SLURP-59 | Partial DeFi-PoL Incentive Realignment - From Liquidity to Credit Markets

Abstract Following the successful implementation of the DeFi-PoL fee (September 2024), the Curve stLINK-LINK pool has reached a mature depth of $6.4M, growing from 111K LINK & 114K stLINK to 419K LINK and 104K stLINK. This proposal seeks to reallocate a portion of the DeFi-PoL stLINK incentives, specifically 0.5% APY away from the Curve pool and reroute it to the newly deployed LINK Morpho Vault and wstLINK-LINK Borrow Market.

This adjustment will reduce the Curve pool APY from 2.19% to 1.69% for the stLINK-LINK LP incentives (SDL incentives remain at ~3.26% unaffected), with the liberated funds providing an incentive layer for the stake.link credit ecosystem on Morpho for bootstrapping purposes.

Rationale The Curve pool has successfully achieved its primary objective: providing deep liquidity for future liquidations and secondary market swaps. Currently, the pool is heavily skewed toward LINK (80/20), indicating a high demand for $stLINK and a premium price on the open market.

By diverting ~$32,000/year (0.5%) to Morpho, we achieve two strategic goals:

Bootstrap the Credit Layer: We incentivize lenders to provide LINK liquidity and borrowers to use wstLINK as collateral.

Enable the “Looping Flywheel”: Subsidizing the borrow rate for wstLINK encourages recursive staking, which in turn grows the protocol’s stAUM (Staked Assets Under Management) and increases the DeFi-PoL revenue itself.

The Strategy: Profit and Arbitrage This realignment facilitates a powerful dual-revenue stream for users:

The Morpho Loop: Users can deposit wstLINK, borrow LINK at a subsidized rate, and restake via the Priority Pool to amplify their own yield.

The Curve Arbitrage: Since stLINK trades at a premium on Curve (due to the 80/20 skew), users can restake through the protocol at 1:1 and capture the premium on the secondary market, feeding the cycle back into the Morpho vault. It also incentivizes arbers to “work” on the stLINK-LINK stablepool more often, keeping the peg healthy and in check.

Specification Reward Adjustment: The smart contract governing DeFi-PoL distributions will reduce the allocation to the Curve LP gauge by 0.5% APY ($32,000 USD equivalent at current TVL).

Split Allocation: The liberated funds will be split evenly:

50% ($16k/yr) to the LINK Morpho Vault to incentivize lenders.

50% ($16k/yr) to the wstLINK-LINK market to incentivize borrowers.

Incentives will be distributed as $wstLINK.

Governance Oversight: The protocol maintains the flexibility to adjust the split budget to make sure it incentivizes the needed market between the two.

Projected Impact With a target of $1M TVL in the Morpho markets, this proposal provides a 1.60% APY base incentives to both markets, paid in wrapped staked LINK. This makes stake.link the most competitive venue for LINK lending and leveraged staking in DeFi, further cementing wrapped $stLINK as a blue-chip yielding collateral asset.