Summary:
The discussion centers on optimizing the efficiency of CRV emissions relative to bribes spent, addressing the current inefficiency caused by rapid price increases and a lag increased bribes. The proposal includes creating a DAO-controlled mechanism to capture excess value from emissions, such as a veFunder that bribes its own votes. This could reduce inflation while accumulating DAO-owned CRV. The current system is inefficient, with approximately only ~$2M in bribes against ~$6M in emissions over the current two weeks cycle. By targeting an emission-to-bribe ratio cap (e.g., $1.25 emission per $1 spent), the protocol could capture a part of its own inflation and use it to potentially fund future initiatives like crvUSD incentives.
Objective:
Introduce a mechanism to optimize the efficiency of CRV emissions by leveraging existing infrastructure and deploying a Curve DAO-controlled system that captures excess rewards while maintaining external incentives.
Proposal Details:
Creation of the ‘Inflation Reducer veFunder gauge’:
• Curve DAO will deploy a new Inflation Reducer veFunder gauge
• The veFunder gauge will be fully controlled by Curve DAO, ensuring all bribes and rewards cycle back to the protocol.
Voting Incentives and Efficiency Control:
• Curve DAO will actively bribe votes for the Inflation Reducer veFunder using $CRV on platforms like Votemarket and Votium.
• Bribes will be adjusted on a bi-weekly basis to maintain a sustainable emission-to-bribe efficiency level, ideally below $1.25 emission per $1 bribe.
• This ensures external protocols remain incentivized to bribe (as rewards exceed bribes), while limiting the protocol’s value extraction and reducing inflation.
Benefits to Curve DAO and the Ecosystem:
• The Inflation Reducer veFunder will capture excess rewards, effectively reducing inflation as these rewards are funneled back to the DAO rather than external protocols.
• The DAO will accumulate more CRV, which can be used for future initiatives such as crvUSD incentives or strategic liquidity expansions.
Impact on Liquid Lockers and Market Dynamics:
• The mechanism provides stabilization during upward price movements:
• Liquid lockers will likely maintain a more stable peg since the Inflation Reducer ensures that a price surge leads to proportionally higher APYs.
• This reduces long-term significant depegging risks and ensures consistent alignment between price action and protocol rewards.
Expected Outcomes:
• Efficient Emissions: Reduces inefficiencies in CRV emissions and aligns incentives for both the DAO and external participants.
• Reduced Inflation: Captures value internally, slowing inflation and building a robust DAO treasury.
• Market Stability: Helps stabilize liquid lockers and maintain efficient market behavior during volatile price movements.
This proposal ensures Curve DAO retains a more efficient control over emissions while continuing to incentivize external participation, fostering a balanced and sustainable ecosystem.
Alternative Solutions:
The proposed approach is just one of many potential methods to address and capture excess inflationary CRV rewards. The primary goal is to initiate a discussion and gauge support for strategies aimed at mitigating excessive inflation. I encourage others to share additional ideas or alternative solutions that could effectively manage and capture these excess rewards.