Proposal Details
Proposal #485
Proposal title
Adjust the Ratio of Emissions
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Proposal #485 description
This proposal signals acceptance of two linked changes to the allocation of daily emissions at epoch to be carried out simultaneously at the next software upgrade.
- Changing the ratio of emissions to pool incentives from 45% to 20% and staking from 25% to 50%.
- Changing the proportion of the pool incentives currently being redirected to the community pool from 70% to 0%, leaving the standard 5% allocation from the distribution module in place.
Details
All OSMO tokens minted as inflation at epoch are divided between four possible routes. This is currently set in the Mint module as:
- Staking: 25%
- Pool Incentives: 45%
- Community Pool: 5%
- Developer Rewards: 25%
Further to this, pool incentives have been redirected to the community pool over the last 10 months in order to minimise inflation during the bear market. Because of this the effective emission proportions are currently:
- Staking: 25%
- Pool Incentives: 13.5%
- Community Pool: 36.5%
- Developer Rewards: 25%
This proposal aims to solve two common issues raised with Osmosis tokenomics of the net yield from staking rewards and the net yield from larger liquidity pools being negative by adjusting the proportion of emissions received by each.
The proposed new ratio would be:
- Staking: 50%
- Pool Incentives: 20%
- Community Pool: 5%
- Developer Rewards: 25%
By also removing the share of Pool Incentives being redirected to the community pool these are identical to the effective emission proportions
Effect on Net Yield
Changing the emissions in this way causes the Staking Rewards and actual emissions to Liquidity Providers to make up a higher proportion of inflation. Combining regular compounding of rewards with diminishing inflation from a fixed emission schedule, results in a net yield increase when compared to existing inflation as follows:
- Staking Rewards net yield increases from -3.9% to 26.5%
- Liquidity Rewards net yield increases from 9.5% to 20.4%
While this is beneficial to both stakers and Liquidity Providers, it does not solve the common complaint of the high inflation of Osmosis. Therefore this proposal is combined with two others.
Combined with Reducing Emissions
When combined with the proposal to Reduce Emissions this changes the raw OSMO emissions to each route as follows:
- Staking Rewards remain static at 136,986
- Liquidity Rewards decrease from 73,973 to 54,795 (-26%)
- Community Pool decrease from 200,000 to 13,699 (-93%)
- Developer Rewards decrease from 136,986 to 68,493 (-50%)
This changes the net yield as follows:
- Staking Rewards net yield increases from -3.9% to 8.4%
- Liquidity Rewards net yield decreases from 9.5% to 8.6%
Combined with Decreasing the Superfluid Risk Factor
Further combining with the Proposal to Decrease the Superfluid Risk Factor to 25%, results in a small cut to staking rewards due to the increased number of OSMO able to be staked while compensating Liquidity Providers with greater rewards from Superfluid Staking, offsetting the reduction in Pool Incentives emissions from this proposals.
This also puts greater emphasis on the Superfluid Staking feature of Osmosis, increasing the share of rewards obtained from it compared to normal liquidity incentives as well as further increasing the security of the network.
This proposal in combination with the reduction in Emissions changes the net yield to:
- Staking Rewards net yield increases from -3.9% to 6.4%
- Liquidity Rewards net yield increases from 9.5% to 11.3%
To see or adjust the figures for each of these proposals and see specific impacts interact with this spreadsheet: https://docs.google.com/spreadsheets/d/17T54kCoa2I6BdImY6jDVxfKOyGo4NseiAZD5vbPtaWs/edit#gid=664683755
Linked Passing Disclaimer
This proposal is being proposed as part of a set of three:
- A proposal that adjusts or confirms the current emission rate.
- A proposal that adjusts or confirms the ratio of emissions.
- A proposal that adjusts or confirms the superfluid risk factor.
A proposal from each type is required to pass for any to execute. If a proposal fails with between 50 and 75% of the vote being No it will be redrafted with community feedback. If a proposal fails with over 75% being No or is Vetoed then the proposal will be submitted as a confirmation of progression without that component.
Commonwealth Thread: https://gov.osmosis.zone/discussion/10681-tokenomics-upgrade-proposal