The Base instance of the Morpho Protocol has exceeded its S_lim value of $50M, meaning it has reached its maximum rate of 11k MORPHO per day in supply-side emissions.
Given that the instance’s growth is strong (~$86M→$183M TVL since the start of September) and its max emissions rate is substantially less than mainnet’s 72.5k supply side maximum, it seems appropriate to begin gradual increases of the max rewards rate.
I am proposing to initially raise the S_lim for suppliers by 20% to 60M, implying a max rewards rate of 13.2k MORPHO per day for suppliers. Per the unified rewards model, the borrow-side rewards are 1/10 of the supply-side rewards, meaning that under this proposal, rewards for borrowers would increase from 1.1k MORPHO per day to 1.32k MORPHO per day.
In addition to encouraging additional protocol usage on Base, this change will help the DAO to gather data about the impact of changes in rewards rates, the results of which can inform future updates.
Curious if the team has any modeling or analysis done on this? Intuitively in the short to medium term this seems like a no brainer. On a TVL per morpho attracted rate, Base seems higher than Ethereum and so maybe there’s an argument to increase base and decrease ETH rewards over time, which could also play well into Eth TVL likely being more sticky.
Overall, since Morpho farming is a lot “less speculative” than a lot of other point systems as we know total supply, they are in real tokens, and recent round FDV raises, curious if there have been any modeling done (or maybe we should start some of this incentive modeling) on what we should do; as this instance of changing Morpho rewards structure likely won’t be the last.
There is ongoing work on models, but one issue we’ve run into is that the dataset is limited. There have been relatively few events where the emissions rate was changed, so it’s hard to be confident about the results. Tentatively, the data indicates the following:
For deposits, a 1K increase in MORPHO token rewards per dayestimates a 7.1% (103 000$) increase in weekly deposits on the average ‘rewarded’ market. 95% confidence interval on the estimate is [6.7% - 8.05%]
For borrows, a 0.1K increase in MORPHO token rewards per dayestimates 7.25% (63 000$) increase in weekly borrow on the average ‘rewarded’ market. 95% confidence interval on the estimate is [5.8% - 8.75%]
This proposed change will be helpful in determining how accurate the model is. Note that the preliminary results indicate borrowers are more sensitive to reward rate than depositors. Intuitively, it makes sense that borrowers are more active than lenders and more likely to manage positions to optimize rates.
If this trend holds up after the change proposed here, it could be a good idea for the DAO to adjust the relative reward distribution between lenders + borrowers on both Base and mainnet.
Retail users are receiving not less than nothing, whales are taking away everything, How does it promotes decentralisation. Even retail users should be considered because they are backbone and they’ll be using protocol in future and not whales.
Got it, this is super helpful and interesting. Borrowing being much more sensitive makes sense, especially with some of the largest pools being exchange rate xxETH/ETH pools where many (including us haha) can loop 8x or more without fear of liquidation; any change in Morpho emissions will have multiples of effect. Would be very interested to see any data regarding what % of TVL is looped.
Hi Kirk,
Thanks for your proposal and arguments which seem well grounded. On top of this, I would recommend adopting a market per market approach to determine incentives.
To illustrate, the first metric the Moprho team should use is to what extent (say) 100,000 Morpho distributed in a vault over a year move the APR.
For instance in the Moonwell Flagship ETH, which has a large TVL, this adds (assuming a random price for Morpho = $1) 0.23% APR whereas in the Gauntlet WETH Core, also on Base but with a lower TVL, it adds 18 % APR. This means that transferring 100,000 MORPHO from the first to the second vault would reduce the total APR of the first market by 0,23% and increase the total APR of the second vault by 18 %. The TVL of the first vault would be marginally affected whereas the the TVL of the second vault would be strongly boosted (the reasoning should be done at the market level, but I do the comparison at the vault level here for simplicity). Both vaults have ETH as loan assets so the supply elasticity to changes in APR should be approximately similar.
The overhaul of the incentives structure is a huge endeavour which I think is worth pursuing, bon courage.
To focus on the proposal, Morpho has around 350m of supplied TVL on Ethereum (not counting the Spark DAI vault) and around one third (115m) on Base. For every MORPHO rewards on Ethereum which increases the APR by 1%, the same rewards increase the APR on Base by 3%. Hence, raising the APR and TVL on Base in much cheaper than on Ethereum. I think that, at the very least, the reward rates should be equalized between the two EVMs.
Thanks for your comments @prevert. I’m not sure it’s a good idea to preferentially incentivize smaller vaults. In some cases, they may be smaller for good reasons, and it introduces more overhead to the DAO evaluating which are more deserving of rewards. The goal of the scalable rewards model is to keep things as objective and simple as possible.
That being said, I do think there is merit to the idea of different rewards rates for different asset classes. For example, the Arbitrum incentive program results indicate that stablecoin liquidity is stickier than ETH liquidity. While not in the scope of this initial proposal, I would welcome further input on this idea for how it could be approached with low overhead.
Agreed that it is a good idea to gradually equalize rewards rates on Base and mainnet. My intention in suggesting an initially modest increase on Base is to help us quantify the impact of rewards rates changes, so the DAO can make informed decisions about how fast to scale up rewards on Base, and in the future how to approach rewards scaling on other networks where the protocol may be deployed.
Agree that it makes sense to hike rewards on Base given TVL growth and the comparative under-rewarding relative to mainnet. @prevert raises a good point on the cost-effectiveness of this.
In terms of modeling and longer-term strategic impact, definitely in favour of a more granular reward models per asset class rather than a broad strokes approach. Gradually scaling rewards while collecting relevant data is a no brainer to help the DAO allocate rewards in a more capital-efficient way. Over time, creating a more dynamic model based on asset sensitivity to rewards, adjusted as the DAO scales across chains, will also be important to optimize cross-network and asset-class reward distributions as the protocol matures.
Also, while TVL is an important metric, it may be worth exploring other data points related to user retention rates, liquidity utilisation, volume, avg. loan duration etc which could help provide a more holistic view of liquidity health when adjusting rewards.
It’s all a scam. There’s no decentralization. They always have voting, pretending to make you feel involved, and then let retail investors take over, but all the profits go to whales, hahahaha
If I understand the current estimates correctly, 1 MORPHO token/day spent is buying around $14 of new deposits daily (103k/7/1000). If we assume a price of $1 for the MORPHO tokens, this sounds like a good deal at this point.
Respectively, 1 MORPHO token/day spent is buying $90 worth of borrows.
If the model is relatively accurate, this looks healthy for the protocol, unless I am missing some important detail.
Unfortunately it’s very hard to create a model, which favors smaller depositors, as it’s very easy to split a large wallet into many smaller ones and exploit the system.
We should not deny the majority of normal users because of a few witches, nor should we give all the profits to whales. After all, it is not a game for just a few people.
vote morpho org, Vote Yess 