It will soon be time to launch the monthly vote for our SWISE liquidity mining program. For those who might have missed last month’s vote, the DAO voted to cut the SWISE rewards in half for the main sETH2/ETH liquidity pool. This was due to the high pool APY following the removal of liquidity as users de-risked during the turbulent market conditions (link to the proposal is here). This post will discuss the impact of that decision ahead of August’s vote.
The below graph shows how the pool TVL evolved over the month (purple bars) alongside the changes in SWISE price (black line). All values are denominated in ETH, rather than USD, to remove ETH/USD price volatility.
Our goal is to find a balance between providing sufficient liquidity for sETH2 whilst managing the SWISE emissions of the protocol. Whilst a 30%+ APY for liquidity mining looks great for LPs, it is not sustainable for us as a protocol and it will ultimately hurt SWISE holders in the long run. After reducing the pool APY from ~35% to ~15% in July, it is clear from the graph that we still experienced meaningful TVL growth before the main SWISE rally.
The pool APY is now hovering around 35% again. Given this, we as a team are suggesting a further reduction in SWISE emissions within the sETH2 pool (from 2.5M to 1.25M). This will reduce the APY to levels where we still saw TVL growth at the start of July, whilst accounting for the recent SWISE price appreciation.
This analysis is from a very small sample however, and we must continue to monitor the relationship between pool TVL and SWISE emissions over time. As mentioned previously, we can always add extra SWISE rewards should we see a large drop in TVL intra-month or if the pool APYs drop too low. We cannot, however, remove SWISE rewards once they have been submitted.
We would love to hear the views of the community on this further reduction in emissions ahead of August’s vote!