SIP#20 Continued Balance and Rebalancing

Background:

As mentioned in SIP#19 Stargate functions optimally when all pools and paths are balanced. A state of balance is when there is the ideal state of stables on each side of a path.

Stargate has historically relied on the protocol charging fees when a path is out of balance and rewarding users for restoring that balance. The most recent update to this methodology was in SIP#10 (https://snapshot.org/#/stgdao.eth/proposal/0x9cefef89f475daaf6bc9c83244209c9d82d62ecbf16175a4a3ae5a1d3e1ff56a). The methodology should be updated to allow the protocol to more effectively maintain balance.

By better maintaining balance, Stargate will need less liquidity deposited to function, and in the future less emissions will be needed to support liquidity as a result.

Proposal:

The protocol should change the conditions to receive eqReward from a minimum of 75% deficit in a pool to instead a minimum of 6 bps received in eqReward for a transfer. When this state is achieved, the protocol will instead lower all protocol fees to two (2) basis points. This cheaper flat fee will better incentivize partners to capture eqRewards and maintain balance within Stargate.

Stargate should also cap eqFee that accrues to eqReward at 50 basis points. Any eqFee that exceeds 50 basis points should accrue to protocol owned liquidity.

A public API will also be developed for anyone to identify rebalancing opportunities to help keep the protocol healthy while capturing rewards for doing so.

Path weighting should also be changed to have equal weights on each side of the path. This weighting will be updated periodically to be representative of transfer volume. This will allow more used paths to accept more volume while less used paths accept less.

The initial weighting will be set using historical data from the past 30 days excluding any data that is a clear outlier in the dataset.

Once these conditions are met The Stargate Foundation will, for a period of 6 months, rebalance the protocol to ensure protocol health. The community can pause this balancing effort at any point with an on-chain vote. If the balancing effort is voted to be pushed the foundation will deposit all funds into Stargate protocol owned liquidity.

All wallets the foundation uses for balancing will be published and linked within the protocol documents so all balances can be verified on-chain at any time. The foundation will also publish a monthly balancing report outlining costs and profits captured to be added to protocol owned liquidity no later than 15 days after the end of each month.

Execution:

The FeeLibrary contracts for all pools will be updated to change the thresholds for eqReward being triggered to reflect triggering when eqReward is greater than 6 basis points. It will also be updated to cap the eqReward for any single transfer at 20 basis points with any extra eqFee being sent to the Protocol Rebalancing Address.

A public API will be developed to allow anyone to view opportunities to help keep the protocol healthy where rewards can be earned for doing so. Path weighting will be calculated based on the past 30 days of data to generate a starting balance and then updated periodically to reflect transfer volumes.

New wallets will be created and the addresses published for the express purpose of balancing.

A monthly balancing update will be produced and shared with the community no later than 15 days after the end of each month.

Success:

Success is the protocol being able to maintain optimal balance by incentivizing a constant rebalancing effort. This will allow the protocol to function with less liquidity and rewards needed to incentivize this liquidity.

Less liquidity allows for a higher turnover of liquidity which results in a higher amount of fees generated per dollar deposited and a more optimal function for the protocol.

Summary:

To ensure optimal liquidity is maintained within Stargate changes will be made to the conditions to receive rewards better incentivizing users to help keep the system balanced.

By having a balanced system the protocol will be able to function with less TVL, warranting a future reduction of emissions and more revenue per dollar staked within the protocol.