MIP 92 - MORPHO Reward Rate Reduction

Summary

Reduce MORPHO incentives rates by 30% across all assets and networks; set all assets other than those with ETH or USD denominations to have the same reward rate as BTC-denominated assets. Continue the ongoing reduction in ETH and BTC denominated asset reward rates begun in MIP-86.

Context and Motivation

A month ago, the DAO passed MIP-86, which reduced the general MORPHO reward rate by 20% on Ethereum and applied a further reduction to ETH and BTC denominated assets on both Ethereum and Base. Since then, protocol growth has been strong despite the emissions decrease, while rates on Morpho remain high compared to peer markets. This indicates there is room for further reduction in rates across the board, which can be repeated in the future if these conditions persist.

Rates on Morpho for ETH and BTC denominated assets are especially high, so can benefit from further targeted reduction. Per MIP-86, these assets will reach multipliers of 2/3 for ETH and 1/6 for BTC on February 14.

Assets other than USD, ETH, and BTC have so far not been considered under the multiplier system. While in the future specific multipliers for certain assets may be desirable, such as a dedicated EUR rate, for now they can all be grouped with BTC for simplicity since these denominations do not have a major role for lending onchain.

Details

Implement an immediate 30% rate reduction across Ethereum and Base as follows:

Set the r0 for USD assets on Ethereum to 0.928E-4.

Set the r0 for USD assets on Base to 1.76E-4.

Set the r0 for ETH assets on Ethereum to 0.773E-4.

Set the r0 for ETH assets on Base to 1.467E-4.

Set the r0 for BTC assets on Ethereum to 0.541E-4.

Set the r0 for BTC assets on Base to 1.027E-4.

Additionally, set assets with denominations other than USD, ETH, or BTC to conform to the same r0 (and future multiplier modifications, whether specified in MIP 86 or in this proposal) as BTC assets.

Two weeks after the February 14 conclusion of the current MIP-86 reduction in ETH and BTC asset rates, apply a further reduction by moving to multipliers of 1/2 and 1/10.

4 Likes

I disagree with this proposal. Now is not the time to cut incentive when the protocol is in full growth mode.
Let’s not be greedy with token incentive. The protocol still needs to grow.

2 Likes

at what rate are token rewards being distributed across these markets compared to others? and what would a decrease in these rewards look like? would love to know at what rate total Morpho supply is being used as incentives.

1 Like

With 60% of the supply owned by the association/investors/founders/employees, 5% circulating, and a further 35% controlled by these 2 classes of holders in a 12:1 power dynamic fashion, do we consider the protocol decentralized enough to stop/reduce the permissionless incentives and enact the current allocation as a satisfactory one to be able to run as a DAO in the future?

Some napkin math:

  • The current incentives on the borrow side are ~ 0.3%, which is negligible
  • The incentives on the lend side are 2-4%

The reduction will decrease the lending incentives to 1-3%, which is effectively a 1% reduction on the Earn markets. I believe this is a good opportunity to measure the impact of the incentives on the TVL. IMO, the demand for borrowing is strong, as the offered rates are very competitive + the universe of collaterals is best on the market. If the borrowing demand is good, the lending should be strong too.

I would be interested in measuring the impact of such an emission reduction, as my hypothesis is that LPs are not that sensitive to the liquidity mining rewards.

1 Like

I just got reminded by the other Daedalus folks that we reduced the emissions exactly 1 month ago by 20%: https://snapshot.box/#/s:morpho.eth/proposal/0x9dfb55d17589ce70abff847200a84fa255c4c71d4068a3a25f9b21d08518c892

Since then the TVL increased from $5b to $6.2b, compared to $3b to $5b the month before that. In terms of $ETH, the TVL has been growing at 500k $ETH per month, the last 2 months.

1 Like

Right now on mainnet, the rewards APR for stablecoins is 3.31%, for ETH 2.76%, and for BTC 1.93%. On Base, for stablecoins it is 4.05%, for ETH 3.37%, and for BTC 2.36%.

This corresponds to a total of approximately 27.3M MORPHO per year, or ~$75M in total incentives spend at the current MORPHO price. From now on I’ll make sure these numbers are provided whenever incentives changes are under discussion, hopefully it is helpful context to see why it would be desirable to ramp down the rates so long as we do not observe a negative impact on growth and the Morpho rates remain competitive with other markets.

3 Likes

The Snapshot passed 11 days ago, and the 30% reward rate change was implemented midnight UTC January 30.

The multiplier changes continue to be implemented every two weeks, with the next change scheduled for next Friday.

1 Like