Summary
Should the community choose to proceed with the reward budget renewal, Gauntlet recommends the following rewards allocation. Detailed analysis are provided below. We also encourage the community to regularly adjust the IR curve to maintain competitive rates to support balanced growth on two sides.
| token_symbol | Reward Token | Side | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount |
|---|---|---|---|---|
| USDC | esSEAM | Supply | 2500 | 5131 |
| WETH | esSEAM | Supply | 2500 | 2500 |
| USDbC | esSEAM | Supply | 500 | 0 |
| cbETH | esSEAM | Supply | 167 | 59 |
| DAI | esSEAM | Supply | 25 | 24 |
| DEGEN | esSEAM | Supply | 15 | 15 |
| wstETH | esSEAM | Supply | 3 | 33 |
| SEAM | esSEAM | Supply | 0 | 0 |
| AERO | esSEAM | Supply | 0 | 36 |
| BRETT | esSEAM | Supply | 0 | 17 |
| USDC | SEAM | Supply | 167 | 171 |
| WETH | SEAM | Supply | 167 | 83 |
| WETH | esSEAM | Borrow | 0 | 82 |
| WETH | SEAM | Borrow | 0 | 14 |
| AERO | esSEAM | Borrow | 0 | 4 |
| AERO | SEAM | Borrow | 0 | 1 |
- Total Recommended Daily Reward Emission Amount: 8170 (Budget: 8333)
- Total Recommended Daily esSEAM Emission Amount: 7901
- Total Recommended Daily SEAM Emission Amount: 269
- Total Recommended Daily Reward Emission Amount for Suppliers: 8069
- Total Recommended Daily Reward Emission Amount for Borrowers: 101
Analysis
ROI Metric
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 May 13 through June 13. 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 |
|---|---|---|---|---|---|---|---|
| DAI | 27.71 | 264.59 | -483.84 | -1.3 | 0.5 | 1.32 | 1374.05 |
| DEGEN | -121.15 | 1091.05 | -2123.34 | -793.93 | -190.23 | 486.73 | 2051.13 |
| SEAM | -876.26 | 2756.47 | -8201.24 | -86.76 | -14.96 | 19.65 | 605.28 |
| USDC | 8.81 | 34.02 | -76.96 | -0.57 | 3.62 | 13.98 | 121.47 |
| USDbC | -5.67 | 106.98 | -215.12 | -29.04 | 1.35 | 21.16 | 387.09 |
| WETH | 13.43 | 83.8 | -134.19 | -29.05 | -10.1 | 36.09 | 306.72 |
| cbETH | 14.2 | 260.92 | -588.03 | -48.56 | -11.67 | 73.8 | 952.37 |
| wstETH | 138.88 | 583.11 | -591.71 | -148.03 | 22.64 | 203.27 | 2242.78 |
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, DEGEN, 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.
To allocate incentives for assets, we analyze their current reward APR alongside their adjusted ROI. We then scale those values by WETH 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.
| symbol | Adjusted ROI | Current APR |
|---|---|---|
| DAI | 0.1 | 0.1 |
| DEGEN | -0.11 | 0.03 |
| SEAM | -0.32 | 0 |
| USDC | 0.26 | 0.11 |
| USDbC | -0.05 | 0.19 |
| WETH | 0.16 | 0.14 |
| cbETH | 0.05 | 0.14 |
| wstETH | 0.24 | 0.02 |
After scaling by WETH equivalents, the values are as follows:
| symbol (Scaled) | Adjusted ROI (Scaled) | Current APR (Scaled) |
|---|---|---|
| DAI | 0.6535 | 0.69 |
| DEGEN | -0.6929 | 0.2098 |
| SEAM | -1.9837 | N/A |
| USDC | 1.6157 | 0.7872 |
| USDbC | -0.3309 | 1.3477 |
| WETH | 1 | 1 |
| cbETH | 0.3397 | 0.9624 |
| wstETH | 1.4863 | 0.1513 |
Given the negative ROI metrics for DEGEN, SEAM and USDbC, which indicate that costs exceed gains, we recommend pausing rewards emissions for these assets in the next rewards update. However, due to the potential of DEGEN and its minimal daily emission cost, we suggest maintaining DEGEN rewards as they are for continuous monitoring.
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 2500 | 5131 | 0.113 | 0.2319 |
| WETH | 2500 | 2500 | 0.1435 | 0.1435 |
| USDbC | 500 | 0 | 0.1934 | 0 |
| cbETH | 167 | 59 | 0.1381 | 0.0488 |
| DAI | 25 | 24 | 0.099 | 0.0938 |
| DEGEN | 15 | 15 | 0.0301 | 0.0301 |
| wstETH | 3 | 33 | 0.0217 | 0.2133 |
| SEAM | 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 and recommendations as follows:
| symbol | Adjusted ROI | Current APR |
|---|---|---|
| USDC | 0.26 | 0.01 |
| WETH | 0.16 | 0.01 |
| symbol (Scaled) | Adjusted ROI (Scaled) | Current APR (Scaled) |
|---|---|---|
| USDC | 1.6157 | 0.7872 |
| WETH | 1 | 1 |
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 167 | 342 | 0.0075 | 0.0155 |
| WETH | 167 | 167 | 0.0096 | 0.0096 |
Note: Target APR is calculatd using most recent supply and price data. We expect it to dilute over time if supply increases.
Given the initiative to shift rewards from the SEAM token to esSEAM, we apply a discretionary scale of 0.5 to the recommendations above. The final recommendations are as follows:
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Current APR | Target APR |
|---|---|---|---|---|
| USDC | 167 | 171 | 0.0075 | 0.0077 |
| WETH | 167 | 83 | 0.0096 | 0.0048 |
Market Potential
AERO
Our analysis suggests that the AERO supply has attractive market potential. This confidence is based on the current supply and borrow demand observed on leading borrowing and lending platforms on the Base network (see below).
However, the supply cap utilization remains low, indicating that capital efficiency has peaked. Borrow demand remains high, but supply growth has not kept pace.
We recommend allocating rewards to stimulate the supply of AERO. With a target reward APR of around 20%, the recommended daily reward emission amount for AERO is 3 esSEAM. Additionally, we apply a discretionary scale of 12, expecting strong AERO supply growth to dilute the reward APR. Therefore, the final recommended daily reward emission amount for AERO is 36 esSEAM.
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount |
|---|---|---|
| AERO | 0 | 36 |
BRETT
We suggest allocating rewards to encourage the supply of AERO. With a target APR of approximately 20%, the recommended daily reward emission for Brett is 7 esSEAM. To further support early growth, we apply a discretionary adjustment, bringing the final recommendation to 17 esSEAM.
| token_symbol | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount |
|---|---|---|
| BRETT | 0 | 17 |
Borrower Incentives
We have laid the groundwork for supply incentives designed to foster a healthy and vibrant lending environment. To ensure a balanced ecosystem and drive sustained growth, it is crucial to turn our attention towards incentivizing borrowers. Encouraging borrowing is essential for several reasons: it enhances the utility of the supplied assets, stimulates economic activity, and can lead to higher organic returns for both borrowers and suppliers.
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.
$$ Spread=Borrow Rate−Supply Rate $$
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.
The rate spreads for WETH and USDC are displayed below. The average rate spread is 0.86% for USDC and 1.18% for WETH. We target at reducing the WETH spread to 1%, which requires allocating a daily amount of 14 rewards to WETH borrowers. To ensure a stronger initial incentive impact, we recommend using SEAM tokens for this allocation. Additionally, to further incentivize, we suggest using esSEAM with a target APR of 1% to cover the remaining spread.
| token_symbol | Reward Token | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Target APR |
|---|---|---|---|---|
| WETH | SEAM | 0 | 14 | 0.18% |
| WETH | esSEAM | 0 | 82 | 1% |
Note: Target APR is calculatd using most recent borrow and price data. We expect it to dilute over time if supply increases.
The spread for AERO has been rising and recently fluctuating around 0.2. Distributing 1 reward token daily would offset this entire spread. Additionally, we suggest increasing rewards to encourage more borrowing, which will help facilitate future rate adjustments.
| token_symbol | Reward Token | Current Daily Reward Emission Amount | Recommended Daily Reward Emission Amount | Target APR |
|---|---|---|---|---|
| AERO | SEAM | 0 | 1 | 20% |
| AERO | esSEAM | 0 | 4 | 70% |
IR Review
With strong incentives planned for suppliers, we encourage the community to regularly review the IR curve to maintain competitive borrowing rates, prevent imbalances, and promote growth on both sides.
Assets with low utilization suggest that supply is exceeding demand. To attain equilibrium between borrowing and supplying and to ensure long-term growth, we advise a thorough review of the IR curve parameters for the following assets. The chart on the left showcases utilization for certain assets on Seamless, while the chart on the right features another leading B/S platform on Base. Please see the live version of those charts here.
