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 December recommendations to better align with evolving market conditions.
Considering emissions of 8,673 tokens per day from December 20 to December 31, 2024, and 12,674 tokens per day from January 1 to the present, along with a total budget of 825,000 tokens, the remaining allocation for the February 1 to March 31 period is 328,030 tokens. To stay within the budget, the daily reward emission should be adjusted to approximately 3,645 tokens per day.
Our analysis of protocol profitability highlights the need to scale back SEAM distribution to ensure sustainable reserve growth while maintaining adequate support for protocol growth. We recommend a strategic reduction in esSEAM distribution. This adjustment is designed to optimize resource allocation for other initiatives without compromising the effectiveness of incentives, based on our evaluation.
| Token Symbol | Reward Token | Side | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount |
|---|---|---|---|---|
| USDC | esSEAM | Supply | 3,690 | 738 |
| cbBTC | esSEAM | Supply | 364 | 182 |
| WETH | esSEAM | Supply | 330 | 132 |
| EURC | esSEAM | Supply | 221 | 88 |
| wstETH | esSEAM | Supply | 190 | 76 |
| AERO | esSEAM | Supply | 180 | 72 |
| cbETH | esSEAM | Supply | 99 | 40 |
| DAI | esSEAM | Supply | 13 | 13 |
| SEAM | esSEAM | Supply | 7 | 7 |
| USDC | esSEAM | Borrow | 2,945 | 1090 |
| WETH | esSEAM | Borrow | 184 | 184 |
| AERO | esSEAM | Borrow | 95 | 30 |
| cbBTC | esSEAM | Borrow | 60 | 58 |
| EURC | esSEAM | Borrow | 127 | 127 |
| USDC | SEAM | Supply | 3,690 | 224 |
| cbBTC | SEAM | Supply | 15 | 15 |
| EURC | SEAM | Supply | 9 | 9 |
| wstETH | SEAM | Supply | 7 | 7 |
| AERO | SEAM | Supply | 6 | 3 |
| weETH | SEAM | Supply | 0 | 1 |
| USDC | SEAM | Borrow | 116 | 218 |
| WETH | SEAM | Borrow | 184 | 92 |
| cbBTC | SEAM | Borrow | 15 | 30 |
| EURC | SEAM | Borrow | 127 | 10 |
- Total Recommended Daily Reward Emission: 3,446 (Current: 12,674)
- Total Recommended Daily esSEAM Emission: 2,837 (Current: 8,505)
- Total Recommended Daily SEAM Emission: 609 (Current: 4,169)
- Note: In December 2024, we recommended a daily SEAM emission of 507. Our latest recommendation reflects an increase of over 20% from that period. The current emission rate of 4,169 SEAM tokens was not part of a deliberate adjustment and should be aligned with the intended allocation strategy.
- Total Recommended Daily Reward Emission for Suppliers: 1,607 (Current: 8,821)
- Total Recommended Daily Reward Emission for Borrowers: 1,839 (Current: 3,853)
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 depicts the protocol’s profit performance from November 28, 2024, to January 26, 2025. Net profit turned negative on January 1, 2025, primarily due to a significant spike in SEAM distributions. Since then, net profit has been averaging between -$3,000 and -$2,000.
To address the decline in net profit, we recommend scaling back SEAM distributions to support positive reserve growth. Additionally, we suggest strategically cutting esSEAM distributions to enable reallocation toward other strategic initiatives within the protocol.
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 Dec 16, 2024 through Jan 24, 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 | -11.3 | 242.59 | -437.78 | -153.83 | -67.63 | 106.32 | 931.3 |
| DAI | 3.41 | 211.86 | -1026.58 | -24.47 | 1.39 | 60.89 | 399.08 |
| EURC | -2.46 | 259.07 | -741.61 | -158.02 | -9.89 | 106.23 | 777.16 |
| SEAM | -12457.9 | 33267.8 | -70926 | -38708.6 | -12282.4 | 10876.1 | 53044.9 |
| USDC | 23.1 | 266 | -818.74 | -18.27 | 13.24 | 43.18 | 1207.12 |
| WETH | -60.89 | 800.12 | -1763.11 | -553.25 | -9.72 | 296.22 | 2203.8 |
| cbBTC | 10.08 | 294.3 | -865.64 | -81 | 9.86 | 129.68 | 782.71 |
| cbETH | -37.02 | 961.27 | -4056.49 | -351.65 | -1.41 | 194.93 | 2731.41 |
| wstETH | -73.82 | 368.48 | -1179.48 | -316.52 | -42.55 | 206.68 | 596.47 |
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 | -0.0466 | 0.09 |
| DAI | 0.0161 | 0.0923 |
| EURC | -0.0095 | 0.1169 |
| SEAM | -0.3745 | 0.0004 |
| USDC | 0.0869 | 0.0314 |
| WETH | -0.0761 | 0.0156 |
| cbBTC | 0.0343 | 0.0566 |
| cbETH | -0.0385 | 0.0383 |
| wstETH | -0.2003 | 0.0384 |
Best performed assets are USDC, cbBTC and DAI.
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 | -0.54 | 2.86 |
| DAI | 0.19 | 2.93 |
| EURC | -0.11 | 3.72 |
| SEAM | -4.31 | 0.01 |
| USDC | 1 | 1 |
| WETH | -0.88 | 0.5 |
| cbBTC | 0.39 | 1.8 |
| cbETH | -0.44 | 1.22 |
| wstETH | -2.31 | 1.22 |
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 | 3690 | 3.1% | 3.1% |
| cbBTC | 364 | 80 | 5.7% | 1.2% |
| WETH | 330 | 0 | 1.6% | 0.0% |
| EURC | 221 | 0 | 11.7% | 0.0% |
| wstETH | 190 | 0 | 3.8% | 0.0% |
| AERO | 180 | 0 | 9.0% | 0.0% |
| cbETH | 99 | 0 | 3.8% | 0.0% |
| DAI | 13 | 1 | 9.2% | 0.6% |
| SEAM | 7 | 0 | 0.0% | 0.0% |
To foster sustainable growth and enhance incentive efficiency, we propose implementing discretionary adjustments for assets with negative returns. Specifically, we suggest applying a discretionary factor of 0.4 to their current reward emission rates as the recommended values. For DAI and SEAM, we recommend maintaining their existing emission rates.
Since Seamless’s organic cbBTC rates (excluding rewards) are already higher than those of other leading lending protocols on Base, we recommend applying a discretionary factor of 0.5 to the current reward emission rates for the recommended values. We anticipate that the impact of these changes will be minimal.
We recommend applying a discretionary factor of 0.2 to the USDC reward emission rate to further reduce total emissions in line with the budget. Given that Seamless’s organic USDC rates (excluding rewards) are on par with those of other leading lending protocols on Base, we anticipate a moderate impact from these changes, but not a significant one.
The final recommendations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 3690 | 738 | 3.1% | 0.6% |
| cbBTC | 364 | 182 | 5.7% | 2.8% |
| WETH | 330 | 132 | 1.6% | 0.64% |
| EURC | 221 | 88 | 11.7% | 4.68% |
| wstETH | 190 | 76 | 3.8% | 1.52% |
| AERO | 180 | 72 | 9.0% | 3.6% |
| cbETH | 99 | 40 | 3.8% | 1.52% |
| DAI | 13 | 13 | 9.2% | 9.2% |
| 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 | -0.0466 | 0.003 |
| EURC | -0.0095 | 0.0048 |
| USDC | 0.1894 | 0.0314 |
| cbBTC | 0.0343 | 0.0023 |
| wstETH | -0.2003 | 0.0014 |
The chart below highlights the reserve contributions of each asset, with USDC leading by a significant margin, followed by WETH and EURC. WETH contributions have remained stable, while AERO continues to decline. In contrast, cbBTC contributions have shown considerable volatility recently.
Considering the rate disparity for EURC and cbBTC between Seamless and another major lending/borrowing platform, as well as their relatively low absolute emission amounts, we recommend keeping the current reward emissions unchanged for both assets. Additionally, we suggest maintaining the current reward emission for wstETH to support the high utilization of WETH. We recommend cutting reward emissions by half for AERO given its negative ROI and shrinking reserve growth contributions.
We recommend experimentally allocating SEAM rewards to weETH, aiming for a target APR of 3% to attract depositors and boost WETH utilization.
We recommend reducing SEAM emissions for USDC to a daily rate of 224 tokens, in line with our previous recommendation.
The final recommended allocations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 3690 | 224 | 3.1% | 0.2% |
| cbBTC | 15 | 15 | 0.2% | 0.2% |
| EURC | 9 | 9 | 0.5% | 0.5% |
| wstETH | 7 | 7 | 0.1% | 0.1% |
| AERO | 6 | 3 | 0.3% | 0.15% |
| weETH | 0 | 1 | 0% | 3% |
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 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 has been narrowing, currently sitting below 1.5%, driven by strong overall demand for stablecoins. As emphasized in previous recommendations, our goal is to maintain this spread below 1%. To achieve this, we recommend allocating SEAM rewards to USDC with a target APR of 0.2% and esSEAM with a target APR of 1% to help bridge the gap.
With SEAM rewards targeting an APR of 0.2% on the supply and 0.2% 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 | 2945 | 1090 | 1% |
| USDC | SEAM | 116 | 218 | 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
The spread for WETH has consistently remained below 1% and has kept trending down. Currently, borrow rates for WETH on Seamless are approximately 1.5% higher than those offered by competitors, roughly the same as in December. In light of these conditions, we recommend setting the target APR for esSEAM rewards at 1%. To further stimulate WETH demand, we also propose allocating SEAM rewards with a target APR of 0.5% to effectively offset the spread.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| WETH | esSEAM | 184 | 184 | 1% |
| WETH | SEAM | 184 | 92 | 0.5% |
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 decreased below 5% in January. 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 5%.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| AERO | esSEAM | 95 | 30 | 5% |
cbBTC
The borrow APR for cbBTC continues to exceed that of competitor platforms, with a rate gap of approximately 3%, while the borrow and supply APR spread remains volatile above 2%. To close the rate gap entirely, we propose allocating SEAM rewards targeting an APR of 1%. Additionally, we recommend allocating esSEAM rewards with a target APR of 2% to ensure competitiveness.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| cbBTC | esSEAM | 60 | 58 | 2% |
| cbBTC | SEAM | 15 | 30 | 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 shared similar pattern compared to another leading platform. We recommend maintaing the current esSEAM emisson for EURC. Additionally, we recommend setting SEAM emission with a target APR of 0.5% to compensate the spread.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| EURC | esSEAM | 127 | 127 | 6% |
| EURC | SEAM | 127 | 10 | 0.5% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.