Proposal to Introduce a Community Voting System for Lending Emission Allocation

Summary

ExtraFi's lending emission allocation is currently determined weekly, based on the previous week's total supply and APY performance of the lending pool. This system has effectively fostered healthy growth in lending pools during the project's initial phase, while supporting borrowing demands on the farming side—contributing to the protocol's overall growth.

As ExtraFi enters a stable development period, we need a more decentralized, community-driven approach to lending emission allocation. This shift will also enhance value capture for veEXTRA holders, linking their governance participation with lending returns.

Rationale

• More decentralized governance: Community voting will fully determine $EXTRA emission distribution and incentives.
• Enhanced value capture for veEXTRA holders: Active participation in governance will positively impact lending returns, encouraging more veEXTRA holders to engage in lending activities and boost supply.
• More logical and transparent lending emission: $EXTRA still comes from emissions and fees, but the new approach clarifies how fees will grow and emissions will decrease, creating a positive feedback loop for sustainable protocol operation.

Proposed Solution for Lending Emission Allocation

The community will vote monthly to determine the lending emission allocation for the following month(4 Epochs).

1. Voting Schedule

   The community will vote during Epoch (n-1), and the results will determine the lending emission allocation for the next four Epochs (n to n+3).

2. Eligible Pools for Voting

   Lending pools eligible for voting are those that have a total supply of over $1M on a single chain (either Base or Optimism) by the end of Epoch (n-2).

3. Voting Method

   Voting will be conducted on ExtraFi’s Snapshot using a Single Choice Voting method.

4. Emission Allocation Formula

   The lending emission allocation for a pool in a given Epoch (n) will be calculated as follows:

   • Total $EXTRA available for Epoch n = Weekly emission for Epoch n + Borrowing fee buyback from Epoch (n-1)

     • Weekly emission begins at 130k (average lending emissions from the last 4 epochs) on Epoch 66 and decays by 3% per epoch
     • Borrowing fee buyback is calculated based on 40% of the accumulated borrowing fee value and the TWAP price of EXTRA during the previous epoch.

   • Voting Result:

     • Vote percentage: Based directly on the results of the community vote.
     • Pool multiplier: Different pools will have a multiplier applied based on their type. These are the initial multipliers and can be adjusted through community voting if needed.
       • Pool #1 (includes: USDC, ETH, USDC.e, DAI, wstETH, etc.) : 1.0
       • Pool #2 (includes: USDC pool#2, ETH pool#2, USDC.e pool#2, ETH LRT, etc.) : 1.2
       • All other pools: 0.8

Conclusion

By introducing this system, emissions will be distributed based on community preferences while also factoring in pool type to ensure balanced incentives. The pool multipliers provide an additional layer of adjustment, ensuring that certain pools receive more or less weight in the allocation based on strategic priorities.