TIP 04: Update POL allocation split

Summary This proposal is to change the allocation split of TLX protocol owned liquidity (POL) from 80:20 (wstETH/ETH1S and TLX/WETH) to 50:50.

Abstract Leveraged tokens that are bonded in exchange for stTLX become protocol owned liquidity. This liquidity is then allocated according to a predetermined allocation split via recurring rebalances. Currently, during each rebalance, 80% of newly received funds are allocated to the wstETH/ETH1S pool and the remaining 20% is allocated to the TLX/WETH pool. This proposal is to change this allocation split from 80:20 to 50:50

Motivation As of Jun 19th, 2024, the TLX protocol has amassed ~$600k in protocol owned liquidity. Allocating 80% of POL to the wstETH/ETH1S pool is a great way to keep delta-neutral exposure while also generating fees for stTLX holders (the ETH1S in the wstETH/ETH1S pool is charged a 2% annualized streaming of which 100% is distributed to stTLX holders). On the other hand, allocating 20% of POL to the TLX/WETH pool is a great way to build and maintain liquidity for the TLX governance token while also reducing volatility for stTLX holders and maintaining stable APRs. When designing a POL allocation split there are three main aspects to account for:

• Sustainability
• Fees for stTLX holders
• TLX governance token liquidity

While the current allocation split does account for each of these aspects, there is room for improvement.

Specification NA

Rationale The current 80:20 split skews significantly more towards fees for stTLX holders than the other aforementioned aspects we want to account for. Meaning, the largest benefit it provides is by generating extra fees for stTLX holders. While this is great, it has become somewhat unnecessary and is no longer the most efficient way to allocate POL. Since the launch of the TLX protocol stTLX holders have earned an average staking yield of around 100% APR (122% APR as of this writing). The additional fees generated by wstETH/ETH1S have a minimal impact on fees for stTLX holders, only accounting for a tiny percent of the staking APR. After considering historical stTLX staking yields and the impact POL has on them, the 80:20 split is no longer the most efficient way to allocate POL. We are over accounting for fees for stTLX while lacking on a critical aspect of the long term success and viability of the TLX protocol: TLX governance token liquidity. The proposed allocation split (50:50) would, based on historical bonding, bring in roughly $60k of additional TLX/WETH liquidity per week (or $30k in TLX buybacks per week) while having almost zero impact on current stTLX staking yields.

Test Cases NA