SGP-17: Rework of the "Reduce Emissions" Gauge Vote Option

Author: Richard "Finanzgoblin" Mediavilla Status: v1.0 Category: Governance Proposal (SGP) Created: 2026-03-03

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Summary

This proposal reworks the current "Reduce Emissions" gauge vote option to address the free-rider problem it creates. Instead of simply reducing emissions, we propose splitting them: 50% to the DAO treasury and 50% distributed to "Reduce Emissions" voters (as locked veSPECTRA). This transforms a self-sacrificial, uncompensated vote into an aligned, incentivised mechanism that strengthens the DAO's balance sheet and rewards governance participation.

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Context & Motivation

The current "Reduce Emissions" problem

Spectra's gauge voting system lets veSPECTRA holders direct weekly SPECTRA emissions across liquidity pools. Among the available options is a "Reduce Emissions" gauge, which removes the corresponding share of emissions from circulation entirely. While this is a valuable deflationary tool, it suffers from a structural incentive misalignment:

1. Revenue forfeiture. Voters who choose "Reduce Emissions" give up all potential income — they earn no trading fees, no bribes, and no voting incentives from the pools they could have voted for. Even pools with hostile or mercenary farming activity generate revenue for their voters; the "Reduce Emissions" voter receives nothing.

2. Positive externality without compensation. By reducing the total emissions in a given epoch, these voters make SPECTRA scarcer for everyone — lowering dilution for all holders and boosting the value of every other voter's position. Yet the voters performing this public good capture none of the benefit they create. They are effectively subsidising the rest of the protocol at their own expense.

This creates a classic free-rider dynamic: rational actors are disincentivised from voting to reduce emissions, even when doing so would be collectively beneficial, because the personal cost is too high relative to the diffuse benefit.

Current market context

As of early March 2026, the voting incentives dashboard (https://stats.spectra.finance/voting-incentives) shows:

• ~170.8M veSPECTRA of total voting power
• Weekly emissions of ~655,740 SPECTRA (approximately $3,400 atm)
• Voting incentives of approximately $1,500 per epoch, concentrated on a handful of gauges.
• An average voting APY of ~38.5%, driven primarily by rebasing and a small bribe market.

SPECTRA's market cap remains low, which has two important implications. First, chains and ecosystem partners can and do subsidise liquidity incentives more effectively through their token (and as previously mentioned in community discussion, this has been part of the strategy of deploying on other chains, aiming to aggregate the incentives through cross-chain MetaVault then) . Second, and more critically, it means every SPECTRA token the DAO can retain in its treasury today has asymmetric upside if the protocol continues to grow. Burning emissions outright destroys this optionality; redirecting a portion to the treasury preserves it.

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Specification

Proposed mechanism

We propose modifying the "Reduce Emissions" gauge so that emissions directed to it are no longer fully removed from circulation, but instead split as follows:

Allocation	Share	Form	Destination
DAO Treasury	50%	SPECTRA (held)	DAO treasury wallet
Voter Rewards	50%	Locked veSPECTRA	Pro-rata to "Reduce Emissions" voters

Concretely:

• When a veSPECTRA holder votes on the "Reduce Emissions" gauge, the emissions that would have gone to an LP pool are intercepted.
• 50% of those intercepted emissions are sent to a DAO-controlled treasury wallet, building protocol-owned reserves.
• The remaining 50% are locked as veSPECTRA (at maximum lock duration) and distributed to the voters of the "Reduce Emissions" gauge proportionally to their vote weight (in practice this is still lower than what mercenary capital is getting, often controlling 50%+ of the pool they are redirecting incentives to).

Why locked veSPECTRA (not liquid SPECTRA) for voters

• Incentive alignment. Voters who choose to reduce emissions signal long-term conviction. Rewarding them with locked positions reinforces this alignment — they are rewarded with governance power, not exit liquidity.
• No mercenary farming. Unlike liquid token distributions or bribe markets, locked veSPECTRA cannot be immediately sold. This prevents the "Reduce Emissions" gauge from becoming a short-term yield farm.
• Flywheel effect. More locked veSPECTRA means more governance power concentrated among long-term aligned participants, which in turn should lead to better collective decisions over time.

Why a DAO treasury allocation matters now

• Low market cap = asymmetric upside. Accumulating SPECTRA in the treasury at current valuations positions the DAO to deploy these reserves when they have maximum strategic impact — whether for protocol-owned liquidity, grants, partnerships, or future incentive programmes.
• Avoiding dilution. Burning tokens entirely helps scarcity but gives the DAO nothing to work with. A treasury allocation lets the DAO benefit from the scarcity premium it helps create.
• Foundation for protocol-owned liquidity (POL). A treasury with meaningful SPECTRA reserves is a prerequisite for deploying POL on DEXes — a topic that will be addressed in a forthcoming proposal. Redirecting emissions to the treasury today sets the groundwork for that initiative.

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Rationale

Comparison with the status quo

Dimension	Current ("burn all")	Proposed (50/50 split)
Voter revenue	Zero	veSPECTRA rewards (locked)
Deflationary effect	100% removed from circulation	50% treasury hold, 50% locked (non-liquid)
DAO treasury growth	None	50% of redirected emissions
Incentive to vote "Reduce"	Weak (altruistic only)	Meaningful (personal + collective)
Hostile farming defence	Voters are powerless against it	Voters have a competitive option

Under the current model, a rational voter facing a hostile pool — one that receives bribes from a project farming cheap liquidity without genuine protocol alignment — has no incentive to reduce it. Voting "Reduce Emissions" costs them income while the hostile farm continues unaffected. With this proposal, the "Reduce Emissions" gauge becomes a credible alternative: voters earn locked veSPECTRA, and the DAO treasury grows, providing ammunition to eventually counter misaligned incentives through POL or strategic deployments.

Effective emission reduction is preserved

Although the tokens are not burned, the net circulating impact is comparable. The treasury allocation is held (not sold), and the voter rewards are max-locked. In practice, 100% of the redirected emissions remain out of liquid circulation — the same practical effect as burning, but with the upside of building DAO reserves and rewarding governance participants.

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Forward-Looking Note

This proposal is designed to complement a forthcoming initiative to deploy protocol-owned DEX liquidity (POL) using DAO treasury reserves. Building the treasury through the mechanism described here is an essential first step toward enabling the DAO to own its liquidity rather than perpetually renting it through emissions.

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Vote Specification / Community Poll

• For — Implement the 50/50 split as described (50% DAO treasury, 50% locked veSPECTRA to voters).
• Against — Keep the current "Reduce Emissions" mechanism unchanged.
• Abstain — No preference.