Reduce ACX emissions for ACX LPs, WBTC LPs and wstETH/ACX LPs

[Kevin_UMA]

Title: Reduce ACX emissions for ACX LPs, WBTC LPs and wstETH/ACX LPs
Authors: ACX Emissions Committee (Kevin Chan, David Korpi, Ryan Carman, Dylan O’Reilly, Chase Coleman)
Status: Proposal
Related Discussions: ACX Emissions Committee, ACX Emissions Committee Framework Update, Reduce ACX emissions for Across ACX LP

Summary:
The Across DAO should decrease ACX emissions for Across ACX LPs, Across WBTC LPs, and Balancer wstETH/ACX LPs. These liquidity pools are being rewarded a high APY in comparison to the utilization of the asset or the necessity of the liquidity. The ACX Emissions Committee (AEC) only has permissions and a framework to control ACX emissions for ETH, USDC, USDT, and DAI. Therefore, a separate proposal is required to modify emissions for the assets mentioned above. ACX emissions for ACX LPs, WBTC LPs, and wstETH/ACX LPs should be reduced by 50%, 30%, and 25% respectively.

Motivation:
The Across DAO should optimally manage ACX emissions for all liquidity it incentivizes. The ACX Emissions Committee (AEC) accomplishes this using a transparent and restrictive framework to adjust emissions awarded to Across ETH, USDC, USDT, and DAI LPs. The framework monitors the utilization and comparable yield alternatives of each asset to make ACX emissions adjustments. Across ACX Lps and WBTC LPs sit outside of the AEC’s framework because these assets have limited yield alternatives to compare with outside of the Across protocol. Similarly, the Balancer wstETH/ACX LPs does not have equivalent variables that the AEC’s framework uses. As a result, managing the ACX emissions of these three LPs requires a separate DAO proposal given it is outside the scope of the AEC.

The Across DAO should decrease ACX emissions for Across ACX LPs, Across WBTC LPs, and Balancer wstETH/ACX LPs. These liquidity pools are being awarded a high APY in comparison to the utilization of the asset or the necessity of the liquidity.

Across ACX LP
ACX emissions for ACX LPs were initially set high to incentivize ACX airdrop recipients to not immediately sell their tokens and to get these token holders familiar with the reward locking mechanism. It’s been over 1.5 years since the launch of the token and the use of emissions in this way is not necessary. These emissions were reduced late last year, but a further reduction is now necessary. ACX utilization consistently sits close to zero given a lack of bridging needs (see Table 1). Yet, the emissions rate for the ACX LP is by far the highest at 26.7k ACX per day (see Table 3). The Across DAO should decrease ACX LP base emissions by 50% from 15k ACX per day to 7.5k ACX per day. (See Table 5 below for proposed changes.)

Across WBTC LP
WBTC utilization on Across protocol has been relatively contained and has rarely exceeded 50% over the last few months (see Table 1). In comparison, USDT is more optimally utilized as its utilization has more frequently stayed above 50% and has reached over 80% on some occasions. The USDT serves bridge users well with only $6.6MM in total size in comparison to WBTC at $26.9MM which is about 4x bigger (see Table 2). This is driven by over 2x more emissions being paid to the WBTC LP (~8k ACX per day) vs the USDT LP (~3k ACX per day) - see Table 3. In addition, the WBTC APY is currently 5.27% which is very attractive considering DeFI lending protocols have consistently paid little to nothing. The WBTC LP can clearly be smaller in size. The Across DAO should decrease WBTC LP base emissions by 30% from 7.5k ACX per day to 5.25k ACX per day. (See Table 5 below for proposed changes.)

Balancer wstETH/ACX LP
The Balancer wstETH/ACX LP is the second highest use of ACX emissions at 19k ACX per day (see Table 3). It is the only Reward Locking pool that still offers a 3x multiplier. As a result it pays the highest APY to LPs ranging from 20 to 52%! Offering these high ACX incentives may have been necessary at the launch of the token. However, Across protocol and the ACX token has gained brand recognition and these high rewards may not be needed. In addition, liquidity incentivized in this way may be less needed for two reasons

1. Though modestly sized, Across DAO has close to $1MM of protocol owned liquidity through its proposal with Arrakis. The performance of this Uniswap v3 vault can be viewed here. If more liquidity is needed, Across DAO can continue to pursue this route and not pay emissions.
2. ACX is being listed in more centralized exchanges. Over the last few months Bitget, AscendEX, and Crypto.com have listed ACX. More recently, Coinbase has added ACX to its roadmap. Given this momentum, more exchange listings are expected. This would argue for less of a need to incentivize ACX DEX liquidity.

ACX liquidity on decentralized exchanges continues to be important and still represents a fair share of total volumes. However, the cost is high and the need for this has decreased. Therefore, a modest decrease in emissions here should be warranted. The Across DAO should decrease ACX emissions to the Balancer wstETH/ACX LP by 25% from 7k ACX per day to 5.25k ACX per day. (See Table 5 below for proposed changes.)

Table 1 - ACX, WBTC, USDT Utilization

Table 2 - Across TVL of Liquidity Pools by Asset

Table 3 - Current ACX Emission Rates

Table 4 - Current Daily ACX Emissions Rate

Liquidity Pool	Base Emissions	Effective Emissions with Multipliers
Across ACX	15,000 ACX	26,687 ACX
Across WBTC	7,500 ACX	8,032 ACX
BPT wstETH/ACX	7,000 ACX	19,239 ACX

Table 5 - Proposed Daily ACX Base Emissions Rate

Liquidity Pool	Current	Proposed
Across ACX	15,000 ACX	7,500 ACX
Across WBTC	7,500 ACX	5,250 ACX
BPT wstETH/ACX	7,000 ACX	5,250 ACX

(All data above is taken from the AEC Dune Dashboard.)

Specification & Implementation:
The Across DAO wallet controlled by ACX holders has admin rights to change the parameters of the Accelerating Distributor contract that controls ACX emissions and the Reward Locking program. The exact transactions to make these modifications can be put to a vote and executed on Snapshot via the oSnap module which is already implemented.

The proposed Snapshot vote and oSnap transaction will reflect a change in the following emission rates:
Across ACX LPs to ~7,500 ACX per day (from ~15,000 ACX per day currently)
Across WBTC LPs to ~5,250 ACX per day (from ~7,500 ACX per day currently)
Balancer wstETH/ACX LPs to ~5,250 ACX per day (from ~7,000 ACX per day currently)
(This is summarized in Table 5 above.)

The ACX Emissions Committee will monitor the impact of these changes on the performance of Across protocol. If there are signs that utilization in these assets are too high or more decentralized liquidity is needed in ACX then the AEC will take action to help rectify it.

Voting:

Should the Across DAO reduce ACX base emissions rates for Across ACX LPs, Across WBTC LPs, and Balancer wstETH/ACX LPs by 50%, 30%, and 25% respectively? The proposed changes are summarized in Table 5 above.

• Yes
• No
• Abstain

[Justin_J]

Could we reallocate these emissions to other usage, I’m for moving emissions from the above but it seems counterintuitive to get rid of them completely

[Kevin_UMA]

Yeah I think reallocating is a possibility. I think it should be a separate proposal where we can look at what incentives make sense. Maybe we could consider things where we incentivize more relayers for example given there are some start up costs before becoming profitable. But I think we should all be open to more ideas.

[berry4144]

The WBTC effective emissions doesn’t seem too high when compared to the other two “offenders”. Clearly the ACX and BPT are very high but does the WBTC need such a reduction.

(disclosure WBTC and ACX LP)

[gmsteele]

I voted No on this because I agree with part of the emission reductions but not all. My question is really should these all be lumped together in one proposal, or should ACX holders get the opportunity to vote on these separately? I would like to be able to vote “yes,” or “no,” on each of the three proposed emission reductions

[Kevin_UMA]

That’s a good point. I think if we are in general agreement on some action here we can split up the snapshot proposal (with osnap txn) as 3 separate proposals and people can decide on exactly which ones they want to vote for.

[Bananachain]

Relating to ACX LPs I have a different premises and a different conclusion: ACX LP emissions are the highest because the incentive works and people prefer to stake their holding instead of selling. Unlike many other altcoins ACX price has increased during the 1.5 years in spite it not having any utility. This is in fact the real issue: lack of ACX utility. So before that is not addressed it is preferable for ACX LP to be incentivised not to sell, which will only lead to sell pressure. This all the more as emissions have already been reduced a lot and now stand at about a third from where they began initially (~35% p.a.), distributions were never auto-compounding and claiming reset the multiplyer to the minimum.

Another options to reduce emissions could be introducing decreasing emission rate tiers: e.g. up to 100k ACX: 9%, the next tier up to 500k receive 5% and the final tier 1% on their excess holding. Details would have to be calculated properly of course. We have some very big legacy whale holders - that may be the real reason why emissions are rather high. This would incentivise them to reduce their ACX share, lead to more decentralisation and address the imbalance amongst holders. And sell pressure would be limited/managed.

[arizonaice]

Hey Guys,

Just wanted to chime in here with some data to help illustrate why these pools in particular make sense to reduce emissions for.

The AEC has made some major progress over the last 7-8 months in keeping ACX emissions at reasonable levels given the growth of LP and the success of the protocol. These are our most highly utilised pools and do the majority of our volumes.

In contrast the three pools we are suggesting cutting rates for are markedly out of line with this reasonable emissions philosophy. This proposal should it progress to vote is simply looking to correct that.

I agree there is merit in splitting the proposal into three separate votes so that ACX holders can vote in a more targeted manner.

Hope this helps.

Cheers,
Dylan

[blkboxeconomist]

I think for me the reason this proposal is important is due to the disparity is in what WBTC LP emissions vs the DAI and USDT LP emissions – Year-to-date, WBTC is responsible for about $275mm of volume while DAI/USDT are responsible for nearly $500mm of volume but we are roughly emitting as much to WBTC LPs as the sum of what we pay DAI and USDT LPs. DAI and USDT are controlled by the AEC and so their emissions have decreased in the last 8 months while WBTC has stayed flat.

Like Kevin said, I think of this proposal as putting the WBTC emissions in line with what other emissions have done and I’d actually like another proposal that expands the powers of the AEC to managing the remaining pools LP pools that receive emissions (possibly with the exception of ACX-LPs given that, as people have commented here, there are non-bridge related reasons to maintain emissions).

[Kevin_UMA]

I don’t like to speculate on token price, but I do not think ACX LP emissions is the reason the token price has done well. These emissions have been cut in the past and it has not impacted the token price. If anything it may have helped given the reduction of new ACX supply in the market. I think Across / ACX has done well over the last year because of all the positive developments. It has become the top bridge, it is working with and partnered with key projects (eg Uniswap and Optimism), and in general it’s the leader in the cross chain interop space.
I think auto compounding and different emission rate tiers can be explored and proposals should be welcome.

[Bananachain]

Taking what you say, what advantage will a further reduction of emissions then have other than reducing them? For me the case for emission reduction would be more convincing and appealing as a package including aspects you mentioned in your last sentence. The utility aspect is probably a tougher nut to crack.

[x_momo]

Hi Kevin,

First of all, thank you for taking the time to write the proposal and provide feedback on some of the comments. Overall, I agree with the majority of the points raised. However, I would like to respectfully disagree with your stance on ACX LP emissions. $ACX has performed well over the last few months due to several factors, including product development, new partnerships/ listings, and the token utility with novel ACX staking mechanism (100 days unlocks additional APY% boost).

As Bananachain mentioned, the current ACX LP emissions create an incentive for new and existing token holders to stake their $ACX. Diluting this by 50% would weaken the already limited utility of the $ACX governance token. Ideally, we should be looking for ways to increase this utility. If that is not possible, at the very least, aim to maintain it. In the Web3 space, token price itself can have a positive marketing flywheel effect (please see @cburniske X post on 30th June, 2024 3:33 PM. The $ACX price chart is used to reinforce his bullish stance on Across).

In a cycle where crypto Twitter (CT) is oversaturated with noise, and Across still has some way to go before it gets the recognition it truly deserves from CT, (Please see @ayyyeandy poll post on 21/08/24 at 2.28 am. Across was ranked 3rd as preferred cross chain app).

In light of the above, imho, one should not rush into making any hasty decisions that could reduce $ACX utility.

Disclaimer: The above is not financial advice and reflects my personal opinions only. You should conduct your own research and consult with a licensed financial advisor before making any financial decisions.