# [reWARDS] March ‘23 Budget

[carvas]

Welcome to March’s reWARDS budget.

Details are below as usual. This proposal will be open for community feedback for 3 days. After which, if there is no contention, it will be acted upon.

As always, if there are budget updates throughout the month, they will be posted under this topic for transparency.

The sections are as follows:

• Important Updates
• Budget and breakdown
• Network Specific Comments

Important Updates:

1. The most notable update and difference in March’s budget is that there are zero budgeted incentives for both stDOT and stKSM (on Moonbeam and Moonriver respectively). Rewards on these two chains were not distributed in February already, and are now not present in this budget. The rows pertaining to these networks are still included here (at zero) for readability and accounting reasons – and will not appear on reWARDS’ budgets from April’s onwards.

2. This budget lists all rewards line items in both LDO and USD, thanks to @stakehouse’s suggestion. This allows for both points of view to be easily accessible by Lido’s community and DAO members.

3. New incentives have been included for incentivizing wstETH’s boostrapping of liquidity and utility on Polygon. These are under Polygon’s budget.

4. In this budget, @stakehouse’s proposal of ratcheting down the amount of rewards in both LDO and USD (instead of just in LDO independently of market price) was heard. There are strategic, growth and market considerations that may make it infeasible to rigidly stick to it, but it will be directionally implemented.

   • February’s reWARDS budget requested 1,890,000 LDO at a (then) market price of $4,347,000 while March’s requests 1,096,000 LDO at a 30d-twap market price of $2,747,672

Budget and Breakdown

March’23’s budget calls for 1,291,400 LDO. (Actual 1,174,000 + 10% buffer)

Remaining balances estimated at EOM (unspent and left in the different multisigs by the last day of February and usable for March’s incentives, rounded to thousands):

• Ethereum: 119,000 LDO
• Solana: 49,000 LDO
• Polygon: 0 LDO
• Moonbeam (Polkadot): 0 LDO
• Moonriver (Kusama): 0 LDO
• Arbitrum: 16,000 LDO
• Optimism: 12,000 LDO
• Total: 196,000 LDO

Requested budget 1,096,000 (Budget Call - Remaining, rounded)
(At a LDO 30d-twap, this amount has a market price of ~$2,747,672)

• To be distributed across the following pools and networks with the buffer of 117,400 LDO held for unaccounted needs during the month.
• The detailed .csv file is provided here.

Network Specific Comments:

Ethereum

The considerations from last month stand for this one with the special consideration that LDO/ETH price has increased which justifies not needing as many LDO budgeted for the same amount of ETH liquidity.
As such, the gradual reduction in incentives has continued in this budget.

Solana

No specific comments.

Polkadot & Kusama

As mentioned above, February was the first month in which liquidity and integrations for both stDOT on Moonbeam and stKSM on Moonriver were not incentivized. The committee has been tracking the effects of these cuts in order to extrapolate learnings to other networks/parts of the budgets.

Polygon

wstETH expansion on Polygon increasing DeFi diversity on chain, deepening liquidity and improving composability.

Arbitrum & Optimism

In February we saw continued adoption of wstETH on Arbitrum and Optimism. Highlights included the launch of new Beefy vaults, a new Dopex Vault, new Premia vaults, the launch of the wstETH market on Granary, and more.
Users of wstETH on Layer 2 networks will see some very exciting developments in March. Currently it is anticipated that Aave will list wstETH on Aave V3 on both Optimism and Arbitrum. It is also anticipated that Radiant, GMX, JonesDAO, QiDAO, TraderJoe, Vesta, Lyra, Perpetual, and more will have new wstETH integrations and/or markets for wstETH users.

Other notes:
LDO incentives on dFORCE are currently paused following the exploit of the wstETH-ETH LP market. This exploit having been resolved we anticipate the unpausing of rewards for the wstETH market only. dFORCE will use the remaining LDO allocated to them from the February budget so no new allocation has been made for March

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As always, any feedback, questions and comments are welcomed!

[steakhouse]

Appreciate the transparency and the consideration of our feedback.

Although month on month this does represent a $750k reduction in liquidity spend (or 546 ETH if you like), we are still landing on a March budget of $3.5m (2,116 ETH) relative to December at $2.9m (2,350 ETH).

If we applied the Steakhouse ratchet in March, we would be landing on a $2.1m budget vs $3.5m:

If we had been applying the ratchet since December, the budget would look even more aggressively reduced, which is the intent of this program to begin with.

What I’m calling out is that our overall liquidity spend is up significantly since December in USD terms and barely reduced in ETH terms. We are not really testing any meaningful reductions in liquidity. We’d kindly request to stop pricing the budget in LDO altogether. We should price it in USD or ETH if you like, but please not LDO.

Counterproposal

The Steakhouse counterproposal is to find a March budget that is a mid-point between the Ratchet method for March and what it would have looked like if we had done it since December, i.e.

This represents a -$2.0m reduction (or -1,196 ETH reduction) relative to the proposed March budget. When issued as LDO it comes out at 510k tokens vs 1,174k.

Annex

The full table is available here:

Google Sheets

Queries for MA prices in USD and ETH:

[Marin]

While I do concur with the sentiment expressed by the finance team and acknowledge that the financial performance of incentives has shown a marked increase in USD terms when compared to December of last year, I remain resolute in my conviction that any substantial reduction in our budget should be implemented at a later time, specifically post-Shanghai.

This is because, at that point, our need for deep liquidity will have reduced considerably, and the impact of conversion rates on exits will have been neutralized by withdrawals.

[Hubert]

Using bribing for Curve pool could lead to a reduction in budget without affecting the incentives distributed to liquidity providers.

[jbeezy]

The rewards committee is already heavily researched in the various bribe marketplaces and variable quests. Any noticeable savings is usually arbitraged away pretty quickly on any single path.

[jbeezy]

Does the @steakhouse recommendation has any insight to how it made the methodology to reduce which pools and networks by specific amounts?

I am 100% for cost savings in all denomimated forms. Historically LDO is what the treasury is holding the most of so the the goal was to reduce LDO net emissions irrespective of price. I think all approaches carry trade offs but IIRC the LDO reduction was viewing long term holding of max LDO by the treasury as the goal.

[Hubert]

pretty confident they are able to find the best outcome for Lido for sure

[carvas]

Thanks everyone from bringing inputs. Comments on the discussion so far:

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Counterfactuals

@steakhouse

If we had been applying the ratchet since December

1. I don’t think I see the relevance in taking the numbers from this past counterfactual scenario as an input to the average presented as the Stakehouse Counterproposal.
   In that case why would the counter proposal be Avg(ratchet_from_dec22, ratchet_mar23) and not Avg(ratchet_from_dec21, ratchet_mar23)? In other words, why not anchor it to any other previous month, even one before any sorts of cuts.

2. Relatedly, I think picking December due to it being the exact last local bottom in LDOUSD distorts the picture, greatly extenuating the differences as happens when a token drops close to 50% in a one month period.
   

   
   
   Also worthy of note that at that point the stETH exchange ratio had been and was off for a month

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Denomination

@steakhouse

We’d kindly request to stop pricing the budget in LDO altogether. We should price it in USD or ETH if you like, but please not LDO

• As long as rewards are given in LDO, the budget has to also be priced in LDO. And I think LDO is the right token for Lido’s rewards still (LDO vs DAI rewards).
• The runway of rewards depends on LDO denomination of these budgets. Like @jbeezy mentioned, I am and believe the reWARDS committee is generally also in favor of cuts and “savings in all denomimated forms”. Ultimately, the vast majority of the treasury is in LDO.
• Concurrently with this, USD denomination is valuable too, which is why we’re looking at both now like mentioned.

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And the most important point imo: Withdrawals

March’s budget is likely the last ever reWARDS budget before withdrawals are implemented for ethereum. A big part of the reasoning behind the liquidity program for the past two years was to expressly try to solve this fact of ethereum staking, and it will now be solved at the deeper level finally.

The cuts in these budgets started in October’s and albeit denominated only in LDO (knowing that will be the counterargument here) they were, in millions of LDO/month: Sep 4.5, Oct 3.9, Nov 3.5, Dec 3.1, Jan 2.6, Feb 1.9, Mar 1.1. Keeping in mind most budgets before had been between 4 and 5.5 for a long time.
(I totally get the USD point but for the treasury it is also absolutely relevant if these are 5m or 1m in LDO)

These reductions from ~5m to 1.1m were done before withdrawals and the obvious plan has always been to have a much reduced liquidity program post withdrawals, once secondary markets stop being the only source of it.

This is arguably also the last major ethereum event with a deep impact to Lido’s product (after the beacon chain launch and the merge); and a potential catalyst for a lot of market action – even more so on liquid staking tokens. And I’m heavily biased towards taking less radical action (though taking a lot of it already) in this specific budget.

Curve

The main line item in the budget has always been and is the stETH/ETH mainnet curve pool. The published budget proposed a reduction from 1,114,000 in Feb to 700,000 in Mar.

Right now, this pool is almost perfectly balanced and the exchange ratio is at pretty much 1:1 (>.999)
Additionally, there’s a CRV vote underway to reduce a bit the A-factor of this pool which adds another dynamic.

I think it’s fine to do some cuts on incentives here this month (the budget has the -40% MoM LDO) but not to do an unprecedented decrease in this specific month and risk something in the last month in which deep secondary markets are so vital to stETH.

And as such, agreeing with @Marin’s point, I believe this is not the month to do the even more radical cuts. I also agree (again, and this is obvious) that from April’s onwards reWARDS budgets should be much smaller still.

[steakhouse]

We stand by our counter proposal for consideration by the committee for the same reasons we outlined above. The committee will decide what it may and though we disagree strongly with its reasoning we trust its judgement to do the right thing and commit to working with the outcomes.

However, we believe it is extremely important to stop counting in ‘LDO terms’ as soon as possible. We’d like the DAO to stop thinking of ‘LDO in treasury’ or ‘LDO runway’. These are completely illusory and incorrect ways of counting. We see a ‘balance’ reflected in Aragon because of the way the LDO token is programmed, but it does not start to effectively circulate until it leaves.

Even if we wanted to issue rewards in LDO because we believe it later participates in governance (a testable and falsifiable hypothesis) we really really really need to stop thinking in LDO terms.

Instead, we need to start with a USD or ETH amount to put into circulation, and later translate that impact into to a dilution to LDO holders, which is what is really happening.

[kadmil]

Would note that April budget would be prepared before withdrawals 100%

All things considered, pricing incentives in ETH can make sense — all (w)stEHT pools have at least one “close to ETH” asset, so denominating would be easier; note that the question then is “what ETH price”, and host of other such considerations.

[carvas]

Small update to March’s Budget:

• Due to the some rewards programs are set up with fixed time lengths independently of each month’s actual length, there were additional initially unaccounted rewards on optimism in February, well under the general buffers included in the budgets. The net effect was that Optimism’s reWARDS multisig Feb EOM leftovers were in fact 4,056 LDO instead of the reported 12,000 LDO. This small difference will be accounted for in the budget refills now in March.