Farming rewards with a high issuance of new coins and static schedules have proven to produce negative effects on protocols, like in the case of SushiSwap. A high issuance of new coins is often accompanied by strong selling pressure on the token. Even if these profits are reinvested into the farms, the token price dwindles over time, and farmers are potentially left with a loss.
At strudel, we have started off with a small issuance of only 1 $TRDL per block, and a rather low bonus multiplier of only 4x for the first month. Yet, the static farming schedule has only let to replicate the same problems on a smaller scale.
A token’s supply needs to grow with the ecosystem it is creating. In the case of $TRDL that is the supply of vBTC, and the opportunities that vBTC offers to its holders in the DeFi ecosystem.
The Bonus multiplier is a governance parameter in the Strudel protocol and currently set to 4. It is used by the TorchShip, the contract managing the issuance of farming rewards. Even though it can be changed with a delay of 24 hours, an effective response to supply changes and market activity is not possible.
Hence, we are proposing to automate and couple the bonus multiplier to the issuance of new vBTC over the course of the last 7 days (window size). After simulations of different coupling methods, we have come up with a modified variance metric (σ) normalized over the supply of vBTC. The exact formula is:
x(n) = last observation of total supply of vBTC
x(n-7) = total supply of vBTC as observed 7 days ago
To give you a feeling of the automated bonus multiplier, we have simulated an increase of vBTC total supply in different steps.
- When the supply increases by 1 vBTC on day 3, the bonus multiplier jumps from default 1 to ~2.2, then decreases over the next days as the supply stays constant.
- A doubling of supply, like on day 10, leads to an increase of the bonus multiplier to ~5.7. It then decreases back to 1 over the course of 7 days (remember window size) if no more mint occurs.
- When the supply rises constantly, like between days 17 and 27, the bonus multiplier has a more moderate response.
We have implemented the metric in Solidity using an observatory granularity of 576 blocks (~24 hours) and will upgrade the TorchShip contract on Monday, October 26th, at 13:00 UTC.
The bonus multiplier will at first produce a value of 1, as no historic data about the total supply will be present in the contract. Whenever deposits or withdraws from the farm are executed, measurements of the total supply will be taken and the bonus multiplier updated automatically.
These changes are expected to slow down the inflation of the $TRDL supply, yet yield higher returns to farmers that stake liquidity on days when the protocol is growing. Happy farming!