Summary
Gauntlet continually monitors the ROI of rewards distribution. Building on our initial recommendations, we now suggest further adjustments to better align with changing market conditions. The recommended rewards allocation is detailed below, along with a comprehensive analysis. We also encourage the community to periodically adjust the IR curve to maintain competitive rates and ensure balanced growth on both sides.
| token_symbol | Reward Token | Side | Current Daily Reward Emission | Recommended Daily Reward Emission |
|---|---|---|---|---|
| USDC | esSEAM | Supply | 4105 | 4615 |
| WETH | esSEAM | Supply | 2000 | 1000 |
| cbETH | esSEAM | Supply | 47 | 24 |
| AERO | esSEAM | Supply | 36 | 476 |
| wstETH | esSEAM | Supply | 26 | 49 |
| DAI | esSEAM | Supply | 19 | 10 |
| SEAM | esSEAM | Supply | 13 | 7 |
| DEGEN | esSEAM | Supply | 9 | 0 |
| USDC | SEAM | Supply | 137 | 123 |
| WETH | SEAM | Supply | 39 | 0 |
| AERO | SEAM | Supply | 0 | 24 |
| WETH | esSEAM | Borrow | 66 | 150 |
| WETH | SEAM | Borrow | 11 | 0 |
| AERO | esSEAM | Borrow | 4 | 35 |
| AERO | SEAM | Borrow | 1 | 0 |
- Total Recommended Daily Reward Emission: 6513 (Current: 6513)
- Total Recommended Daily esSEAM Emission: 6366 (Current: 6325)
- Total Recommended Daily SEAM Emission: 147 (Current: 188)
- Total Recommended Daily Reward Emission for Suppliers: 6328 (Current: 6431)
- Total Recommended Daily Reward Emission for Borrowers: 185 (Current: 82)
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 June 21 through July 12. 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 | 503.32 | 1327.49 | -2484.89 | -126.75 | 168.24 | 1178.03 | 4109.96 |
| DAI | -191.05 | 592.28 | -1667.5 | -174.84 | -2.37 | 54.98 | 733.01 |
| DEGEN | -691.69 | 1328.54 | -3677.75 | -1270.27 | -823.16 | 39.39 | 1380.88 |
| SEAM | -2231.97 | 3772.36 | -10511.1 | -3660.28 | -1501.43 | -748.15 | 5699.45 |
| USDC | 1.45 | 58.67 | -179.92 | -17.98 | 1.29 | 10.68 | 143.41 |
| WETH | -88.08 | 220.45 | -544.81 | -236.02 | -51.25 | 40.39 | 397.92 |
| cbETH | -176.01 | 392.9 | -1187.42 | -251.23 | -71.27 | 62.76 | 334.4 |
| wstETH | 100.21 | 2043.15 | -5825.19 | -146.21 | -1.96 | 215.4 | 6576.04 |
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 wstETH 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 | 0.3792 | 0.0265 |
| DAI | -0.3226 | 0.0937 |
| DEGEN | -0.5206 | 0.0221 |
| SEAM | -0.5917 | 0.0043 |
| USDC | 0.0248 | 0.058 |
| WETH | -0.3996 | 0.0728 |
| cbETH | -0.448 | 0.0349 |
| wstETH | 0.049 | 0.0618 |
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. During the observed period, only AERO, USDC, and wstETH achieved positive returns.
| symbol | Adjusted ROI (Scaled) | Current APR (Scaled) |
|---|---|---|
| AERO | 15.31 | 0.46 |
| DAI | -13.03 | 1.62 |
| DEGEN | -21.03 | 0.38 |
| SEAM | -23.9 | 0.07 |
| USDC | 1 | 1 |
| WETH | -16.14 | 1.26 |
| cbETH | -18.09 | 0.6 |
| wstETH | 1.98 | 1.07 |
The adjusted ROI-based allocations are as follows:
| token_symbol | Current Daily Reward Emission | Recommended Daily Reward Emission | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 4105 | 4105 | 5.8% | 5.8% |
| WETH | 2000 | 0 | 7.3% | 0.0% |
| cbETH | 47 | 0 | 3.5% | 0.0% |
| AERO | 36 | 1207 | 2.6% | 88.8% |
| wstETH | 26 | 49 | 6.2% | 11.5% |
| DAI | 19 | 0 | 9.4% | 0.0% |
| SEAM | 13 | 0 | 0.4% | 0.0% |
| DEGEN | 9 | 0 | 2.2% | 0.0% |
To ensure sustainable growth and optimize incentives, we make discretionary adjustments to assets with negative returns. Additionally, we adjust the recommended emission amount for AERO, targeting an APR of 35% after assessing a competitive rate compared to other leading protocols. We also modestly increase allocations to USDC to acknowledge its inherent price stability.
The differences in AERO supply rates between Seamless and another leading protocol have never exceeded 30% in the past 30 days.
The final recommendations are as follows:
| token_symbol | Current Daily Reward Emission | Recommended Daily Reward Emission | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 4105 | 4615 | 5.8% | 6.5% |
| WETH | 2000 | 1000 | 7.3% | 3.65% |
| cbETH | 47 | 24 | 3.5% | 1.75% |
| AERO | 36 | 476 | 2.6% | 35% |
| wstETH | 26 | 49 | 6.2% | 11.5% |
| DAI | 19 | 10 | 9.4% | 4.7% |
| SEAM | 13 | 7 | 0.4% | 0.2% |
| DEGEN | 9 | 0 | 2.2% | 0.0% |
Note: Target APR is calculated using most recent supply and price data. We expect it to dilute over time if supply increases.
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 | 0.3557 | 0.0265 |
| DAI | -0.3225 | 0.0937 |
| DEGEN | -0.2127 | 0.0221 |
| SEAM | 0.1625 | 0.0043 |
| USDC | 0.024 | 0.058 |
| WETH | -0.5111 | 0.0728 |
| cbETH | -0.3166 | 0.0349 |
| wstETH | 0.0591 | 0.0618 |
We conclude that the implications derived from ROI in token terms are consistent with those from ROI in USD terms, with the exception of SEAM, which experienced positive returns in token terms. However, due to the high price volatility of SEAM, we recommend halving the current daily emission for SEAM.
SEAM ROI
Using the same methodology, we have SEAM ROI and recommendations as follows:
| symbol | Adjusted ROI | Current APR |
|---|---|---|
| USDC | 0.0248 | 0.0019 |
| WETH | -0.3996 | 0.0024 |
| symbol | Adjusted ROI (Scaled) | Current APR (Scaled) |
|---|---|---|
| USDC | 1 | 1 |
| WETH | -16.14 | 1.25 |
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 137 | 137 | 0.2% | 0.2% |
| WETH | 66 | 0 | 0.2% | 0.0% |
Given the competitive WETH supply rate, we can confidently discontinue SEAM rewards for WETH.
Given the initiative to shift rewards from the SEAM token to esSEAM, we apply a discretionary scale of 0.9 to the recommendations above. We also apply a discretionary adjustment to the recommended emission amount for AERO with a target APR of 1.8% after assessing a competitive rate compared to other leading protocols. The final recommendations are as follows:
| token_symbol | Current Daily Reward Emission | Recommended Daily Reward Emission | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 137 | 123 | 0.2% | 0.2% |
| WETH | 39 | 0 | 0.1% | 0.0% |
| AERO | 0 | 24 | 0.1% | 1.8% |
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 both WETH and AERO, reflected in higher levels and reduced volatility.
Please see the live version of those charts here.
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.
WETH
The rate spreads for WETH and USDC are shown below. In our first emission round, we successfully reduced the spread to less than 1%. We are confident in discontinuing SEAM rewards for WETH. However, to maintain current utilization and offer a competitive organic supply rate, we recommend setting the target APR for esSEAM at 1% to cover the entire spread.
Furthermore, to maintain a competitive borrow rate for WETH, we compare Seamless rates against another leading borrowing/lending platform on Base. With their margin around 1% recently, setting the target APR for esSEAM at 1% is a sensible strategy to reduce this gap.
AERO
The spread for AERO has been increasing after a brief decline and has recently been fluctuating around 0.2. AERO spread and borrow rates have already been competitive compared to other leading protocols. Consequently, we recommend discontinuing SEAM rewards for AERO. However, we suggest increasing esSEAM rewards with a target APR of 5% to incentivize more borrowing, which will assist in facilitating future rate adjustments.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| WETH | esSEAM | 66 | 150 | 1% |
| WETH | SEAM | 11 | 0 | 0% |
| AERO | esSEAM | 4 | 35 | 5% |
| AERO | SEAM | 1 | 0 | 0% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.