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 October recommendations to better align with evolving market conditions. The recommended rewards allocation is provided below, along with an in-depth analysis.
Our protocol profitability analysis suggests that a moderate increase in SEAM rewards, coupled with a boost in esSEAM rewards allocation, is financially viable if required. We recommend implementing an initial increase to capitalize on the current bullish market sentiment and evaluate demand dynamics before committing to 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 | 2,316 | 3,690 |
| AERO | esSEAM | Supply | 359 | 180 |
| WETH | esSEAM | Supply | 330 | 330 |
| cbBTC | esSEAM | Supply | 249 | 364 |
| EURC | esSEAM | Supply | 150 | 221 |
| wstETH | esSEAM | Supply | 98 | 190 |
| cbETH | esSEAM | Supply | 34 | 99 |
| DAI | esSEAM | Supply | 14 | 13 |
| SEAM | esSEAM | Supply | 7 | 7 |
| AERO | SEAM | Supply | 12 | 6 |
| cbBTC | SEAM | Supply | 0 | 15 |
| EURC | SEAM | Supply | 0 | 9 |
| wstETH | SEAM | Supply | 0 | 7 |
| USDC | esSEAM | Borrow | 2,945 | 2,945 |
| WETH | esSEAM | Borrow | 300 | 184 |
| EURC | esSEAM | Borrow | 127 | 127 |
| AERO | esSEAM | Borrow | 365 | 95 |
| cbBTC | esSEAM | Borrow | 100 | 60 |
| USDC | SEAM | Borrow | 116 | 116 |
| cbBTC | SEAM | Borrow | 0 | 15 |
- Total Recommended Daily Reward Emission: 8,650 (Current: 7,522)
- Total Recommended Daily esSEAM Emission: 8,475 (Current: 7,394)
- Total Recommended Daily SEAM Emission: 175 (Current: 128)
- Total Recommended Daily Reward Emission for Suppliers: 5,138 (Current: 3,569)
- Total Recommended Daily Reward Emission for Borrowers: 3,512 (Current: 3,953)
Notes：
Given a budget of 500K for 61 days, with a current total daily emission of 7,522, and the incentives having been running for about 31 days, it is feasible to increase the daily emission to 8,650 for the remaining 30 days.
Here’s the breakdown:
Since the remaining budget of 267K is sufficient to cover the 260K required for the increased daily emission, it is feasible to raise the daily emission to 8,650 for the remaining 30 days.
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 shows the protocol’s profit performance from Sep 19 to Nov 17, highlighting strong profitability growth during the recent evaluation cycle, with average daily net reserve growth rising from 150 to 220. SEAM distribution remains the largest expense.
The positive net profit indicates that the protocol has the flexibility to increase reward expenses, particularly for esSEAM rewards, as a potential means of supporting further growth if necessary.
Given the current reserve growth level, even if the protocol decides to double the SEAM reward distribution, it can still achieve positive net reserve growth on a daily basis.
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 Oct 18 through Nov 17. 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 | 23.49 | 147.74 | -173.88 | -86.59 | -10.36 | 110.34 | 376.86 |
| DAI | 86.1 | 291.51 | -580.98 | -2.49 | 0.17 | 4.97 | 969.48 |
| EURC | 185.84 | 351.82 | -390.94 | -24.54 | 105.56 | 313.87 | 1081.67 |
| SEAM | -6558.47 | 38471.9 | -85996.3 | -30590.5 | -12508.5 | 5676.57 | 123948 |
| USDC | 83.24 | 847.17 | -894.28 | -211.3 | -40.21 | 55.53 | 3169.86 |
| WETH | -557.67 | 2927.26 | -15122.2 | -645.08 | -67.86 | 324.66 | 2857.59 |
| cbBTC | 233.83 | 582.07 | -409.94 | 19.28 | 118.74 | 273.57 | 2529.36 |
| cbETH | 148.46 | 429.18 | -446 | -154.18 | 68.05 | 311.44 | 1281.13 |
| wstETH | 99.2 | 328.47 | -426.34 | -165.64 | 98.75 | 205.74 | 1026.22 |
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 | 0.159 | 0.1437 |
| DAI | 0.2954 | 0.0745 |
| EURC | 0.5282 | 0.0824 |
| SEAM | -0.1705 | 0.0004 |
| USDC | 0.0983 | 0.0226 |
| WETH | -0.1905 | 0.0224 |
| cbBTC | 0.4017 | 0.0632 |
| cbETH | 0.3459 | 0.0274 |
| wstETH | 0.302 | 0.0359 |
Best performed assets are EURC, cbBTC and cbETH.
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, all assets have generated positive ROI, with the exception of WETH and SEAM.
| symbol (Scaled) | Adjusted ROI (Scaled) | Current APR (Scaled) |
|---|---|---|
| AERO | 1.62 | 6.36 |
| DAI | 3.01 | 3.29 |
| EURC | 5.38 | 3.64 |
| SEAM | -1.74 | 0.02 |
| USDC | 1 | 1 |
| WETH | -1.94 | 0.99 |
| cbBTC | 4.09 | 2.8 |
| cbETH | 3.52 | 1.21 |
| wstETH | 3.07 | 1.59 |
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 | 2316 | 2316 | 2.3% | 2.3% |
| AERO | 359 | 91 | 14.4% | 3.7% |
| WETH | 330 | 0 | 2.2% | 0.0% |
| cbBTC | 249 | 364 | 6.3% | 9.2% |
| EURC | 150 | 221 | 8.2% | 12.2% |
| wstETH | 98 | 190 | 3.6% | 7.0% |
| cbETH | 34 | 99 | 2.7% | 8.0% |
| DAI | 14 | 13 | 7.4% | 6.8% |
| SEAM | 7 | 0 | 0.0% | 0.0% |
To encourage sustainable growth and optimize incentives, we make discretionary adjustments for assets with negative returns.
The negative ROI for WETH is attributed to a significant drop in supply in early November. This shift may be driven by opportunists seeking to capitalize on reward opportunities on other platforms, where aggressive reward distributions and negative effective borrow rates are being offered. We also observe that LSTs like weETH, rETH, and wrsETH are popular collateral assets for WETH on other platforms.
Given the already competitive supply APR (shown below), we recommend maintaining the current reward allocation for WETH, as it remains an important asset.
At the same time, we suggest maintaining the current reward allocation for SEAM as a strategic approach.
The low ROI for AERO was due to restricted growth in supply during the last cycle, a trend also seen on other platforms. The supply APR gap is continuing to narrow, as shown below, with the spread recently within 2%. Instead of aggressively reducing rewards, we recommend experimentally halving the allocation, targeting an APR of 7%.
Seamless USDC supply rates are generally 3-4% lower than those on other platforms (excluding outliers). While we attribute this to short-term effects from USDC incentive programs, we recommend increasing the current reward APR to 4% to close this gap.
The final recommendations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 2316 | 3690 | 2.3% | 3.5% |
| AERO | 359 | 180 | 14.4% | 7% |
| WETH | 330 | 330 | 2.2% | 2.2% |
| cbBTC | 249 | 364 | 6.3% | 9.2% |
| EURC | 150 | 221 | 8.2% | 12.2% |
| wstETH | 98 | 190 | 3.6% | 7.0% |
| cbETH | 34 | 99 | 2.7% | 8.0% |
| DAI | 14 | 13 | 7.4% | 6.8% |
| 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 | 0.159 | 0.0048 |
The chart below highlights the reserve contribution from each asset, showing that AERO’s contribution has been declining and was recently surpassed by EURC and WETH. It is now comparable to cbBTC.
After considering their supply APR gap compared to another L/B platform, we recommend reducing SEAM rewards for AERO by half and reallocating them to EURC, targeting an APR of 50bps, and to cbBTC, targeting an APR of 40bps.
Given the high ROI of wstETH and its growing popularity as an LST collateral for WETH, we recommend experimentally allocating SEAM to wstETH to encourage the utilization of WETH. The spread of supply APR between Seamless and another leading L/B platform is currently ~25bps. We suggest allocating SEAM rewards to wstETH with a target reward APR of 25bps.
The final recommended allocations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| AERO | 12 | 6 | 0.48% | 0.24% |
| cbBTC | 0 | 15 | 0% | 0.4% |
| EURC | 0 | 9 | 0% | 0.5% |
| wstETH | 0 | 7 | 0% | 0.25% |
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, reflected in higher levels and reduced volatility.
USDC utilization has been trending up and staying around kink (90%).
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 spiked over 1% in mid-November but generally stayed below 1%. We attribute the spike to a sudden market demand increase and consider the spread stable compared to other platforms. As stated in previous recommendations, we aim to keep the spread under 1%. We recommend continuing our October strategy, maintaining the current daily emission rate of SEAM and esSEAM rewards for USDC.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| USDC | esSEAM | 2945 | 2945 | 3% |
| USDC | SEAM | 116 | 116 | 0.13% |
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 stayed below 1%. Borrow rates for WETH on Seamless are now about 1% higher than those offered by competitors, down from 1.5% in October. Given these conditions, we recommend setting the esSEAM rewards target APR at 2%.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| WETH | esSEAM | 300 | 184 | 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 reduced by half, dropping from 10-15% to around 5%, and its borrow rate is now competitive compared to other platforms.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| AERO | esSEAM | 365 | 95 | 10% |
cbBTC
The borrow APR for cbBTC is nearly identical between Seamless and another leading L/B platform, with the spread recently remaining under 1%. Given the high potential of cbBTC, we recommend allocating SEAM rewards with a target APR of 1% to bridge this gap.
The spread between borrow and supply rates remains around 2%. We recommend allocating esSEAM rewards with a target APR of 4% to address this spread.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| cbBTC | SEAM | 0 | 15 | 1% |
| cbBTC | esSEAM | 100 | 60 | 4% |
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 than on another leading platform, remaining around 7%. We recommend allocating esSEAM rewards with a target APR of 8% to cover the entire spread.
The spread between borrow and supply rates remains under 1%.
| token_symbol | Reward Token | Current Daily Reward Emission | Recommended Daily Reward Emission | Target APR |
|---|---|---|---|---|
| EURC | esSEAM | 127 | 127 | 8% |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.