Author(s): @TigrisOfGaul

Summary

This proposal seeks to redirect TAROT emissions that are currently allocated to the Tarot Farming Rewards program towards a new incentives program.

Abstract

If adopted, this proposal will essentially sunset the current Tarot Farming Rewards program. The new incentives program will serve to more effectively use TAROT emissions in a variety of ways to benefit the Tarot Protocol in the long term:

• Expand the bonding program to acquire 1) protocol-owned liquidity, 2) other protocols' governance tokens, and 3) other tokens the Tarot Protocol wishes to accumulate as part of its treasury
• Direct incentivization of TAROT-paired liquidity (e.g., FTM-TAROT and USDC-TAROT) on DEXs, as well as Tarot-related LP (e.g., tinSPIRIT)
• Targeted incentivization within Tarot for bootstrapping new lending pools (e.g., staking bTAROT to target a certain market size and effective APR over a period of time)
• Cover the initial and ongoing costs associated with CEX listings of TAROT, which is desirable for Chainlink integration and, in turn, xTAROT collateralization
• Pursue partnerships with other major protocols
• Multi-chain deployments (e.g., TAROT incentives on other chains)

Motivation

The current Tarot Farming Rewards program exists to drive borrowing activity and increase liquidity, in the form of supplied tokens, in particular pools. Incentives should always be structured to sustainably and strategically bring value the protocol and, ultimately, achieve significant out-performance and above-average growth for the protocol and its stakeholders over the long term.

A stated objective of the Tarot Farming Rewards program has been to establish the fair distribution of TAROT and governance over the Tarot Protocol. The current program structure, with direct pool voting, has been extremely effective to bootstrap the protocol and reward early users. By solely rewarding borrowers and leveraged yield farmers in the protocol, the Tarot Farming Rewards program has largely avoided so-called "recursive" or "looping" positions: LPs simultaneously lending and borrowing tokens in the same pool to harvest and auto-compound their TAROT rewards into additional tokens or LP.

Nevertheless, the effect of TAROT farming and incentivizing borrowing activity cannot be ignored, as TAROT distributed solely as a reward for borrowing activity in the protocol frequently needs to be swapped to recoup the higher borrowing costs incurred by borrowers.

Although the current TAROT emissions to farming pools will end with the sunsetting of the Farming Rewards program, the new Global Incentives program does not preclude incentivizing borrowing activity in pools, which may be the subject of a future governance proposal.

Finally, this proposal brings Tarot much closer to a state of "non-inflationary" emissions, with protocol fees and TAROT acquired through the fee distribution interlink (reflected in the current ~38% APY of xTAROT) exceeding the emission rate for TAROT farming rewards and other TAROT incentives.

Rationale

Emissions for the Farming Rewards program have already decreased by 35% since inception, from 1,552,803.87 TAROT in the first two-week epoch to 1,002,797.68 TAROT in the current epoch. However, the Tarot Farming Rewards program still stands to emit 978,730.54 TAROT over the next epoch. This proposal effectively sunsets emissions to the current program, which would result in an emissions reduction of up to 19,133,224.95 TAROT over one year. Freeing up this much farm weight allows Tarot to pursue other novel incentive structures to ultimately reward stakeholders and users in the Tarot Protocol.

Furthermore, several of the most popular lending pools on Tarot are not currently incentivized by the Farming Rewards program, which demonstrates that, at least for some pairs, we do not need high emissions to sustain borrowing activity or TVL in the Tarot Protocol. While total value locked (TVL) remains a useful metric for any DeFi protocol, there is less motivation for Tarot to sustain a high TVL, at the expense of higher emissions, at this time.

Specification

The shares allocated to base farm weights and direct pool voting will be directed to protocol reserves. This would result in the sunsetting of the Tarot Farming Rewards program and Tarot Pool Voting (TPV) proposals. The strategies for this TAROT allocation may be determined by governance in future proposals.