MFAM Token Reallocation for Liquidity Incentives

Summary

As Moonwell approaches its second anniversary on Moonriver, a critical juncture has been reached with the recent exhaustion of the initial 50% of MFAM tokens earmarked for liquidity incentives. These incentives have been fundamental in bolstering Moonwell’s Moonriver markets, Safety Module, and DEX farm on Solarbeam. However, with this resource now fully utilized, the DAO urgently needs to settle on a sustainable strategy to maintain and extend liquidity incentives to our users. The suggested solution is reallocating ~20% of the MFAM token supply, originally allocated to Developer Grants and Incentives, to be utilized purely as liquidity incentives for Moonriver markets, MFAM staking, and the MFAM <> MOVR DEX pool on Solarbeam.

Background

The Moonwell community on Moonriver is at a crucial point with the recent exhaustion of the originally allocated 50% of the MFAM token supply to be utilized as liquidity incentives. These incentives have played a vital role in the growth and stability of Moonwell’s ecosystem, as detailed in the MFAM Transparency Report. The necessity for ongoing liquidity incentives is underscored by the increasing activity in Moonwell’s markets and the important role that liquidity plays in sustainably fostering a robust and secure DeFi environment.

To address this, I am proposing a reallocation of the MFAM tokens originally earmarked for Developer Grants and Incentives (transferred during the MFAM Migration in May 2022) to Liquidity Incentives. This MFAM reallocation aims to extend the duration of these incentives for an additional two years. The targeted areas for distribution include rewards for supplying assets to the protocol, providing liquidity to the MOVR/MFAM pool on Solarbeam DEX, and staking MFAM in the Safety Module.

This strategic reallocation is crucial for maintaining a healthy liquidity pool, ensuring the sustainability and efficiency of Moonwell’s operations on Moonriver.

Rationale

• Combat Liquidity Flight: The risk of liquidity flight is significant if MFAM rewards are depleted. If we do not sustain liquidity, we could face a decrease in protocol usage and community trust. Without incentives, users may withdraw their assets from the protocol, the Safety Module, and the DEX farm on Solarbeam, causing potential destabilization.
• Growth Continuity: Maintaining consistent protocol engagement and expanding the user base are crucial for the long-term success of Moonwell on Moonriver. Liquidity incentives have been shown to attract and retain users, thereby supporting ongoing growth and activity within the ecosystem.
• Strategic Resource Utilization: The proposal to reallocate funds from the Developer Grants bucket is rooted in practicality. Given the minimal grants and development activity on Moonriver to date, repurposing these funds for liquidity incentives represents a more effective use of resources. This strategic reallocation ensures that existing token allocations are leveraged to support the most pressing needs of the protocol.

MFAM Incentives Campaign Duration

The voting options presented to the Moonwell community for the MFAM Incentives Campaign offer different strategies for reallocating MFAM token supply towards Liquidity Incentives. If 20% of the MFAM token supply is reallocated, the options are to make the distribution period 2 years, 3 years, or 4 years. Voters should consider the need for immediate impact versus sustainability when deciding. The final option is to maintain the status quo, making no changes to the current allocation.

Impact on Token Distribution

Adjusted Allocation Post-Proposal:

• Liquidity Incentives: 70% (including additional 20%)
• Developer Grants and Incentives: Reduced to 0%
• Application Development: Unchanged at 20%
• Team and Advisors: Unchanged at 10%

Technical Implementation

• Fund Migration: From Developer Grants and Incentives multisig: 0x5d6C4DCb86b8A761C062a5274a77AaD5F7209AA3 to the designated
• Liquidity Incentives multisig: 0x45dd368e30c07804b037260071d332e547c874f0

Voting

All members of the Moonwell community with delegated MFAM tokens are invited to participate in this vote.

• Yes: Reallocate 20% of MFAM token supply to Liquidity Incentives over a 2 year distribution.
• Yes: Reallocate 20% of MFAM token supply to Liquidity Incentives over a 3 year distribution.
• Yes: Reallocate 20% of MFAM token supply to Liquidity Incentives over a 4 year distribution.
• No: Make no change.

Conclusion

The proposed reallocation of MFAM tokens marks a crucial step in Moonwell’s journey on Moonriver. I am excited for us to continue to sustain Moonwell by dynamically addressing Moonwell’s highest priority needs, and right now one of those needs is liquidity incentives.