Adjust Protocol Fee Distributions

This is one of at least two proposals seeking to revamp the BeethovenX incentives for its gauges, enhance its swap fees and TVL, and to set the stage for a discussion about implementing a core pools proposal similar to Balancer BIP-19: https://forum.balancer.fi/t/bip-19-incentivize-core-pools-l2-usage/3329

The success of the first two rounds of gauge rewards generated by Balancer BIP-19 over the last month is summarized here: https://twitter.com/0xSolarcurve/status/1551608181268291587

Since June 8, in the Discord channel for this BIP-24, members of the BeethovenX community have regularly discussed numerous permutations and different aspects of this proposal.

We, the community members, now propose to reallocate the 30% of all protocol fees that are currently being distributed to fBeets holders, via Beets purchases and distributions, to be used as core pool “training wheels” gauge rewards that incentivize fBeets holders to vote for BeethovenX’s best earning pools and those we later wish to promote. The reason for reallocating this fee is our belief that incentivizing these pools will generate substantial revenue for BeethovenX and increase the protocol’s TVL.

Background / Definitions:

• Boosted pools - some background on boosted pools can be found here. When we refer to boosted pools, we mean the pools generally described in this article.

• IB tokens and the fee collection improvement - IB tokens are interest-bearing tokens. IB tokens earn additional yield from a third-party source, separate and apart from pool trading fees and Beets or other token rewards emitted for the pool on BeethovenX. Examples of IB tokens are xBOO or sFTMx. IB tokens may be components of any pool that contains them, including boosted pools and metastable pools. Upcoming improvements will allow the IB component of pool yield to be collected as part of the swap fees for the protocol. Learn more about this mechanism here.

• Core pools - our references to core pools mean boosted or metastable pools that are gauge-eligible after BeethovenX has adopted some version of a core pool proposal similar to Balancer BIP-19.

We also use the terms “gauge rewards” or “gauge incentives” – not “bribes”. One of the main assumptions of this proposal is that the 30% buybacks are an overall poor value proposition for BeethovenX.

30% of BeethovenX’s protocol fees are presently used to buy Beets off the market and distribute them to fBeets holders by increasing the ratio of 1 fBeet to 1 Fidelio Duetto BPT. As of this writing, because of the buybacks, 1 fBeet = 1.0245 Fidelio Duetto BPTs. This benefits fBEETS holders in the form of an increasing value of fBEETS token.

However, the actual value increase has been minimal, with a current yield of only ~1.65%APR.

We believe that both users and Beethoven X would benefit by reallocating this fee as such:

• 30% of all fees earned by the protocol instead become gauge vote incentives applied equally to Fantom of the Opera (FoTO) and Late Quartet (LQ), BeethovenX's two highest earning pools at present. This allocation will be modified to transition these same incentives to the FoTO and LQ boosted pools upon their launch as soon as reasonably possible. It also may be modified in the future, at the discretion of the Liquidity Committee and subject to dialogue and governance, as outlined below.

• Incorporating the current portion of fees used for buybacks into the latest gauge vote, results in the two pools receiving roughly 9-11% of the votes. (*this is an estimate, only; actual results will of course vary).

• According to calculations from the last gauge vote, this would return users roughly ~$7 for every $1000 of fBEETS voted with, resulting in a 0.7% ROI for clicking a few buttons every two weeks.

• Beethoven simultaneously ensures that pools generating or likely to generate substantial revenue receive a substantial portion of gauge votes and rewards. This could instigate a flywheel effect as such: Gauge rewards from 30% fees > TVL increases in pool > Increase in users interacting with pool > Revenue from fees increase ...

We propose that the 30% protocol fees be collected once a month. The fees will be converted to Beets and allocated as incentives for the pools outlined herein for each gauge vote.

As soon as reasonably possible after new FoTO and LQ boosted pools are available, the 30% gauge rewards and emissions will be transitioned to the new boosted pools. The manner through which the 30% and the emissions will be transitioned and applied to boosted FoTO and LQ will be within the discretion of the Liquidity Committee, which shall evaluate the proper manner to implement these “training wheels” in regular discussions that occur in a new dedicated channel in the BeethovenX Discord server, accessible only to Early Ludwig NFT holders. The decisions of the Liquidity Committee and its discretion on these matters will ultimately be subject to the determination of fBeets governance. If a governance proposal is required on any of these issues in the future, it will be subject to open discussion and then a governance vote.

As the TVL grows and, upon the adoption of a core pool proposal and the transition of boosted FoTO and LQ to steady flywheel gauge rewards, it will be within the discretion of the Liquidity Committee to determine when, where, and how much of the 30% should be reallocated to new core pools that then generate or appear reasonably likely to generate substantial swap fees and/or increase the protocol’s TVL. This process will then iterate and repeat with respect to additional core pools. PROS:

•    Users are likely to receive a greater return in gauge incentives compared to fBEETS buybacks.
  

•    Community engagement. Gauge rewards and votes are a great way of increasing engagement. Compared to earning 1-3% a year on current fBEET distributions, a bounty of gauge rewards is much simpler to entice new users to engage in our ecosystem. Fantom offers a cheap, fast and simple interface for new users to begin their gauge vote journey.
  

•    Kicking off a flywheel effect. By incentivizing the pools that return or are likely to return the greatest revenue, the increase in gauge rewards > increase in TVL > increase in revenue.
  

•    IB core pools. These pools will bring BeethovenX a sustainable revenue source. If we can sync the introduction of these pools with the reallocated 30%, this could ensure a fast adoption of these pools on Fantom. As the fee earned on these IB core pools is distributed in the same manner as all fees, if we changed the 30% distribution to gauge rewards, they would effectively be paying for their own gauge incentives without having to rely every two weeks on having a third-party protocol do it (from the fee on 30% fee on IB yield + 30% fee on swaps) - similar to BIP-19 on Balancer.
  

•    By ensuring that the 30% of the protocol fees are converted to Beets to be used as gauge incentives, we will not affect the current monthly buy pressure on Beets on account of the current distribution  program.
  

CONS:

•    Buybacks are easier for users unwilling to engage in gauge votes.
  

•    This reallocation could have a negative effect on third-party protocols interested in providing gauge rewards because they will now be competing against the protocol itself.
  

•    This adds complexity to the manual collection of fees as we also now have to seed and disburse the 30%.
  

•    We may not agree upon or implement a subsequent core pool proposal.
  

•    The Liquidity Committee could go rogue.
  

SPECIFICATION If approved, the following will be in effect:

1.  30% of all fees earned by the protocol will become gauge incentives, initially, equally to FoTO / LQ, then their boosted versions (as soon as reasonably possible following their launch in accordance with specs. 2 & 3 below), and then additional core pools (also in accordance with specs. 2 & 3 below).
   

2.  A new channel accessible to Early Ludwig NFT holders will be created in the Discord server for the Liquidity Committee and the community to have discourse on the method, timing, logistics, issues concerning, reallocations of, and seeding, and disbursing the 30% protocol fee as gauge rewards to, initially, FoTO and LQ. The Liquidity Committee shall communicate in this channel on a regular basis with open and continuous communications.
   

3.  As the TVL grows and, upon the adoption of a core pool proposal and the transition of boosted of FoTO and LQ to steady flywheel gauge rewards, it will be within the discretion of the Liquidity Committee to determine when, where, and how much of the 30% should be reallocated to new core pools that then generate or appear reasonably likely to generate substantial swap fees and/or increase the protocol’s TVL. This process will then iterate and repeat with respect to additional core pools.
   

4.  Protocol fee collection, distribution, and any subsequent gauge incentives will take place once per month, will be converted to Beets, and the Beets will be allocated as gauge rewards during each voting round to the pools per specs. 1-3 above.
   

5.  Following the adoption of this proposal, we will open a new BIP channel for the purpose of discussing the specifics of the core pool proposal that fBeets intends to bring to an upcoming governance vote.