Update Stargate EqReward Design

Stargate eqFees are generated based upon the following math:

In lay terms, when a user transfers funds on a healthy pathway within Stargate, only the core protocol fee is charged (6-10 bps). When a user transfers funds on an already depleted pathway in a way that makes the pathway less balanced, the user is charged an additional fee as described above. This fee is then set aside into a “sidepocket” (a pool of funds separated from all other funds) which can be used to reward users who swap in a direction that balances the protocol.

Based on Stargate’s design it’s not possible to know the full state of all chains at once. This problem led to the creation of the Delta Algorithm (https://www.dropbox.com/s/gf3606jedromp61/Delta-Solving.The.Bridging-Trilemma.pdf). This allows a surface where a user can add liquidity to a pool (reducing the deficit required to capture the eqReward by clearing the deficit) and then clear additional amounts of the deficit and receive a larger reward. As they do this, they can then remove the liquidity therefore bringing the protocol back to a state that is less balanced than ideal, but more balanced than prior to their actions. This was by design initially to make it such that providing liquidity doesn’t reward eqRewards. However, as Stargate has evolved, this mechanism can now be used adversely, meaning that eqRewards are distributed in a less efficient manner only partially rebalancing the protocol rather than entirely rebalancing it.

Proposal Stargate should: --Remove the discount given to rebalancing transfers such that they pay less protocolFee (keeping the protocolFee at 6-10 bps for all transfers) --Update the feelibrary such that the maximum eqReward distributed is the maximum protocol fee for the pathway (6-10 bps), meaning that users rebalancing the protocol will receive a free (0 fee) but are not paid an excess reward for doing so.

The end result of these changes would not have a material impact on Stargate’s core protocol.

Summary By modifying the feelibrary to only rebate fees instead of providing rewards, Stargate would remove the surface for users to capture additional eqRewards. This would allow the protocol to retain more eqRewards and incentivize continued balance within Stargate.