$IDLE incentives distribution update v2

The following is an extract of the proposal posted on the Idle governance forum.

Summary

A proposal to discuss the next steps of the $IDLE incentivization programs ending in early 2023: the Liquidity Mining program for the Best Yield strategy and the Gauges distribution for the Perpetual Yield Tranches.

Proposals

We will list two ideas as the next steps for the IDLE incentive programs:

1. Continue the Liquidity Mining program

The Best Yield strategy has been incentivised through the Liquidity Mining program with different distribution rates (3205 → 2215 → 1000 IDLE/Day). We suggest continuing its incentivization but also decreasing its distribution rate.

• From 1000 IDLE/day to 500 IDLE/day for the next 3 months

The IDLE needed to fund this extension can be taken from the Ecosystem fund.

Extending the incentivization length of the LM program can be strategically smart to retain the current liquidity (mainly sitting in the DAI, USDC and USDT BY markets). Even more, now that the Leagues are working to leverage the synergies between the Best Yield and the Perpetual Yield Tranches.

Keep evolving BY+PYTs

The first chapter of BY+PYTs evolution has been written with the introduction of Clearpool pools into Best Yield strategies – our long-term vision for the product suite is to create different layers of yield automation/aggregation via BY on top of a plethora of PYTs. The idea is to provide different layers of yield, and these different layers would allow different user profiles to access DeFi yield and customize their yield experience.

This emission reduction would affect the rewards return for the BY strategy (from the current +0.4% to +0.2% at current prices). Nonetheless, we see this decrease as minimal and easily overcome with the soon-to-be-released new strategies under the aggregation layer of the BY.

New underlying strategies for PYTs+BY yield spectrum

To fulfil what was mentioned above, we already have an expected yield roadmap for the next strategies we want to integrate. We already have some strategies in pipeline, which are:

• Euler staking PYTs: this would allow to create a potentially higher yield for USDC, DAI and USDT and can be later integrated into BY to increase APYs on that product line as well. Generalized leveraged strategies: it allows to supply and borrow assets (potentially USDC/DAI/USDT/ETH/stETH) on Compound v2 & v3/Aave v2 & v3/Euler/Morpho and simultaneously earn rewards.

From a DAO treasury perspective, this proposal, if executed, would cut by half the daily emission of IDLE and reduce significantly the selling pressure on the DAO governance token.

2. Pause the Gauges distribution

The Perpetual Yield Tranches have been incentivised through the Gauges system for over ten months at a constant distribution rate of 990 IDLE/day. We suggest pausing this distribution.

• From 990 IDLE/day to 0 IDLE/day.

The performances of the Gauges distribution for PYTs are encouraging, but we see side disadvantages that made us think to pause the rewards on this strategy. Specifically, the Gauges architecture breaks composability with integrators calling for ad-hoc solutions and increases the effort needed to ship new partnerships. Due to this composability issue, integrators are benefitting only minimally from the rewards distributed to the Tranches.

We should remember that the majority of Idle’s TVL comes from integrators, hence creating a smoother onboarding process could be beneficial in the long term.

Once again, we think that the IDLE return loss will have a subtle effect thanks to the new smart strategies that we expect to perform better than the underlying yield that the strategy is tranching. We expect to see Senior returns higher than the Base APYs.

Additionally, the Gauges system is prone to inefficiencies such as the agEUR case. The agEUR PYTs receive ~30% of the current IDLE emission, though, they do generate almost zero fees for the DAO.

The Gauges system implemented will anyway stay in place and can be re-activated in the future if the DAO agree. We may think to discuss its re-activation at the end of the 3 months extension for the BY rewards.