Update to Venus Protocol Tokenomics (3.1)

Summary

It has been approximately one year since the last revision to Venus Tokenomics and given the continuing evolution of the market, it’s time to reevaluate an optimal distribution of income given the protocol’s current and future needs.

This proposal seeks to address the unequal distribution of income between rewards and treasury reserves. It lays out a comprehensive plan to optimize the income distribution, in order to better cater to the protocol’s needs and safeguard its sustainability.

The key highlights of the proposed changes are as follows:

Redistribute protocol reserve revenue allocation to: 40% Risk Fund 40% Treasury Reserve 10% XVS Vault Rewards (Buyback) 10% Venus Prime Token Program

Redistribute liquidation and other product development distribution to: 50% Risk Fund 40% Treasury Reserves 10% XVS Vault Rewards (Buyback)

Make use of the savings from the two rounds of 50% XVS emissions reduction to double the XVS vault legacy rewards currently set at 525 XVS/Day to 1050 XVS/Day, with the aim of maintaining or even enhancing the vault rewards.

Adjust the Venus Prime program (Soulbound Token) rewards. Initial rewards for this program have been 20% of accumulated product revenues since Q4, 2022. These rewards currently exceed $750K, which are expected to significantly increase the APYs for eligible participants.

We propose to reduce the program’s revenue allocation to 10% to balance rewards while preserving attractive APYs and incentivizing user participation.

The expected outcomes are an increase in treasury reserves, sustainable reward emission rates, sustainable Venus Prime (SBT) reward incentives, and maintenance of an attractive APR to reward XVS Vault stakers.

Methodology of Analysis

To bring forth these recommendations, the proposal has assessed the existing tokenomics of the Venus Protocol, considered the past changes and their impact on the ecosystem, and analyzed the market dynamics and trends.

This change is possible if we consider the savings from the protocol’s October and February 50% XVS emission reduction, which accounted for an estimated amount of more than $2.7M. With this, we propose re-allocating these savings towards XVS vault stakers, enhancing rewards without compromising on the token emission rate.

Results and Conclusions

The proposed revisions in Venus Protocol Tokenomics are expected to yield positive results for the Venus ecosystem, ensuring a fairer distribution of income and enhancing the platform’s sustainability.

The detailed proposal and analysis can be found on the original forum post in the link below.