Summary
Gauntlet continuously monitors the ROI of reward distributions to ensure efficient capital allocation. If the community decides to move forward with the reward budget renewal, we recommend implementing further refinements based on our January recommendations to better align incentives with evolving market conditions.
Our profitability analysis indicates a substantial increase in net profit following the last round of reward adjustments. However, to maintain positive net profitability and free up resources for other strategic initiatives (Seamless USDC Vault, WETH Vault, and cbBTC Vault), additional reductions in reward emissions are necessary.
Key Adjustments:
- Total Recommended Daily Reward Emission: 1,621 (Current: 3,446) – a 53% reduction to enhance efficiency and improve ROI.
- Total Recommended Daily esSEAM Emission: 1,405 (Current: 2,837) – a 50% decrease, ensuring rewards are more precisely targeted.
- Total Recommended Daily SEAM Emission: 216 (Current: 609) – a 65% reduction, including the removal of SEAM rewards for USDC and cbBTC supply to encourage migration to Seamless Morpho Vaults.
- Total Recommended Daily Reward Emission for Suppliers: 272 (Current: 1,607) – an 83% decrease, primarily due to significant reductions in USDC, cbBTC, and WETH emissions.
- Total Recommended Daily Reward Emission for Borrowers: 1,349 (Current: 1,839) – a 27% reduction, maintaining competitive incentives while improving capital efficiency.
For detailed recommendations, see below.
| Token Symbol | Reward Token | Side | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount |
|---|---|---|---|---|
| USDC | esSEAM | Supply | 738 | 75 |
| cbBTC | esSEAM | Supply | 182 | 15 |
| WETH | esSEAM | Supply | 132 | 15 |
| EURC | esSEAM | Supply | 88 | 44 |
| wstETH | esSEAM | Supply | 76 | 38 |
| AERO | esSEAM | Supply | 72 | 36 |
| cbETH | esSEAM | Supply | 40 | 20 |
| DAI | esSEAM | Supply | 13 | 10 |
| SEAM | esSEAM | Supply | 7 | 4 |
| USDC | esSEAM | Borrow | 1090 | 870 |
| WETH | esSEAM | Borrow | 184 | 147 |
| EURC | esSEAM | Borrow | 127 | 58 |
| cbBTC | esSEAM | Borrow | 58 | 58 |
| AERO | esSEAM | Borrow | 30 | 15 |
| USDC | SEAM | Supply | 224 | 0 |
| cbBTC | SEAM | Supply | 15 | 0 |
| EURC | SEAM | Supply | 9 | 4 |
| wstETH | SEAM | Supply | 7 | 4 |
| AERO | SEAM | Supply | 3 | 2 |
| weETH | SEAM | Supply | 1 | 5 |
| USDC | SEAM | Borrow | 218 | 128 |
| WETH | SEAM | Borrow | 92 | 48 |
| cbBTC | SEAM | Borrow | 30 | 20 |
| EURC | SEAM | Borrow | 10 | 5 |
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 presents the protocol’s profit trajectory from February 1, 2024, to February 21, 2025. Notably, net daily reserve growth experienced a marked increase on February 3, shortly after the rewards adjustment was implemented, before stabilizing around zero in the subsequent period.
To maintain positive net reserve growth while redirecting additional rewards to other protocol initiatives, we propose a carefully calibrated reduction in reward emissions.
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 Feb 01 through Feb 22, 2025. 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 | -136.94 | 445.95 | -1397.14 | -312.38 | -118.08 | 35.52 | 641.11 |
| DAI | 8.41 | 1492.76 | -3886.54 | -52.36 | -0.07 | 3.44 | 5087.84 |
| EURC | -253.93 | 945.89 | -2928.77 | -716.64 | -136.64 | 368.8 | 1022.74 |
| SEAM | -10509.2 | 31806.4 | -92758.4 | -19256.8 | -11837.8 | 6385.52 | 50871.3 |
| USDC | -1966.73 | 5499.16 | -21951.3 | -660.96 | -99.38 | 373.07 | 1356.57 |
| WETH | -151.07 | 1830.67 | -3317.08 | -1681.5 | -32.16 | 905.22 | 3647.15 |
| cbBTC | 41.33 | 1664.19 | -2127.12 | -395.88 | -49.22 | 139.54 | 6607.19 |
| cbETH | -236.28 | 2015.13 | -3204.53 | -985.17 | -658.49 | 320.53 | 6265.95 |
| wstETH | -544.21 | 2160.75 | -8936.46 | -467.05 | -44.57 | 381.22 | 1058.2 |
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. 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 | -0.3071 | 0.0485 |
| DAI | 0.0056 | 0.0741 |
| EURC | -0.2685 | 0.0761 |
| SEAM | -0.3304 | 0.0004 |
| USDC | -0.3576 | 0.0152 |
| WETH | -0.0825 | 0.0056 |
| cbBTC | 0.0248 | 0.0202 |
| cbETH | -0.1173 | 0.0159 |
| wstETH | -0.2519 | 0.0224 |
Assets with positive ROI are cbBTC and DAI.
To optimize reward emissions and improve capital efficiency, we propose adjusting the rates for assets with negative ROI by applying a discretionary factor of 0.5 to their current emission levels. For DAI, a slightly higher discretionary factor of 0.8 is applied considering its positive ROI.
Additionally, to encourage migration to the Seamless USDC Vault, WETH Vault, and cbBTC Vault, we propose further reductions in rewards for these assets. Specifically, we recommend applying a 0.1 discretionary factor to USDC, WETH and cbBTC emissions. These adjustments aim to align incentives with protocol priorities, drive liquidity into the most efficient markets, and ensure sustainable reward distribution.
The final recommendations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 738 | 75 | 1.5% | 0.2% |
| cbBTC | 182 | 15 | 2.0% | 0.2% |
| WETH | 132 | 15 | 0.6% | 0.06% |
| EURC | 88 | 44 | 7.6% | 3.8% |
| wstETH | 76 | 38 | 2.2% | 1.1% |
| AERO | 72 | 36 | 4.9% | 2.45% |
| cbETH | 40 | 20 | 1.6% | 0.8% |
| DAI | 13 | 10 | 7.4% | 5.9% |
| SEAM | 7 | 4 | 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 | -0.2921 | 0.002 |
| EURC | -0.319 | 0.0078 |
| USDC | -0.3429 | 0.0046 |
| cbBTC | 0.0089 | 0.0017 |
| weETH | 0.3333 | 0.0013 |
| wstETH | -0.2705 | 0.0021 |
Assets with positive ROI are cbBTC and weETH.
The chart below illustrates each asset’s contribution to the reserve, with USDC at the forefront, followed by WETH and then EURC/cbBTC. WETH contributions have remained steady, cbBTC’s contributions appear to be stabilizing but EURC’s contributions continue to decline.
We propose increasing reward emissions for weETH to reach a target APR of 0.5%, incentivizing additional weETH supply and supporting high WETH utilization. We recommend pausing SEAM reward emissions for cbBTC and USDC to encourage migration to Seamless cbBTC Vault and USDC Vault. For assets with negative ROI, we suggest applying a discretionary ratio of 0.4 to determine their reward emissions.
WeETH Supply Trend
The final recommended allocations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 224 | 0 | 0.5% | 0.0% |
| cbBTC | 15 | 0 | 0.2% | 0.0% |
| EURC | 9 | 4 | 0.8% | 0.4% |
| wstETH | 7 | 4 | 0.2% | 0.1% |
| AERO | 3 | 2 | 0.2% | 0.1% |
| weETH | 1 | 5 | 0.1% | 0.5% |
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. During the last cycle, key asset utilization experienced significant volatility, with some assets trending downward.
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 gap between borrowing and supply rates has generally been narrowing, though it remains volatile and currently hovers around 1%. As highlighted in earlier recommendations, our objective is to keep this spread below 1% to optimize the efficiency of borrowing and supplying activities, thereby stimulating borrow demand.
Currently, our objective is to maintain USDC utilization stably around the kink level. In the previous cycle, utilization fell to approximately 85% due to overall market volatility. To enhance stability in the upcoming cycle, we propose directing SEAM rewards to USDC with a target APR of 0.3% and esSEAM rewards with a target APR of 2%. These targeted allocations aim to narrow the gap and foster a more efficient, attractive borrowing environment.
With SEAM rewards targeting an APR of 0.25% on the supply and 0.3% on the borrow sides, the USDC spread is effectively mitigated.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| USDC | esSEAM | 1090 | 870 | 2% |
| USDC | SEAM | 218 | 128 | 0.3% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.
WETH
WETH’s spread has consistently stayed below 1%, although it has been gradually increasing. Currently, WETH borrow rates on Seamless are about 1.5% higher than those offered by competitors, similar to the rates seen in January. In response to these conditions, we recommend targeting a ~1% APR for esSEAM rewards. Additionally, to further boost WETH demand, we propose allocating SEAM rewards with a target APR of 0.3% to effectively offset the spread.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| WETH | esSEAM | 184 | 147 | 1% |
| WETH | SEAM | 92 | 48 | 0.3% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.
AERO
In February, AERO’s spread fell below 5%, mirroring the levels seen in January.
Additionally, its borrow rate has remained notably more stable than its competitors’, stabilizing at around 7%. Based on these observations, we recommend applying a discretionary factor of 0.5 to its reward emission rate.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| AERO | esSEAM | 30 | 15 | 3% |
cbBTC
The borrowing APR for cbBTC still outpaces that of competitor platforms, showing a rate difference of about 4%—an increase from 3% in January—while the gap between borrow and supply APR remains around 2% in a volatile range. To eliminate this disparity, we suggest allocating SEAM rewards with a target APR of ~1%, and to stay competitive, we also propose allocating esSEAM rewards targeting a ~2% APR.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| cbBTC | esSEAM | 58 | 58 | 2% |
| cbBTC | SEAM | 30 | 20 | 1% |
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 mirrored the pattern seen on another leading platform. We propose setting the SEAM emission target APR at 0.5% and the esSEAM target at 5% to offset the spread.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| EURC | esSEAM | 127 | 58 | 5% |
| EURC | SEAM | 10 | 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.