SIP #5 - Ongoing Emissions Model

Issue Statement

The methodology for determining Stargate Protocol’s emissions should be designed to obtain the requisite and optimal TVL to support bridging activity. Based on data collected since launch and forecasts using such data, the current TVL and emissions are excessive and a structure that is data-driven should be adopted to ensure operational and capital efficiency.

Today, emissions are incorrectly sized; TVL exceeds required liquidity needs for transactions, based on the data collected thus far. More specifically, as of the date of this proposal, Stargate’s TVL exceeds its needs by 210M-310M See Refer to Commonwealth for further analysis.

Solution

The goal: determine the STG emissions needed to incentivize sufficient liquidity to support transaction volumes while minimizing excessive emissions & preserving Stargate’s treasury.

This problem is solved in the following steps:

1. Determine each Stargate pool’s incentivized target TVL based on historical bridging data and current assets within the pool. This is the incentivized TVL needed to support ongoing bridging activity.
2. Calculate Stargate’s historical pool APYs and blocktimes for each pool. These are required inputs for determining STG incentives (i.e. emission rates)
3. Given target TVL, historical APY and blocktimes, solve for STG emission rates.

Calculate Incentivized Target TVL for Stargate Pools

First, we'll create a Monte Carlo simulation, forecasting the net inflows/outflows for each pool over a 30-day period. We'll set the targeted TVL to the most severe net outflows over a 30-day sequence; we want to make sure the pools have enough liquidity to sustain the worst case scenarios. Once we have the target TVL for each pool, we’ll then take into account the POL and asset surplus/deficit within the pool to determine the incentivized target TVL (Incentivized Target TVL = Target TVL - POL - Asset Surplus/Deficit).

Calculate Historical APY & Retrieve Blocktimes

For each pool at each hour, we’ll calculate the annualized emitted value / current TVL to determine that hour's APY. We can then take the average APY over the previous 30 days to determine the pool's historical APY. We’ll also retrieve blocktimes for the past 90 days, using ethers.js.

Calculate STG Emitted Per Block

With our Targeted TVL & historical APY, and block times, we can calculate STG emitted per block using the following formula:

STG Emitted Per Block = Targeted TVL*Historical APY / forecasted blocks per year.

More detail on the model & calculations are provided below.

Model implementation should be managed by the Stargate protocol team. The team working on this model should have discretion to remove outlier data values. For example, transaction volumes on May 12th exceed 4x the 7-day trailing average and distort model projections.

Additionally, the Stargate protocol team should have the ability to update STG emitted per block in the event block times change >10% from their latest forecasted value. Having this ability, the team can respond to emission fluctuations, like the fluctuations that have occurred on Optimism.

Success

• The Stargate team updates emission parameters as outlined in the proposal.
• The Stargate protocol has sufficient liquidity to support transfer activity while minimizing unnecessary STG emissions.

Timeline & Costs

• Model tuning: 2-4 hours
• Emissions updates: 2-4 hours