ACX Emissions Committee

[Kevin_UMA]

Title: ACX Emissions Committee
Authors: Kevin Chan, David Korpi, Ryan Carman, Dylan O’Reilly, Chase Coleman
Status: Proposal
Submission Date: December 16th, 2023

Summary:
The Across DAO needs an efficient and transparent way to manage ACX emissions. The DAO should form the ACX Emissions Committee (AEC). The AEC will have permission to change the Across Reward Locking parameters which controls ACX emissions on the Across bridge liquidity pools. The AEC will follow a transparent and restrictive framework to make predictable and measured changes to emissions for an asset depending on the pool utilization rate of that asset and the yield earned on comparable bridges. The members of the AEC will be chosen by ACX token holders and changes to the parameters of this framework will also need DAO approval.

Motivation:
The Across DAO needs an efficient and transparent way to manage ACX emissions so that ACX is optimally used for incentives. Currently, the amount of ACX rewarded to bridge liquidity providers (LPs) appears high in comparison to competing cross chain bridges. For example, Across is rewarding ETH LPs a base APY of 12.7% (21.5% to LPs with a 2x multiplier) in comparison to competing bridges such as Stargate, Hop and Synapse which are paying 4% to 7%. In addition, the utilization rate on the ETH pool on Across is only 22.7% suggesting there is not an urgent demand for assets. A proposal can be submitted to decrease emissions; however, a more permanent, clear and robust solution should be created to adjust ACX emissions both down and up when needed.

The Across DAO should form the ACX Emissions Committee (AEC). The AEC will own the Accelerating Distributor contract, which controls the parameters of the Across Reward Locking program, through a 3 of 5 multisig. Members of the AEC and signers of this multisig will initially be Risk Labs foundation team members. However, the long term goal is to include Across community members such as the Across Treasury Committee which is potentially being formed now. Changes in AEC members and parameters on how it operates can be voted on by the Across DAO.

AEC Short Term Objective
The AEC needs a clear and transparent framework to adjust ACX emissions. The framework also needs to be reasonably restrictive so that only predictable and measured actions are taken to modify ACX emissions. Decisions will be driven by two observable factors.

1. Across pool utilization - LPs should be rewarded for how much demand there is for an asset for bridge transfers. The AEC will track the 7-day average pool utilization of each asset.
2. Competing yield - LPs should be rewarded a fair yield in comparison to yields paid by competing bridges. The AEC can track a Yield Index for each asset that is computed as a 7-day average of the TVL weighted yield of pools on Stargate, Hop, and Synapse.

Using these two factors as inputs, the AEC can build a simple framework (below) to determine whether action needs to be taken on ETH, USDC, USDT, and DAI. If an action is required, the AEC can only increase or decrease emissions of an asset by 25% and then wait 14 days to re-evaluate and take further action if needed. This prevents the AEC from over reacting and allows the LPs and the general market to adjust to its actions.

Across Pool Utilization	Decrease emissions by 25% if total Base LP APY vs Yield Index is	Increase emissions by 25% if total Base LP APY vs Yield Index is
0 - 40%	+25%	-75%
40 - 70%	+50%	-50%
70 - 100%	+100%	-25%

Here is an example of how the AEC would act today when evaluating the ETH pool:

1. ETH Pool Utilization = 22.7%
2. ETH Base LP APY = 12.65%
3. ETH Yield Index = 5.38%
4. Across APY is 135% higher than the Yield Index which is higher than the +25% threshold for action
5. AEC decreases emissions by 25% and resulting APY is 10.71% (note: AEC only decreases Rewards APY and cannot control the Pool APY)
6. AEC waits 14 days and re-evaluates

The AEC should almost never deviate from this framework unless there is an extraordinary event. The AEC can make changes to the variables in this framework with the approval of a DAO proposal. ACX and WBTC sit outside of this framework given there are no comparisons as competing bridges do not transfer these assets. A separate governance proposal will be needed to adjust emissions for these assets.

AEC Long Term Objective
The AEC will set and manage a long term plan for ACX emissions to ensure the Across DAO does not deplete its treasury too quickly and has assets for future growth and other initiatives. As an illustration, the Across DAO currently has 366MM ACX in its treasury and is spending about 194.5K ACX in base emissions per day and possibly as much as 396K ACX per day if LPs all have a max multiplier. At the high end of this emissions rate the Across DAO would deplete its reserves in about 2.5 years.

When thinking about emissions, the Across DAO should incentivize more heavily in the early years to help bootstrap growth by attracting LP capital. As the protocol picks up adoption and finds more efficiencies, resulting in more volumes and revenue for LPs, less ACX incentives are needed. Over the long term, the ideal scenario is to have bridge fees be the sole source of revenue that attract LPs to provide capital. As a conservative estimate, Across should be able to reach this goal in less than 5 years. With this target in mind, the AEC should decrease emissions each quarter by an amount that will ensure ACX reserved for incentives will not be depleted until the end of 2028 (5 years from now). Here are the initial numbers the AEC will consider:

• Total ACX in the Across DAO is 366,432,519
• Of the 1B ACX minted, the DAO should use no more than 400MM for incentives (40%)
• Given the DAO has already rewarded 126MM to LPs, there would only be 274MM ACX remaining for possible LP incentives.
• At a current daily emissions rate of 295.25K (average between base and max multiplier) and a reduction of roughly 25% (assuming the AEC takes action after this proposal), the DAO would need to decrease emissions by 4.5% each quarter to ensure this ACX allocation for incentives is not depleted before the end of 2028
• A spreadsheet is built to illustrate these numbers and assumptions can be adjusted as needed.
• Note: The Risk Labs data team is currently working on calculating a more precise daily emissions rate that will be available on a Dune dashboard. Long term action will not be taken by the AEC until this is finalized.

To summarize, unless voted for a change by ACX token holders, the AEC will modify total base emissions quarterly to ensure no more than a total of 400MM ACX is ever used for LP incentives and that this allocation will not be depleted before December 31, 2028.

Specification & Implementation:
The following steps will be taken to implement the ACX Emissions Committee (AEC):

1. The Across DAO treasury is the current owner of the Accelerating Distributor contract. ACX token holders will vote on Snapshot to transfer ownership to 0x2e510146c6fCC90Ffc8087925AcC06C9fd0F5384, which is a 3 of 5 multisig that consists of members of the AEC committee. If successful, this transaction will be executed via the oSnap module which is already implemented. The initial members and signers of the AEC are the authors of this proposal who are Risk Labs team members with financial markets, web3 product management and data analysis expertise.
   The following are their wallet addresses:
   0x1d933Fd71FF07E69f066d50B39a7C34EB3b69F05
   0xAf9C500a6FF28D541D1BA9E912db8485c7f6AF13
   0x868CF19464e17F76D6419ACC802B122c22D2FD34
   0x75752D7f6a6b9DB94258705DAe1814743077B9D8
   0xDFB0A775A44d309d939DCaEA081552aa4FE4025f

2. The AEC will monitor the Across pool utilization and Index Yield for ETH, USDC, USDT, and DAI. These numbers can be viewed directly from the Across front-end and competing bridge pages or through a public, custom Dune dashboard created by the Risk Labs data team.

3. The framework outlined in this proposal to achieve the short term and long term objective of the AEC will be included in the Docs site in a new section under “Token” called ACX Emissions Committee. The AEC will follow this framework, and the targets and variables can only be changed through a governance proposal.

4. The AEC will immediately announce to the Across community via Discord any action taken and explain the justification. The AEC will also provide a summary report each quarter. The Across community manager will assist in amplifying any announcements and will coordinate community calls.

5. The AEC members will initially be Risk Labs foundation team members. Risk Labs plans to include community members; however, contract work needs to be done so that permissioning of the Accelerating Distributor contract can be split so that the AEC can only control parameters and the Across DAO controls the withdrawal of rewards (if necessary).

6. The AEC is meant to be a permanent installation for the Across DAO. A vote to renew membership is not necessary unless a change to membership is made.

Voting:

Should the Across DAO form the ACX Emissions Committee (AEC)? The AEC would become the owner of the Accelerating Distributor contract and follow the framework outlined in this proposal to achieve its short term and long term objectives.

• Yes
• No
• Abstain