Balancer DAO is extremely excited to introduce the newest iteration of tokenomics for the Balancer governance token (BAL). On February 10th, 2022, the vote for veBAL Tokenomics began. By a landslide of 361,000 votes to 147, the changes have been approved by the governance process. The vote ended three days later February 13th leaving the community riddled with anticipation. Implementation of the new tokenomic model comes coupled with several key points.

Since the initial proposal, a key change has been made regarding the gauge voting. 100% of emissions will be controlled by veBAL holders across all networks. In this case no liquidity mining committee will be required and veBAL will only receive the percentage, which pertains to the voting done the veBAL holders. See more on these changes here.

The highlights are vote-escrowed locking of BAL / WETH pool tokens, gauge voting for veBAL token holders to determine where liquidity mining emissions are allocated, incentives boosting, protocol revenue distribution, and a well-defined BAL inflation schedule. With all these updates wrapped into one package many of our community members may be left asking: what does this mean for me? Continue reading to dive into to the mechanisms and what we have seen from similar projects!

More information:

• High Level Summary; TLDR

• Vote Escorwed Governance

• Financial Implications

• Inflation Schedule

Balancer DAO is in no way providing financial advice, recommendations, or guarantees of economic outcomes. The documentation covers potential outcomes based on similar circumstances from alternate Defi Protocols (Curve and BeethovenX primarily). The DAO recommends users to do their own research and make financial decisions based on inferences formed by themselves.

veBAL is financially beneficial to lockers in 3 ways:

• Boosting BAL incentives for staking BPT's (Balancer Pool Tokens)

• Protocol Revenue Distribution

• Allocating Liquidity Incentives via Gauge Voting system

Gauges will be voted for through mainnet only, here delegation of BAL incentives can be done across all chains and gauge approved pools.

Users can view the current pools eligible for gauge voting here. Interested in proposing your project's token to be eligible for voting? Check out the instructions page on our forum.

A common obstacle faced by users of vote escrowed systems is the inability to lock their token in the time based veBAL contract. For safe users this would mean no access to veBAL governance or boosted liquidity pool incentives.

If you would like to delegate your veBAL boost to another address, you can do so by calling the create_boost function on the veBAL veboost contract https://etherscan.io/address/0x2E96068b3D5B5BAE3D7515da4A1D2E52d08A2647#writeContract

// code
_delegator = your address which has veBAL,
_receiver = your address you want to boost
_percentage = 5000 // 50% (10000 is 100% of your boost)
_cancel_time = 0 // allow yourself to cancel anytime
_expire_time = 1651363200 // unix timestamp for 1st 
of may (Check this! Also your lock needs to last past this time)
_id = 0,

This is useful for situations where you are LP'ing from a contract like a gnosis safe which, because it's a contract, is incapable of locking of veBAL. Instead, you lock up veBAL from an EOA and delegate your boost to your gnosis safe.

Note that the percentage is flexible over the complete range of boost which you would like to delegate.

Vyper_contract | Address 0x2E96068b3D5B5BAE3D7515da4A1D2E52d08A2647...

Under certain conditions, specifically larger liquidity deposits, a maximum boost of less than 2.5x becomes apparent. The logic behind this is that there is only a finite number of incentives going to a pool, for example 10,000 BAL. Regardless of boosting, the pool's 10,000 BAL is distributed to the staked liquidity providers, boosting is a factor in which LP’s receive different portions of the incentives.

i.e. the pie is the same size but the slices are cut differently

The liquidity in terms of how much veBAL correlates to it what is called a working supply. The working supply can range from 40% to 100% of a user’s staked liquidity position. This is the main theory behind how rewards are distributed. The equation below defines a user’s working supply. (see variable list here)

This would mean the minimum or “non-boosted” supply a user could have is the following, assume no veBAL is owned.

In turn, the maximum working supply possible is defined as the following:

To determine the maximum boost possible for a pool we must compare a user’s non-boosted and maximum working supply to the working supply the pool already has in place.

The pool’s working supply is the sum of all the liquidity providers working supplies prior to the deposit of a new user’s working supply.

The maximum boost possible for a user will be the ratio of their portion of max working supply plus the pools total working supply, divided by their portion of minimum working supply plus the pools total working supply. Please note the pools total working supply used here is prior to the user’s deposit.

Please note if a user has a working supply in a pool already, this must be subtracted total working supply in both the numerator and denominator of the equation a shown below.

The variables to consider when calculating veBAL incentives boosts are the following:

• The Liquidity you will provide and stake: l

• The staked liquidity in the pool before you deposit and stake: L

• The liquidity in the pool after your deposit and stake: L' = L + l

• The total veBAL in circulation

• The amount of veBAL you hold

A common question is what is the minimum number of veBAL a user needs to hold in order to receive the maximum boost. To calculate this value:

While this does answer what the minimum amount of veBAL is need for maximum boost at one point in time, we must consider what happens over time. if a user has the minimum veBAL required to receive maximum rewards and then more veBAL is minted, this means I will no longer be receiving the maximum rewards due to dilution of the Total veBAL.

To the opposite point, as more liquidity enters the pool your boost may increase, but net rewards decrease, while this is less critical one may require less veBAL if the portion of the pool they own decreases. Therefore, it is up to the user’s discretion how much veBAL they would like to hold.

See here how to calculate the maximum boost one can receive from an investment.

1. Will voters vote on how much emissions go to each network or is that locked?

The voting mechanism is described in "How it works" in Gauge voting documentation.

Voters will determine the amount of emissions going to gauge listed pools on each chain (Mainnet, Polygon, and Arbitrum), the voting will happen on mainnet. This is because the contracts to read your veBAL balance are on mainnet only.

2. If you have veBAL on mainnet, does it boost your farming on Arbitrum, Polygon?

No, only gauges on L1 (Ethereum mainnet) receive incentive boosts because the contracts must read your veBAL balance.

The boost depends on what fraction of the gauge staked liquidity you hold and what fraction of the total veBAL you hold. See more on boosting here.

3. Is the veBAL vote on-chain, and does it require gas fees?

Yes, gauge votes are on-chain and cost a fee, when gas was 50 GWEI it was about $40 to vote, depending voting incentives (known as bribing) there is potential to offset the cost of voting. ****

If the same pools will be selected each week, no additional vote, transaction, or gas is needed. Users only have to vote once, unless they want to change their allocation.

Gas price is subject to change based on the price of ether and network congestion. ****

4. In the transitioning to veBAL, will I personally need to do any migration from the current pool I have invested?

On mainnet, yes if your LP pool is eligible for gauge voting, you have to stake your LP for incentives.

On Polygon and Arbitrum, not in the initial launch period, but you will need to stake them in the near future.

The only lock-up necessary is to lock the BAL 80 - ETH 20 LP to receive veBAL.

5. Do veBAL holders receive a portion of the trading fees? How are the protocol fees paid?

veBAL holders are receive protocol fees distributed in bbaUSD (Boosted Aave Stable Pool LP Tokens) see Protocol Revenue Distribution.

6. Is there a way to view how much total veBAL there is?

Yes that information is in the following link: https://dune.xyz/balancerlabs/veBAL

7. How do I make a pool eligible for gauge voting?

Need to make a governance proposal, https://forum.balancer.fi/c/vebal/13

8. How much BAL/WETH BPT do I stake to maximize my multiplier? What amount do you need to stake at 1 year to hit the 2.5x boost for liquidity incentives?

The length of time locked corresponds to how much veBAL you'll get for your 80/20 BPT. Voting is 1 veBAL for a 52 week lock of 1 BPT. Where a one week lock of 1 BPT will give 1/52 veBAL. **** See further info here.

The LM boost is separate. Related to your share of the pool and share of veBAL. Range limited from 1-2.5x. This can be calculated on our tools site and the math is explained here.

9. How do i get veBAL, and can i transfer BPT or veBAL?

You will need to have BAL tokens or WETH to invest in the BAL/WETH 80/20 pool. You can deposit a single asset, which will incur some price impact, or you can deposit both assets in the correct weights. You will receive BPT which you can then time lock here to receive veBAL.

Yes, you can transfer BPTs. Rewards will accrue in the wallet where they are held.

veBAL is a non-standard ERC-20 token and cannot be transferred.

10. How do I extend my veBAL lock up?

Just go to the veBAL site, see "Lock until" , click "+", choose the time desired, and confirm.

11. Are incentives paid daily?

Incentives on mainnet are now accrued each block. Protocol fees are distributed on a weekly basis.

12. Does veBAL support Gnosis Safe?

It's normal for vote escrowed (ve) systems to not allow arbitrary contracts to lock as otherwise it's easy to tokenize the ve tokens which defeats the point. Users can lock up veBAL from an EOA and delegate it to your gnosis safe to earn boosts. Guide link.

13. Is there a repository for the contract addresses of all the new staking contracts and veBAL contracts?

Link to the veBAL contracts:

Special thank you to community contributor Cosme Fulanito and baller Joey Wong for putting together these questions and answers.

As opposed to the initial liquidity mining incentives where a liquidity provider receives incentives based only on their share of the total liquidity, we will now implement a multiplier based upon the time locking mechanism. Locking the same amount of BPT for a longer period will yield a higher incentive multiplier for a user.

Please note the maximum boost possible for liquidity mining incentives is 2.5x. See here how to .

The boosting mechanism theory is visualized by the graphic below. The fraction of a pool's working supply a user owns is based on upon their share of their respective pool, and their share of total veBAL. Continue reading through this boosting sections for further information on the working supply.

Based upon this new mechanism locking the same number of tokens for twice as long as someone else will result in twice the voting strength. The boosting proportion and more additional benefits are coupled with wielding that strength, however they are not as directly proportional.

Special thank you to Baller, zekraken, for deconstructing the contracts & code to make calculating boost easily accessible to the Balancer community.

By locking the BAL WETH 80/20 BPT holders are given veBAL in exchange for governance and implied financial purposes and benefits. The longer the length of the time lock a user agrees to the higher their multiplier got governance. In short if I lock 1 BPT for 52 weeks I will receive the same amount of “vote escrowed” strength as someone who locks 2 BPT for 26 weeks. Quite simply voting strength is a function of the amount of pool tokens locked multiplied by the length of locking time.

Financial implications:

• veBAL equates to boosted liquidity mining incentives for all incentivized pools. In short, the staked pool share, and the lock multiplier, or boost, are both factors in a user’s liquidity mining “APR”.

• Lockers receive 75% of protocol fees. 50% of the swap fees accumulated on Balancer Protocol are collected as protocol fees. So, of all fees 75% of 50% are distributed to the veBAL holders, more veBAL equates to a larger portion of the protocol revenue distribution.

• veBAL will be used for a governance gauge voting mechanism to decide which pools receive BAL liquidity mining incentives. Users can direct liquidity mining incentives to the pools of their choice.

  • veBAL does have a gauge to direct rewards to the holders if chosen. This option is capped at 10% of total emissions of BAL at a given time in the inflation schedule. The overflow, if a vote goes over 10%, will go to the DAO treasury, where governance will have ownership of it.

This gives veBAL holders the option to choose pools they have liquidity positions in for increased incentives or a potential for bribing battles can ensue. Bribing battles will essentially allow projects to provide veBAL holders a compensation or incentivize to vote in a direction they prefer, hence the term “bribe”.

In the same breath, the emission schedule for BAL has been defined and will be set permanently. Currently 145,000 BAL is emitted per week, which is unsustainable without a ceiling on emissions. The two key takeaways for the new inflation schedule will be a halving of the inflation rate every 4 years, and a total supply of BAL being capped at 94,000,000.

veBAL is the newest pillar of Balancer’s governance system. Derived from Curve finance vote-escrowed voting essentially gives holders of a respective protocol’s token the ability to lock their asset for a period. The longer the asset is locked, the more voting strength their assets are delegated by escrowing system. In Balancer’s case this is unique in that it is the first to adopt a liquidity pool token as the mechanism for governance, the BAL/WETH 80/20 pool token.

Both quantity of the token locked, and the period of locking will determine the voting strength a holder wields. Quite simply this is defined by the number of weeks locked multiplied by the number of tokens locked itself and decays on a weekly basis. One week is considered an epoch. Voting function shown below:

This means that commitment to hold BAL long term will give the strength to long term holders more so than those who lock in short periods of time. Voting decay will follow a linear curve on a weekly model meaning locking for 52 weeks will give a voter 52x the voting strength than that of a holder who locks for 1 week.

The voting strength will decay over time and can accumulate if a user locks separate amounts at different points in time. Please note quantifiably, locking 1 BPT for 1 year equates to holding 1 veBAL, then the multiplier works in a fractional fashion. Locking 1 BPT for 26 weeks would yield 0.5 veBAL.

Ultimately, the benefits of the veBAL tokenomics will be felt by the BAL/WETH liquidity providers with long term commitment. Aligning governance and financial incentives to be encompassed in the token’s nature make it organically more desirable.

In short, governance is enhanced, and the protocol revenue distributions, liquidity mining incentive boosts and the ability to direct the incentives all come to token holders in one package. This is a huge step forward to make Balancer more sustainable, while at the same time is still an upgradable system in the case that future advancements are made.

Background

Gauge voting has been implemented by Curve finance to give their governance token control over financial outcomes. This delegates a much larger amount of power to token holders and amplifies the meaning of governance by a new magnitude.

Balancer Protocol is adopting this same method of governance and is confident not only from Curve’s outcomes but also from the more comparable friendly fork of Balancer, BeethovenX. By giving a financial power of control to the governance token it not only becomes more desirable to hold it can be utilized as an asset that other protocols wish to control the outcomes of as well.

The initial use case of the gauge voting system is to allow governance token holders, in this case veBAL, the ability to select the pools they are invested in to receive liquidity mining incentives for the next epoch. This eventually transformed when projects would bring their liquidity to Curve or Beethoven and would then bribe the holders to vote for the pools which would benefit the protocols. This has proven to be financially sound for the protocols which are doing the bribing because their token’s pools receive incentives for only the cost of their bribe.

How it works

Gauges will be voted for through mainnet only, here delegation of BAL incentives can be done across all chains and gauge approved pools. Users do not need to vote each week if they will maintain the same delegation as the previous. Voting is only needed once, and then again if a change in selected pools is done.

Users can view the current pools eligible for gauge voting here. Interested in proposing your project's token to be eligible for voting? Check out the instructions page on our forum.

A key note here is that veBAL can vote for the gauge of veBAL itself. This is capped at 10% of total emissions of BAL at a given time in the inflation schedule. The overflow, if a vote goes over 10%, will go to the DAO treasury, where governance will have ownership of it.

External veBAL Incentives

The potential for external incentives or cross project incentivization, also known as "bribing" is a common byproduct of gauge voting systems. How this benefits veBAL holders and the projects which choose to influence their votes is described below.

To be clear, “Project A” will give a veBAL holder their project’s tokens to use their voting strength to incentivize “Project A’s” pool with BAL liquidity mining incentives. Typically, “Project A” will offer a lump sum to all those who vote for their pool.

After the voting is completed, this lump sum is then divided amongst the votes proportionally and distributed to those who voted for “Project A’s” pool. This means the more veBAL you hold the more bribes you can be entitled to. On the flip side, the more votes “Project A” attracts with their bribe, the more liquidity mining incentives their pool will receive.

To calculate a users boost the process from the Maximum Boost section will be used considering the veBAL holdings user has.

First we must calculate the user's working supply:

This would mean the minimum or “non-boosted” supply a user could have is the following, assume no veBAL is owned.

The boost a user receives is the the ratio of their working supply over the new total working supply, divided by the minimum case of their working supply entering a pool.

In the case of already being in the pool and depositing further liquidity, the following adjustment must to be made to consider the working supply a user already holds a given pool.

BAL token inflation has been a topic of uncertainty for quite some time. With emissions weekly being at 145,000 BAL per week a common question arises of, how long can this last?

The answer is that long term, this is an unsustainable model. Holders of long-term projects want predictability of the total token supply over a long-term window. Not only this, but the rate at which BAL is emitted by the liquidity mining program must be curtailed to give a decreasing rate of inflation to the token over time. The change in tokenomics addresses the two issues directly with the new emissions schedule.

BAL emissions will decrease over time, halving every four years based on the date at which the tokenomics goes live. For example, this will be the simulated schedule for the first four-year period:

The entire emissions schedule can be seen here. Emissions are represented graphically below. At this rate the total supply of BAL will reach asymptotic behavior at roughly 94,000,000 BAL tokens in circulation. Therefore, an upper limit to the total supply is defined and set in stone for the future of Balancer Protocol. This change is irreversible and defines the permanent future for circulating BAL tokens.

Protocol revenue has become a common vehicle for AMM’s to accumulate a treasury of assets as well as redistribute the profits of trading on to their governance token holders. Balancer Protocol is adapting this mechanism in their own form.

In a recent governance vote the protocol fee was increased to 50% of all swap fees as noted here. This means all pool revenues on Balancer are being split in half. Half of the swap fee value is going to the protocol revenue and the other half is directly accumulated by the liquidity providers in each pool.

While a liquidity provider may not notice a large difference in profitability, often in the realm of 0 – 2% APR is being accumulated by the protocol. This is not negligible however in terms of APR majority of liquidity provision is incentivized by liquidity mining incentives.

Regardless this value adds up across the entirety of Balancer Protocol. Of the 50% which is protocol revenue 75% will be distributed back to veBAL holders, based on their share of all veBAL in each epoch. The flow of protocol revenue from swap fees is depicted below. Without revenue share activated on a pool the "Fee Splitter" is bypassed. To understand revenue share for partner's read more here.

To be blunt if the swap fees for a given epoch equate to 1,000,000 USD equivalent, the protocol share will be 500,000 USD, meaning the DAO treasury will receive 125,000 USD and veBAL will have 375,000 USD distributed amongst them. This example is only for calculation, not a financial guarantee or promise.