99 |
| DAI | -0.2 | 2.71 |
| EURC | -0.21 | 3.13 |
| SEAM | 0.14 | 0.01 |
| USDC | -1 | 1 |
| WETH | 0.53 | 0.38 |
| cbBTC | 0.31 | 1.58 |
| cbETH | 0.81 | 0.94 |
| wstETH | 1.65 | 0.77 |
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 | 3690 | 0 | 5.9% | 0.0% |
| cbBTC | 364 | 71 | 9.3% | 1.8% |
| WETH | 330 | 461 | 2.3% | 3.2% |
| EURC | 221 | 0 | 18.6% | 0.0% |
| wstETH | 190 | 405 | 4.6% | 9.8% |
| AERO | 180 | 0 | 11.8% | 0.0% |
| cbETH | 99 | 85 | 5.5% | 4.8% |
| DAI | 13 | 0 | 16.0% | 0.0% |
| SEAM | 7 | 144 | 0.0% | 0.8% |
To encourage sustainable growth and optimize incentives, we make discretionary adjustments for assets with negative returns.
USDC ROI turned negative during the examined period due to a sharp drop in supply on November 26, potentially driven by reactions to the anticipated reserve factor increase. Since this decline does not indicate reduced market demand—evidenced by the recovery in supply growth, it appears to be a temporary response to changing protocol parameters. Therefore, we propose applying a discretionary factor of 0.7 to the current reward emission rate as the recommended value for USDC.
The negative ROI for EURC is driven by a decline in supply, a trend also observed in competitor protocols. Given the strategic positioning and market demand for AERO and EURC, we suggest applying the same discretionary factor (0.7) to their current reward emission rates as the recommended values. For DAI, we recommend reducing the current emission rate by half. For cbBTC, cbETH and SEAM, we recommend maintaining its current emission rate.
The final recommendations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 3690 | 2583 | 5.9% | 4.13% |
| cbBTC | 364 | 364 | 9.3% | 9.3% |
| WETH | 330 | 461 | 2.3% | 3.2% |
| EURC | 221 | 155 | 18.6% | 13.02% |
| wstETH | 190 | 300 | 4.6% | 7.4% |
| AERO | 180 | 126 | 11.8% | 8.26% |
| cbETH | 99 | 99 | 5.5% | 5.5% |
| DAI | 13 | 6 | 16.0% | 8% |
| SEAM | 7 | 7 | 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 as follows:
| symbol | Adjusted ROI | Current APR |
|---|---|---|
| AERO | -0.099 | 0.0039 |
| EURC | -0.1142 | 0.0076 |
| cbBTC | 0.0189 | 0.0039 |
| wstETH | 0.3398 | 0.0017 |
The chart below highlights the reserve contributions from each asset, with USDC contributing the most by a significant margin, followed by WETH. Contributions from cbBTC and EURC remain stable, while AERO continues to decline.
Borrowing stablecoins against AERO collateral remains a popular use case (see below); Recent AERO supply pullback can be attributed to the elevated borrow cost of USDC on Seamless, caused by its high utilization. To address this, we recommend enahnced SEAM reward incentives for USDC supply to help stabilize USDC rates organically.
Given the rate disparity for AERO and EURC between Seamless and another leading lending/borrowing platform, along with their relatively small absolute emission amounts, we recommend maintaining the current reward emissions for both AERO and EURC.
For cbBTC and wstETH, given their positive ROI, we recommend increasing SEAM reward emissions to further stimulate demand.
The final recommended allocations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 0 | 224 | 0% | 0.36% |
| cbBTC | 15 | 30 | 0.4% | 0.8% |
| EURC | 9 | 9 | 0.8% | 0.8% |
| wstETH | 7 | 14 | 0.2% | 0.4% |
| AERO | 6 | 6 | 0.4% | 0.4% |
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 USDC, WETH, cbBTC and EURC, reflected in higher levels and reduced volatility.
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
The spread between borrow and supply rates continues to widen, currently hovering around 1.5%, which we attribute to strong overall demand for stablecoins. As highlighted in previous recommendations, our objective is to maintain this spread below 1%. We recommend allocating SEAM rewards to USDC with a target APR of 0.25% and esSEAM with a target APR of 5% to help offset the spread.
With the SEAM reward APR targeting 0.36% on the supply side and 0.5% on the borrow side, the USDC spread is effectively compensated.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| USDC | esSEAM | 2945 | 2838 | 5% |
| USDC | SEAM | 116 | 140 | 0.25% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.
WETH
The spread for WETH has consistently remained below 1%. Currently, borrow rates for WETH on Seamless are approximately 1.4% higher than those offered by competitors, an increase from 1% in November. In light of these conditions, we recommend setting the target APR for esSEAM rewards at 3%. To further stimulate WETH demand, we also propose allocating SEAM rewards with a target APR of 0.4% to fully offset the spread.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| WETH | esSEAM | 184 | 370 | 3% |
| WETH | SEAM | 0 | 49 | 0.4% |
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 stabilized at around 5% in December. Additionally, its borrow rate is now comparable to that of other platforms. We recommend continuing the allocation of esSEAM rewards with a target APR of 10%.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| AERO | esSEAM | 95 | 65 | 10% |
cbBTC
The borrow APR for cbBTC remains higher than that of competitor platforms, with the spread around 1.7%, while the borrow and supply APR spread is holding steady at approximately 2%. To fully bridge the rate gap, we propose allocating SEAM rewards with a target APR of 2%. Additionally, we recommend allocating esSEAM rewards with a target APR of 6% to maintain competitiveness.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| cbBTC | esSEAM | 60 | 102 | 5% |
| cbBTC | SEAM | 15 | 30 | 2% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.
EURC
The borrow APR for EURC on Seamless is more stable compared to another leading platform, consistently hovering around 10%. We recommend allocating esSEAM rewards with a target APR of 10% to fully cover the spread. Additionally, we propose experimentally allocating SEAM rewards with a target APR of 0.5% to further incentivize demand.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| EURC | esSEAM | 127 | 127 | 10% |
| EURC | SEAM | 0 | 5 | 0.5% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.