SIP #10 - Increase Incentive For Balancing Transfers

Issue Statement

The Stargate pools are currently imbalanced, and there is not enough incentive to complete balancing transfers. Two key areas to address:

• The eqRewards are currently distributed to all transfers when a source pool is in deficit, whether it’s a $1 or $1M transfer. Rather than subsidizing small transfers, these eqRewards should be reserved for significant balancing transfers. Additionally, eqRewards should be reserved for material deficits, accelerating growth on the eqFeePool.

• The protocol should not charge 6 bps on balancing transfers. The protocol makes insignificant revenue on these balancing transfers, and the high hurdle rate of 6 bps significantly eats into a balancing transfer’s incentive. A quick breakdown:

• To date, the protocol has generated $1.03M in baseline fees (both LP:4.5 bps & protocol: 1.5 bps)

• Transfers from pools that are in significant deficit (Assets in Pool / Total Liquidity Provided <50%) to pools in surplus (Assets in Pool / Total Liquidity Provided > 100%) have generated $30K (~2.9% of revenue from baseline fees).

• Transfers from pools in material deficit (Assets in Pool / Total Liquidity Provided < 60%) to pools in surplus have generated $41.5K (~4% of revenue from baseline fees).

• This does not include the large opportunity cost due to an imbalanced system, which may easily exceed the 4% in protocol revenue.

• Additionally, the protocol team should build out an API that allows the public to see a list of the active, profitable balancing transfers that are available within Stargate.

Solution

Implement a new eqRewards function

New criteria:

• Assets in Pool / Total Liquidity Provided < 75 %
• Transfer amount > 2% of deficit
• Transfers eligible for eqRewards still receive their pro rata share of the eqFeePool based on the deficit filled (eqRewards = eqFeePool*(transferAmount/poolDeficit)

Phase out baseline fee for balancing transfers

First, the protocol should define balancing transfers as all transfers that meet the following criteria:

• The source pool is in material deficit:
• Source Pool Assets / Source Pool Liquidity Provided < 60%
• The transfer would not reduce the pathway balance below the intermediate reserve level of the pathways ideal balance:
• currentPathwayBalance - transferAmount > Intermediate Reserve Level * idealPathwayBalance
• Because the source chain does not know the state of the destination chain’s pools, the protocol should infer balancing transfers based on the state of the pathways.

There should be two baseline fee phase outs for balancing transfers:

• Baseline Fee Phase Out 1
• Criteria: A balancing transfer where Source Pool Assets / Source Pool Liquidity Provided is between 60% and 50%

Baseline Fee: Original Baseline Fee * (1 - (.60-(Pool Assets/Pool LP))/.1)

• Baseline Fee Phase Out 2
• Criteria: Balancing transfer where Pool Assets/Pool LP < 50% Baseline Fee: 0 bps

Success

Success would be measured by bringing more balance to Stargate’s unified liquidity.

Execution

The Stargate protocol team would need to update the Stargate Fee Library to reflect these changes.

Time & Costs

Dev work: 3-4 days

Summary

• The Stargate protocol needs to increase the incentive for balancing transfers by: Reserving eqRewards for true balancing transfers rather than subsidizing low transfer amounts
• Phase out the protocol baseline transfer fee for balancing transfers