veBAL — How to Increase your Benefits
This post is the first of a two-part series where we will discuss Balancer’s adoption of the veModel and gauge system.
Previous articles explain Balancer’s veTokenomics, so a quick refresh is sufficient.
- April 2022 — Balancer adopts the veModel (vote escrowed model)
- The longer a user locks veBAL, the more voting rights they have in the Protocol
- Users get rewarded with BPT (Balancer Pool Token) for investing in the BAL/WETH 80/20 Pool
- veBAL lockers receive 75% of protocol fees (50% of the swap fees on Balancer)
- VeBAL holders decide which pools receive BAL liquidity mining incentives
Onchain Gauge System for Liquidity Mining Distribution
Since transitioning to the veModel, BAL emissions get distributed through the gauge system. Gauges allow LPs (liquidity providers) to stake their BPT to claim BAL from liquidity mining. The amount that each LP receives depends on the following:
- The allocation of BAL that the Pool receives
- The share of the LP in the Pool
- The boost applied to LP share based on the amount of veBAL that they hold
There are five gauge types: Liquidity Mining Committee, veBAL, Ethereum Mainnet Pools, Polygon Pools, and Arbitrum Pools. Holders of veBAL direct the amount of BAL received by Pools in each gauge type. VeBAL holders can vote for any combination of gauges, allocating their voting power as they see fit. Voting happens on mainnet as the contracts that read veBAL balance exist there. If the Pool selection does not change, no vote occurs. Users only need to vote once unless they wish to change their vote allocation.
Incentives and Bribes
Gauge voting allows governance control over financial outcomes. This makes the governance token more desirable to hold. Holders choose which pools get liquidity mining incentives allocated to them. The more veBAL users hold, the more power they have to direct rewards. Users can check which Pools are eligible for liquidity mining on the Balancer app.
As Pools get more votes, stakers receive more BAL LP. This process incentivizes more people to stake in that Pool. For protocols that have a token on Balancer, this is very powerful. Suppose you launch a new ERC20 and want it traded in high volume on Balancer. One option is to deposit a large number of stablecoins into the Pool to make it more liquid. Another approach is to use veBAL and direct more BAL rewards to the Pool. This would incentivize other people to bring their liquidity to the Pool. These are great incentives for protocols to get votes for their gauges.
Wrapping up
In this first post, we explored the benefits of the veModel and the incentives it creates. In contrast to traditional liquidity mining, the veModel aligns the incentives of token holders with the long-term success of Balancer. Protocols looking to increase their liquidity compete for the limited BAL emissions with bribes. Bribing is a subject we will explore in the next post, along with BIP19’s Free Bribes.
Communications from Balancer Labs OU are intended solely for informational purposes, and should not be construed as investment or trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any tokens mentioned. All figures are estimated and unaudited unless otherwise noted. As a technology company, Balancer Labs OU provides access to software.
