eIP 51: Update EUL Distribution Scheme

[eIP] Euler Improvement Proposals Voted Proposals
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Title: eIP 51 Update EUL Distribution Scheme to incentivize ETH deposits
Author(s): @Matt_StableNode @Bobbay_StableLab
Related Discussions: eIP 24, EUL Staking Assessment, eIP 47
Submission Date: February 3rd, 2023

Simple Summary:

Update the EUL distribution scheme to incentivize increased ETH TVL and better match the protocol desires for EUL distribution. This aims to improve trading opportunities for Euler’s users and attract more users looking to enter ETH LSD markets on Euler.

Abstract

This proposal aims to update the EUL distribution scheme to better align with the needs of Eulers’ users. With a combination of the reflection of the success of the original EUL reward distribution with the Shanghai update approaching soon, there is a lot of focus on ETH LSDs and possible trading strategies.

In order to enable Euler users to get the most out of this, Euler needs to increase the WETH TVL on Euler; we propose to amend the EUL distribution amongst the gauges and staking to better reflect the usage of Euler protocol.

Motivation

Currently, Euler has 93.64M stETH available, 23.34M cbETH available, and soon possibly rETH, but only 18.92M WETH available. This means traders attempting to loop ETH LSDs, and WETH do not have enough WETH to borrow for these trades.

To make this trade more appealing to traders, the WETH TVL needs to increase dramatically. One way to incentivize higher WETH TLV is to increase EUL rewards for staking WETH on Euler. Providing sufficient WETH availability could attract many new users to Euler that are looking to execute these types of trades

Without causing additional costs to Euler DAO, we can amend EUL distribution to make this reward program more capital efficient.

Specification

Current EUL Distribution

Euler currently distributes 55k EUL per epoch since eIP 24.

  • 5,000 EUL per epoch to stakers of each of USDC, USDT, WETH markets (15,000 per epoch in total).
  • 8,000 EUL per epoch via gauges to borrowers on each of USDC, USDT, WETH, and WStETH markets (32,000 per epoch in total).
  • 8,000 EUL per epoch shared proportionally among all assets with a Chainlink oracle (either now or in the future) (8,000 per epoch in total).

Proposed Change to Gauge Distribution

  • Remove the 8000 EUL allocation for USDT in the gauges.

USDT had the 4th highest EUL distribution for epoch 21 but the 16th most votes. WETH, StETH, and USDC, however, are all top 5 vote-getters. This clearly demonstrates that borrowers are not as interested in USDT as they are in the three other assets that receive the automatic 8000 EUL per epoch.

For this reason, we believe the automatic 8000 EUL allocation for USDT is no longer reflective of Euler users’ desires and should be removed. It would be a more efficient market to let voters decide how much EUL the USDT gauge receives.

The current utilization of USDT is 58%, meaning there is plenty of USDT available, and there is not currently a need to heavily incentivize an increase in USDT TVL. Additionally, USDT currently has the least value staked of any asset available to be staked on Euler and is the only asset to decrease in the amount staked over the last three months.

Proposed Change to Staking Rewards

USDT Staking Rewards

  • Reduce the USDT staking EUL distribution from 5000 EUL to 1000 EUL per epoch.
  • Extend the staking reward program until a vote passes to remove it.

The amount of USDT staked on Euler has gone down over the last 3 months, while the amount of USDC and WETH staked on Euler has increased over the same time period. This shows that Euler users are less interested in staking USDT, and the rewards would be better used to reward WETH stakers.

Finally, the current utilization of USDT is 58%, meaning there is plenty of USDT available to be used, and there is not currently a need to incentivize an increase in USDT TVL heavily.

This reduction in 4000 EUL can be moved over to the WETH staking rewards reference in the next section. This would allow increased incentives for WETH Staking without causing additional costs to Euler DAO.

WETH Staking Rewards

  • Increase the WETH staking EUL distribution from 5000 EUL to 9000 EUL.
  • Extend the staking reward program until a vote passes to remove it.

Currently, the amount of available WETH on Euler is only about ⅙ of the amount of ETH LSDs available, and this problem will only be made worse when eIP 47 passes.

Increasing WETH staking rewards would increase incentives to stake WETH and therefore increase WETH TVL. This would make much more WETH available to those looking to loop ETH LSDs with WETH, which could attract new users to Euler and earn the protocol more in fees.

Proposed New EUL Distribution

47K EUL Distributed accordingly:

  • 9,000 EUL per epoch to stakers of WETH market.
  • 5,000 EUL per epoch to stakers of USDC market.
  • 1,000 EUL per epoch to stakers of USDT market.
  • 8,000 EUL per epoch via gauges to borrowers on each of USDC, WETH, and WStETH
  • 8,000 EUL per epoch shared proportionally among assets with Chainlink oracle

Next steps:

  • Remove automatic 8000 EUL allocation for USDT in the gauges.
    • Let EUL distribution be voted on by the gauge system and allocated from the 8000 EUL shared proportionally among all assets with a Chainlink oracle.
  • Reduce the USDT staking EUL distribution from 5000 EUL to 1000 EUL.
  • Increase the WETH staking EUL distribution from 5000 EUL to 9000 EUL.
  • Extend the staking rewards program past the initial 3-month trial and continue it until another vote is passed to end the program.

Relevant Links:

Pros and Cons of This Proposal:

Pros

  • Incentivizes more WETH TVL
  • Makes Euler more appealing to traders exploring STETH/ETH, CBETH/ETH, and future RETH/ETH markets
  • Could attract more users to Euler leading to more revenue for Euler
  • Saves EulerDAO 8,000 EUL per epoch which could later be used to incentivize other gauges

Cons

  • Less incentive to stake USDT
  • Less incentive to borrow USDT