Title: Discontinue ACX Bribes on Aura and Replace with Reward Locking in the Near Term
Author(s): Kevin Chan
Related Discussions: ACX Bribes on Aura - Reimburse Risk Labs and Plan Forward
Submission Date: July 19, 2023
The Across DAO has spent 2.9MM ACX (~$136k at current $ACX price of $0.047) on bribes to Aura Finance with the final proposed bribe deposited on July 6, 2023. These bribes helped jumpstart liquidity for the ACX token and created a wstETH / ACX pool on Balancer that is over $1MM in value. We now need to decide whether or not to continue with these bribes. There are a few things to consider since Across first started using Aura. 1) The efficiency of Aura has decreased. When Across first bribed on Aura, each dollar of ACX bribed returned as much as $2.50 in emissions. Now that metric is below $1.20 in emissions per dollar bribed. 2) The Across community has received competing proposals from Velodrome, which would add ACX liquidity on Optimism and claims to provide 2 to 3x efficiency, and Arrakis, which would enhance ACX liquidity on Uniswap v3 and start to build protocol owned liquidity. The Across community will need to weigh these factors to consider whether or not continuing Aura bribes makes sense. If the community decides to discontinue bribes, Across’ reward locking program can be used instead of Aura in the meantime as we work on a resolution to the Velodrome and Arrakis proposals.
ACX bribes on Aura Finance have helped incentivize liquidity in ACX over the last 7 months. However, the current economics of bribing have changed and alternatives have emerged. Here we summarize some thoughts from community members on each incentive mechanism.
Aura provides some efficiency gains by providing currently $1 to $1.20 in emissions per dollar bribed. This has come down from as high as $2.50 per dollar bribed. Continuing to use Aura would allow Across to capture some small efficiency and also not disrupt capital already provided on Balancer by LPs. However, the downside to bribes is ACX tokens are given to bribe takers who likely sell these tokens when they receive them as they have no association with Across.
Across Reward Locking
Using Across reward locking has the benefit of keeping all Across supporters on one UI. Across bridge LPs and LPs who provide liquidity in wstETH/ACX can stake their LPs tokens and monitor their rewards in one place. More importantly, ACX incentives would now go direct to LPs instead of bribe takers. These LPs are less likely to sell ACX tokens given they are holders of ACX already. In addition, using reward locking would provide some continuity. ACX LPs would continue providing liquidity in the wstETH / ACX pool on Balancer and just need to unstake their BPT from Aura and stake in Across instead.
ACX liquidity on an L2 was not initially considered given a focus on having healthy liquidity on mainnet. Across bridge LP assets are primarily in the hub pool on mainnet and earn rewards from there; therefore, it made sense to initially build ACX liquidity on mainnet. The community has expressed an interest in ACX having a presence on a L2 like Optimism to support the L2 ecosystem. It also provides other benefits such as co-marketing and awareness. Velodrome claims to provide higher efficiency gains and a small bribe there could potentially help to start a decent liquidity pool. The downside of L2 liquidity is fragmentation. Across would be spending ACX for incentives to maintain liquidity on both mainnet and L2 which do not natively connect.
Uniswap v3, through the use of concentrated liquidity, can be much more capital efficient in providing liquidity. However, using Uniswap v3 requires active management of liquidity ranges. Arrakis provides a solution with its vault strategies and more specifically Protocol Automated Liquidity Management (PALM). This would involve the Across DAO building protocol owned liquidity. The risk to this proposal is the dependency on Arrakis to manage this strategy well. PALM is still relatively new and the Across DAO would be putting treasury assets at risk. In addition, there is a 1% management fee and a 50% split in any profits.
After considering the current landscape and the proposals presented to the Across DAO, I propose to end Aura bribes and use Across reward locking in the near term. The efficiency gains of Aura have diminished and there are benefits to paying ACX direct to LPs instead of bribe takers. This will also provide time for the Across community to assess and potentially implement new incentives such as Velodrome and Arrakis.
Specification & Implementation:
If the community decides to discontinue Aura bribes I propose the following to ensure a smooth transition:
- Risk Labs will continue to bribe 150,000 ACX for each of the next two epochs - specifically depositing a bribe on July 20, 2023 and August 3, 2023. This will provide AURA and BAL emissions for the next four weeks to ACX LPs. Risk Labs can later provide a proposal to ask for reimbursement.
- During this 4 week period, the Risk Labs team will add wstETH / ACX BPT as a token eligible for reward locking. This will involve updating the Accelerating Distributor contract and the Across Rewards UI. The initial base emission will be set to ~7,000 ACX per day which is equivalent to ~98,000 ACX every two weeks (compared with current Aura bribes of 150,000 ACX). As per the rules of reward locking, LPs who stake and do not claim ACX rewards can earn up to a 3x multiplier after 100 days. The accelerating distributor contract would need additional ACX tokens to fund this incentive. To be conservative, if we assume all existing LPs stake and hold for the next three months then these token holders would earn a 2.8 multiplier (1+2*(90/100)) and average a 1.9 multiplier over the period. This would mean 1,197,000 ACX (7000 * 90 *1.9) would be required for the next three months. Three months is chosen to attempt to match the timing of the Reward Locking renewal proposal that just passed. This assumes reward locking for wstETH/ACX LPs start in a month and the next reward locking renewal proposal is also for two months.
- The two Aura bribes and 3 months of reward locking incentives should provide ample time for the Across community to decide on the Velodrome and Arrakis proposals and also implement them if they pass. There may be some overlap of incentives for LPs, but it will ensure there is a smooth transition.