[BIP-812] Establishing the Balancer Alliance Program

Co-Authors: Zen Dragon & Lipman with the support of the Balancer Maxis Fee Processing & Automation Owners: Xeonus and Gosuto

Summary & Motivation

This proposal aims to align key partners in the Balancer ecosystem with the tokenomic model of veBAL. By doing so, liquidity providers and partners equally benefit by their liquidity in Balancer pools and prioritizing Balancer over competing DEXs. In short, the way to further align all parties leveraging the Balancer DEX is to share a portion of the revenue generated by their pools with them; in the form of USDC to be converted to veBAL.

In doing so, partners such as Aave, Lido, and Rocketpool will be actively building a veBAL position to incentivize their pools long term, while collecting passive income on their position. This mechanism not only acts as a pseudo-buy back of BAL in the form of the 8020 pool tokens, but it also incentivizes and exposes partners to participate in veBAL further. Thus maintaining their relationship and usage with Balancer not only for the cutting edge features on Balancer V3, and historic depth on V2, but because they receive economic benefits for doing so.

Based on BIP-734, the split of the 50% protocol fee on swaps and 10% protocol fee on yields would act as follows under this new arrangement:

For core pools (wstETH/wETH or rETH/wETH for example), of all fees collected:

• 12.5% continues to flows passively to veBAL holders
• 52.5% (instead of 70%) of revenue would be recycled as bribes
• 17.5% is directed to the multisig designated by a partner protocol in the form of USDC to be converted to veBAL
• 17.5% is sent to the Balancer DAO

For non-core pools (80AAVE/20wstETH for example) of all fees collected:

• 65% (instead of 82.5%) of revenue flows to veBAL holders as passive income
• 17.5% is directed to the multisig designated by a partner protocol in the form of USDC to be converted to veBAL
• 17.5% is sent to the Balancer DAO

In the sections below details regarding qualifications, the automation process, monitoring, and time commitments are outlined to define in greater detail the proposed rules of this program.

Execution Specification

In order to execute this proposal, the fee processing logic built for Balancer V2 and Balancer V3 must be modified to redirect the proposed portion of fees defined above to the addresses presented by each qualifying partner protocol. The V2 portion, due to being built for over a year, is far more configurable and trusted, making the phase one roll out of this program possible for V2 within 4 weeks of this proposal passing. To respect the framework laid out by BIP-734, this proposal will only go live after the first enactment of a Balancer Alliance member is passed by governance. In turn the non-core to core recycling portion of Balancer V2 would end as stated in the mentioned enhancement proposal. Balancer V3 core pool recycling would still potentially not occur for 1-2 more rounds, making the rollout of both fee model formats occur progressively.

The estimated lead time upon passing this proposal is after 2 epochs of successful fee processing for Balance V3 before the first Balancer Alliance fee processing round to occur. During this time period qualifying protocols would be invited to propose becoming Alliance members on the forum based on their history on Balancer. These proposals will be considered primarily in terms of time weighted TVL and revenue generating benchmarks, coupled with an outlined incentive structure from the corresponding partner to justify the flagging of new or existing pools to be deemed as eligible for revenue sharing.

Qualification

Partners that have generated $1M or more in lifetime protocol fees are deemed (‘Eligible Partners’). We believe these protocols have historically contributed a meaningful positive impact to Balancer and should automatically qualify for this program as a result. The following protocols would meet this criteria per this query:

Top Performers

• AAVE
• Lido
• Rocketpool
• Radiant
• Renzo

Potential Alliance Members

• EtherFi
• Gnosis
• Others if a compelling proposal is made to the DAO

How it works

There are two categories of Eligible Partners:

1. Eligible Partners with individual pool(s) that generated >$1m in lifetime protocol fees (‘E1 Partners’)

2. Eligible Partners without individual pool(s) that have generated >$1m in protocol fees - but the sum of lifetime protocol fees across all pools is >$1m (‘E2 Partners’)

E1 Partners would automatically receive the 17.5% fee sharing on the existing pools that have generated >$1M in lifetime protocol fees (‘Grandfathered Pool’). E1 Partners would also be eligible to receive the 17.5% on future pools if additional certain criteria are met (more below).

Grandfathered Pools include:

• Aave-wstETH
• wstETH-wETH
• rETH-wETH
• ezETH-wETH
• RDNT-wETH

E2 Partners would not automatically earn the 17.5% fee share on any existing pools. They can earn 17.5% on existing or future pools if certain criteria is met (more below).

Criteria to earn Fee Share

For clarity, this section excludes Grandfathered Pools.

The following criteria must be met in order to receive the 17.5% fee:

• Must be an Eligible Partner
• Pools must be a core pool
• Pools can only have Balancer protocol fees associated with it (e.g. cannot be a Gyro pool, etc.)
• Eligible Partner must bribe an amount on Aura for the pool in order to maintain alignment between ecosystem participants. This results in Aura holders maintaining at least status quo (likely better) even with the fee sharing.
  • At a minimum partner pools must target a $5M TVL and utilize 1,000 USD worth of incentives per week to bootstrap pools from 0 to this point. Only at the point of hitting $5M in TVL is a pool eligible for the fees to be redirected towards accumulating veBAL for the partner.
  • The recommended incentive structure for partners would vary depending on the token, network, and various other factors. The suggested incentive format would entail a 3 month program at a minimum, however larger packages over a short period of time should also be considered by the DAO.
    • This point is only a recommendation, ultimately the DAO determines which partners proposal do or do not qualify for this program.
• Must continue to permalock their veBAL

If an Eligible Partner stops meeting these criteria, then the 17.5% fee sharing will terminate.

Automation and Processing

Upon the confirmation of a Balancer Alliance member's proposal to join the program, a flag will be set in the fee processing automation for the pools included in their respective proposal. This flag will indicate the pool is actively claimed by a partner, and indicate the address in which the USDC tokens should be sent. Depending upon if the pool is on Balancer V2 or V3, the fee processing automation repo will be adjusted respectively. All funds are processed on L2s and Mainnet will be converted to USDC, consolidated to the mainnet fee processing multisig, and the respective portion of USDC will be sent to the partner multisig, which will purchase 8020 BPT, lock the tokens, and manage the position accordingly.

If the partner fails to continue to relock the veBAL position, and or does not deliver on their agreed-upon incentive package the flag can be terminated at the discretion of the Balancer Maxis without a DAO via a governance vote. If desired, any community member is capable of putting up a proposal to end a partner's alliance program eligibility for the DAO to vote upon.

Monitoring and Regulation

The Balancer Maxis, the operations and business development arm of the DAO, will take responsibility for monitoring the behavior of each Balancer Alliance member in terms of their veBAL locking activity and delivering on their incentive strategies to each respective pool. This will be done manually via on chain spot checks given the likelihood of only 3-5 participants in the near term. If the program does expand greatly, automation will be considered as needed.

To regulate gamification or abuse of the program, partner mutlisigs will be monitored to confirm locking of freshly acquired pool tokens occurs on at least a monthly basis. The Maxis will issue a notification to respective partners if the deadline is missed. The Maxis reserve the right, without a governance proposal, to terminate the fee sharing agreement if a lock is not executed for a 8 week period. A similar precedent will be held for the incentive commitments in the partner proposals, if an incentive program is not delivered upon for 2 weeks, a notification will be sent to the partner, with a proposal to pause revenue sharing being vindicated after 4 weeks.

Lido Case Study

Using Lido’s wstETH-wETH mainnet pool as an example, Lido would have earned roughly $120k worth of veBAL over the last twelve months as a result of the proposed 17.5% fee share. When also considering the emissions they would have commanded and the veBAL fees they would have received, the total value of the $120k veBAL position would have been ~$138k. Please note: the TVL of this pool has varied significantly over the past 12 months due to migrations (e.g. TVL of $10m vs. $40m today). If TVL continues to grow, such as when the pool was ~$150m in the past, we’d expect the fee sharing to also grow accordingly.

The $120,000 redirected away from LPs due to this program would need to be offset by Lido through roughly $84,000 in bribes on Aura (see calculation below).

The following analysis uses data from this Dune. The data can also be found in this [google sheet](h...