Rebalancing MIN Farms, A Formulaic Approach and a New MIN Farm
TLDR; Allocation of MIN tokens to the current and new Farms will be changing according to a new quantitative approach starting on the 23rd of April. We will be adding a Farm to the COPI/ADA Pair!
In our first article about MIN Farms, we laid out a system to allocate MIN to Farms in the future. The idea was that it would be the “Kitty Farmers” (a group of some of the most passionate and DeFi savvy Minswap Community Members) that would adjust the allocation of MIN to Farms. However, following recent internal discussions, we think it makes sense to pivot to a mainly data driven model instead of the previous one that is more dependent on a group of actors. In this Forum Post, a formulaic approach is laid out to do just that. This Medium Post elaborates further on the intricacies of the model to be used.
Overview of the Metrics for the Formula
The main idea for the new model is to look at these 2 metrics:
14 Day Average Daily Volume: a smoothed measure of the volume transacted in a LP over the past 14 days. The long term success of a DEX is driven by deep liquidity and volume. Token emissions cannot last forever, so eventually LP rewards will come down to volume only. A DEX that has strong volume after emissions end will continue to incentivize users to provide liquidity to the LPs. Therefore, we should be rewarding pools with high volume.
14 Day Average Total Value Locked: a smoothed measure of the Total Value Locked inside of a LP over the past 14 days. TVL shows how deep the liquidity of a pool is. Deeper liquidity means less slippage for anyone who wants to transact in that pair of tokens. So, deeper liquidity incentivizers users to use Minswap DEX to swap this specific pair of tokens. If a token pair has deeper liquidity on a competing DEX, it is highly likely that the competing DEX will have better pricing. Thus, we should be rewarding pools with lower TVL in order to incentivize users to deposit liquidity in those pools, and drive volume to Minswap.
Currently, the Volume Metric is 9x more important, as the aim is to reward pools that have high Volume and low TVL.
It has been a unanimous decision to add a MIN Farm to the COPI/ADA Farm. At almost 2 million ADA TVL, and being one of the highest trading volume pairs recently, the COPI/ADA Pair meets all the standards to have its own MIN Farm as laid out in our guildelines to have a new MIN Farm here.
Allocations of MIN rewards will be rebalanced, and will come into effect on the 23rd of April. As indicated, please read the Forum Post for further details on the Parameters utilized to derive the new Allocations. The aim is to optimize how we allocate MIN Yield Farming Rewards to different Farms. Essentially, every MIN we spend on Yield Farming, represents a cost to the protocol, and it should be allocated in such a way that it maximizes the revenue of the protocol (which means swap fees/volume) as well as TVL. This is what we aim to do through this new system.
We would like to thank the Kitty Farmers madblocks and Marco for coming up with this excellent model. Minswap is a community driven protocol and we are very lucky to count with the support of DeFi savvy community members as contributors! Please feel free to give us your ideas on this approach as well as other improvements the Minswap DEX could implement in our #ideas channel on our Discord or on our Forum if you would like to contribute.
Stay tuned for further ideas the Kitty Farmer Committee is working on 👀