Governance Proposal 28: BANANA ROE Improvement

Introduction & Context

The key variable in BANANA’s tokenomics that has always negatively impacted its price the most is BANANA’s emissions rate. Currently, BANANA is being released into circulation each day until the hard cap of 420M BANANA is reached. Generally speaking, the price of BANANA will be reflected as the demand vs supply of the token. If the supply continues to increase without increasing demand, it could be expected that the price would fall. To combat this effect, ApeSwap constantly works to reduce emissions through Governance Proposals and increase utility by improving the protocol through product development.

BANANAs emissions are currently the most efficient they have ever been. Ever since the DAO voted against a reduction of the total emissions through the BANANA Emissions Reduction Governance Proposal in June 2021, ApeSwap has made changes over the last year to adjust where BANANA emissions have been distributed in order to increase the return on emissions generated by the protocol and reduce the inflation rate of the BANANA token.

The ApeSwap DAO has been aggressively exploring and enacting ways to reduce BANANA emissions and/or increase the return on those emissions, including creating an Excess Farm to retain unnecessarily emitted BANANA, establishing a hard cap on BANANA, and reducing emissions distributed to Polygon farms and lending network rewards. The goal is to distribute emitted BANANA to products and features that create revenue for the DAO, which ultimately has a positive impact on the DAO’s ability to sustain itself and grow.

• Through the Gauntlet Emissions Budget Optimization Governance Proposal passed on June 27th, 2022, ApeSwap DAO created an Excess Farm that allows the ApeSwap team to collect BANANA emissions deemed as unnecessary. This practice has saved over 20M BANANA from unnecessarily entering circulation, and their use will be decided by the community via governance at a future time.
• Through Governance Proposal 22, ApeSwap DAO established a hard cap on the BANANA token of 420,000,000 tokens and the ability to adjust the BANANA-BANANA staking pool emissions, which were hard coded into the original MasterApe contract.
• Through Governance Proposal 24, ApeSwap DAO reduced BANANA used as rewards for the ApeSwap DEX on Polygon from 1 BANANA per block to 0.9 BANANA per block, and reduced BANANA used as rewards on the ApeSwap Lending Network from 1 BANANA per block to 0.85 BANANA per block. This proposal also granted the core contributors the flexibility to make further changes to these allocations. As of May 16th, 2023, ApeSwap DEX rewards for Polygon are at 0.876 BANANA per block, and current ApeSwap Lending Network rewards are at 0.65 BANANA per block.

ApeSwap’s core contributors believe there is still room for improvement - as supply is still outweighing demand, which could in turn cause sell pressure.

Return on Emissions

To calculate the value of emissions, core contributor ApeGineer leverages a calculation called Return on Emissions (ROE). Because BANANA tokens are being put into circulation, it’s important to consider how much return ApeSwap receives based on the value of BANANA emitted. The return received from BANANA emissions is the net return on the value of the BANANA emitted, which the ApeSwap protocol uses as described in the documentation.

The chart below showcases ROE and mint allocation across three time frames, Q3 is July-September 2022, Q4 is October-December 2022 and T1 is January-April 2023. As you can see every previous proposal has led to a positive ROE change across the BNB DEX, Polygon DEX and Lending Network. This proposal looks to reduce the 0% ROE impact of the BANANA-BANANA Pool and help increase the ROE of GNANA.

The graphs below show the daily values and accumulated value, respectively, of the BANANA emissions saved, as a result of the efforts ApeSwap has put in place to reduce BANANA emissions, at spot-in-time prices:

Disclaimer: this analysis is based on a fixed sales pressure coefficient of 30%, assuming all other factors equal. For illustrative purposes only.

BANANA-BANANA Staking Pool Emissions

Relative to other BANANA emissions, the return on emissions distributed to the BANANA-BANANA Staking Pool is effectively zero - they represent a pure expense to the protocol, with no utility other than to serve as a reward to BANANA holders. The BANANA-BANANA Staking Pool is one of the few products to which emissions distributions have remained constant as the macro and internal factors affecting the DAO have changed, partially because the output was hard-coded into V1 of the protocol. The V2 hard cap migration, which established the maximum supply of the BANANA token, allowed for the first adjustments to the BANANA-BANANA Staking Pool (since the pool will eventually need to be turned off to enact the hard cap).

As of May 16th, 2023, ApeSwap is currently emitting 2.136 BANANA per block to fund rewards for the BANANA-BANANA Staking Pool. The ApeSwap team of core contributors propose that the ApeSwap DAO reduce emissions to the BANANA-BANANA Staking Pool and redistribute them to other products.

Summary

Governance Proposal 28 highlights the need to reduce emissions to the BANANA-BANANA Staking Pool and reallocate them to other products, specifically the GNANA-BANANA Staking Pool. This adjustment aims to improve the return on emissions, align incentives between users and the DAO, and mitigate the negative impact on the token price. This proposal also highlights the progress made in reducing emissions through previous governance decisions and emphasizes the importance of sustainable growth for the ApeSwap protocol.

Similar to the additional flexibility given to the core contributors (specifically, the dexenomics team) to make further changes to Yield Farm emissions, if this proposal passes, the dexenomics team will be granted the discretion to make additional changes to the distribution of emissions to the BANANA-BANANA Staking Pool and the GNANA-BANANA Staking Pool.

Motivation

GNANA serves multiple purposes within the ApeSwap ecosystem, one of which is to reward committed users of the protocol with exclusive product offerings. Users convert BANANA to GNANA, participating in a key burn mechanism in the process, and in return, are able to use their GNANA in exclusive products like Staking Pools set up with partners specifically for GNANA holders, Real Yield GNANA Staking Pools (pending Governance Proposal 27), and of course, the GNANA-BANANA Staking Pool.

Allocating more emissions to a product that employs a burn mechanism serves not only to further reward the most committed members of the ApeSwap community, but also all BANANA holders as a collective, because the protocol’s return on emissions for those reallocated BANANA emissions is much higher and has a less direct negative impact on the token price of BANANA.

Passing this governance proposal at the same time as Proposal 27, which creates a real yield mechanism for distributing DEX revenue to those that stake GNANA, also ensures that more users can take advantage of the opportunities created through these Staking Pools. Shifting emissions towards the GNANA-BANANA Staking Pool more effectively aligns incentives between individual users and the DAO as a whole, and generates a higher return on emissions.

Due to the V2 migration, the GNANA-BANANA Staking Pool must be created as a new pool, and the current GNANA-BANANA Staking Pool will be deprecated if this proposal passes. This is a technical limitation that cannot be avoided - GNANA holders, stakers, and voters on this proposal must be aware that the GNANA reflect fee cannot be disengaged if they desire to go from staking in the original GNANA-BANANA Staking Pool to this new GNANA-BANANA Staking Pool that would be created with the passage of this proposal.

If this proposal passes, the APR of the BANANA-BANANA Pool will decrease if the total BANANA staked remains constant.

Options

PASS - If this proposal passes, increase the BANANA emissions distributed to the GNANA-BANANA Staking Pool from 0.15 BANANA per block to 1 Banana per Block by reducing the Banana emission distributed to the BANANA-BANANA Staking Pool from current rate of 2.13 Banana per block to 1 banana per block. The excess .286 BANANA per block would no longer be emitted.

After this adjustment, further adjustments to the emissions distributed to the BANANA-BANANA Staking Pool and the GNANA-BANANA Staking Pool will be at the discretion of the ApeSwap dexonomics team (similar to the discretion over Yield Farm emissions) to ensure the highest ROE.

REJECT - If this proposal is rejected, no changes would be made to the BANANA emissions distributed to the GNANA-BANANA Staking Pool or the BANANA-BANANA Staking Pool.

Disclaimer

ApeSwap products and services are no longer available to “U.S. Persons”. ApeSwap DAO has advised users that are U.S. Persons to divest their tokens on ApeSwap and to cease using or accessing the products and services of DAO. As a result, no U.S. Person may vote on this Governance Proposal 28. A “U.S. Person” is a person (as defined in the U.S. Code of Regulations at 22 C.F.R. § 120.14 (2023)) who is a lawful permanent resident as defined by 8 U.S.C. § 1101(a)(20) (2023), or who is a protected individual as defined by 8 U.S.C. § 1324b(a)(3) (2023). It also means any corporation, business association, partnership, society, trust, or any other entity, organization or group that is incorporated to do business in the United States. It also includes any governmental (federal, state or local) entity. It does not include any foreign person as defined in 22 C.F.R. § 120.16 (2023).