BGOV Tokenomics v1.1

BGOV adapted the Sushi token model to a lending protocol context, and the experiment has so far been a smash success. The TVL on BSC has rocketed over $700mm, a major milestone. The protocol has generated enormous borrowing volume, generating significant fees for BGOV holders. There are specific challenges to adapting the Sushi model to a lending protocol context, specifically around triggering a supply-side liquidity crunch. Given the current level of borrowing volume and free liquidity, the scheduled 90% drop in emissions is likely to cause a dramatic loss of lending liquidity, potentially leaving many lenders without exit liquidity for some time. This is a unique challenge, and unique challenges demand innovation.

Pay for Free Liquidity?

We’ve established an initial token distribution over these last two weeks, but we must begin reducing emissions in order to relieve the sell pressures on the BGOV token price.

The limiting factor in reducing emissions is maintaining free liquidity for the most utilized pools.

These two goals stand in a degree of tension, but it does suggest some obvious optimizations. First, we can reduce emissions to the least used pools according to the original schedule.

The following pools have utilization < 10% and are strong candidates to proceed with the 90% emissions cut:

This would result in a 32.14 BGOV/block reduction in emissions.

To keep emissions for BZRX, BGOV, and BGOV/BNB LPs proportional, the following pools are a strong candidate for a 15% emissions cut:

This would result in a 26.79 BGOV/block reduction in emissions.

Together this would cause a 58.93 BGOV/block reduction in emissions, immediately bringing emissions from 250 BGOV/block to 191 BGOV/block, a 23.6% reduction.

Additionally, all pools should have their emissions tapered on a per block basis and on a linear schedule. Starting Wednesday, emissions will decrease each block for the next thirty days.

A Tapered Approach

On Wednesday it is proposed that the emission rate of BGOV/block will drop from 250 BGOV/block to 191 BGOV/block. After, the BGOV emitted will decrease each block on a linear schedule, finally dropping to 25 BGOV/block after thirty days.

Burns 🔥 = Mints 💸

Starting soon, 80% of the fees collected from lending, trading, and borrowing activity on the platform will be used to market buy BGOV and then burn it while 20% will go toward the insurance fund. The insurance fund can be supplemented via token mints a la MakerDAO in extenuating circumstances. As platform fees become larger and larger, the burns may exceed the rate of issuance. In these short weeks we have already amassed over $300,000 in fees, and we’re excited to see what comes next for the platform.

As always, please feel free to connect with the team via Telegram or Discord. Check out our Help Center to answer all of your questions about bZx, Fulcrum, and Torque.

About the author
Kyle J Kistner
CVO @ bZx. Product, Protocol Design, & Token Economics.