BIP 22. Badger/DIGG Emission Plan Part II: DIGG Peg-based rewards.

Category: Emissions
Scope: Basic parameters for DIGG distribution.
Status: Accepted

DIGG launch introduces three new Setts: two DIGG LPs and one DIGG staking Sett.
Those can be classified as DIGG Setts. All current Setts can be called Badger Setts.

This BIP proposes distributing different % of DIGG rewards to these two types of Setts based on where DIGG price is compared to BTC price.

  • BIP 21 covers the distribution model when DIGG price = BTC price.
  • When DIGG price is below BTC, DIGG Setts get more DIGG, and Badger Setts get less.
  • When DIGG price is above BTC, DIGG Setts get less DIGG, and Badger Setts get more.

Badger rewards stay the same for all Setts, no matter how DIGG price moves.

Overview.


With the introduction of the dual token emissions model, part of the rewards to all Setts will be distributed in DIGG.

DIGG is a currency that targets the price of BTC.

BIP 22 leverages the financial interest of the money locked in Setts to help keep DIGG price closer to BTC price.

The sheet below illustrates how distributions change based on DIGG price:



With the proposed parameters and BIP 21 ratios in mind:

  • When DIGG price is at the peg, 50% of DIGG emissions go to DIGG Setts, and 50% go to Badger Setts.
  • If DIGG is at 80% of BTC price or below it, all DIGG emissions go to the DIGG Setts.
  • If DIGG price is at 130% of BTC price or above it, 70% of DIGG emissions go to Badger Setts and 30% to DIGG Setts.

All the Badger emissions are stable: Badger and DIGG Setts receive the same amount of Badger rewards no matter what DIGG price is.

This structure:

  • Incentivizes DIGG holders to LP and Stake when the price is below peg. The higher APYs for DIGG Setts also create the necessary demand for DIGG to move its price closer to peg.

  • Motivates Badger Setts users to support the price of DIGG, as it allows them to receive larger rewards.

  • Incentivizes DIGG LPs and stakers to move the price lower when it’s above peg to receive a larger % of DIGG emissions.

Specifics:


There will be a number set at the beginning of each emission cycle for how much DIGG overall will be included in that cycle.

All Setts are classified as DIGG or non-DIGG.

At each emission cycle, the DIGG price relative to the target is checked, and the % of DIGG emissions going to DIGG Setts vs. non-DIGG Setts is adjusted for that cycle. The emissions will then be distributed to each of the Setts directly based on predetermined breakdowns for what % of DIGG emissions they get for their respective category.

There will be 6 parameters that will drive how the emissions are split:



Equilibrium is set at 50%, target price at 100%. This means that when DIGG price = BTC price, 50% of DIGG emissions go to DIGG Setts.
The minimum that will ever go to DIGG setts with the proposed parameters is 30% of emissions, which happens when DIGG is at 130%+ of BTC price.
The change between equilibrium (50% emission at 100% price) and minimum (30% emission at 130%+ price) happens linearly.
So DIGG price at 120% results in 36.67% of emissions going to DIGG Setts for the cycle.



In the second example, we see that at 89% of BTC price, DIGG Setts receive 77.5% of the total DIGG emissions for the cycle.

You can try out different parameters and see how they affect the emission breakdown in chart form here.

This is how the chart looks with the proposed parameters.
The Y-axis is the % of emissions going to DIGG Setts, while the X-axis represents the relation of DIGG price to the Target Price.

Big thanks go to @jonto for creating the specifics of the Peg Based model, setting the initial parameters, and writing a part of this BIP.

Do you think we should enact Peg Based emissions for DIGG?
  • Yes
  • No

0 voters

Do you agree with the proposed initial settings for the model?
  • Yes
  • No

0 voters

11 Likes

We should consider leaving at least 5% of DIGG emissions to go to the non-digg setts at all times. This provides a little bit of necessary alpha for the btc sets and may allow us to reduce badger emissions more quickly. We can change that in a few weeks though after launch. Thanks for this second very well structured BIP.

8 Likes

Digg emissions will be here for 8 weeks if I remember correctly? So this emission plan is for the first 8 weeks. Is there already an idea what will happen after this to maintain peg?

1 Like

Juicing DIGG liquidity below peg will require more buys to move the price back up. It’s a bold move to kick off the launch and risks creating apathy.

2 Likes

Adding on to this question: so it will be 40% of the initial supply (1600 DIGG), over 8 weeks. So we’re looking at approximately 200 per week?

Any risks with the badger token being dumped on to chase the new DIGG setts? Or do we expect increased TLV to drive up badger token price? I know in BIP 21 there was a proposal to increase badger sett emissions, but not sure how the players will react.

@VLK This suggestion is spot on.
BIP 21 model is relevant for the 1st week of DIGG/Badger emissions, then the emission extension plan will come to play. Part of that plan will likely be replacing a larger part of Badger emissions with DIGG emissions. So it makes sense to have the minimum amount of DIGG that Badger Setts receive rise.

@AngryMacaron
There will be an emission extension plan that if approved will make the liquidity mining program go for longer than 8 weeks.
Plus some price stabilizing Setts might get developed during this time.

@thRoberto20
The dual token emission plan from BIP 21 already extends the duration of liquidity mining program for DIGG, as not all 5% of DIGG available are distributed every week.

@0xNick I’m not sure I completely understand what you mean. Doesn’t the price affect liquidity? That is, if the price of DIGG is lower, the liquidity in DIGG/WBTC pair is lower.

7 Likes

Are all DIGG emissions rewarded as DIGG? Or are there any DIGG–>BADGER buyback mechanisms?

@pro the idea being that if people flood the DIGG LP pools to earn emissions, it will be harder to move the price upwards.

I’m on mobile and have not been able to read the sheet but if everyone LPs and there’s not strong enough demand to buy then DIGG may find itself perpetually under peg until the incentives are adjusted.

Impossible to predict how it plays out but just an undesirable scenario that came to mind.

4 Likes

This is a good point that i hadn’t thought about.

Well in order to become an LP in that situation someone would need to buy DIGG when the liquidity on the pair is lower comparatively.
It seems feasible that most of DIGG will be sitting in either LP or staking Setts. I think it’s unlikely that there will be a lot of DIGG on the sidelines that will decide to start LPing once the price goes negative.

Plus there is a direct interest for money sitting in the Badger Setts to keep the DIGG price higher, as it can increase its APY considerably. And it might be relatively cheap for the TVL that’s there.

Ah OK. I’m pretty much just going on this from your OP:

Incentivizes DIGG holders to LP and Stake when the price is below peg

I’d just be wary of incentivising more liquidity below peg. If anything, trying to remove liquidity will make it a lot easier to get back on peg - although not exactly "organic*.

Any risks with the badger token being dumped on to chase the new DIGG setts?

The good thing about this particular interaction regarding BIP 22 is that money that stays in Badger Setts will receive higher rewards in DIGG when the price of DIGG moves up.

The first week after DIGG launch is likely to be volatile.

But then there will be an option to further adjust the comparative value that is distributed to DIGG Setts and to Badger Setts.

@magic Yes, all DIGG emissions are rewarded as DIGG, and all Badger emissions are rewarded as Badger.

The way I see it, it’s less about increasing liquidity and more about reducing supply and creating demand here.
In the current model when the price is at 80%, in a DIGG Sett your receive 1.5x of the dollar value of emissions compared to peg.
And it’s 2x more DIGG, so just staying and staking becomes quite fruitful in terms of increasing your share of the supply.

3 Likes

as long as this is bot resisant, im down. sounds stable otherwise.

Where is the price being checked and how, what are we using for an oracle?

Also, the Badger cycles have been pretty sporadic in timing, which isn’t much of an issue as it simply has to do with distributing rewards. The mechanism with Digg cycles however…is tied into the price. Is the team confident that these cycles are not going to get way out of whack? And how long will these cycles be?

These are some small concerns that I have, otherwise this is a great BIP just like the previous, bravo!

4 Likes

I’m not 100% confident that the below-peg incentives guarantee a reduction in supply. It’s dependent upon how much DIGG and ETH are in the users’ wallets.

  1. Every time liquidity is added to an AMM pool, it takes more capital to move the price. This is great to dampen price overextension downwards. However, the longer time you are in the below-peg scenario, the more liquidity gets added to chase incentives and therefore requires more capital purchases to push back up.

  2. In below-peg scenario, an increase in emissions into DIGG/ETH likely means a higher concentration of wallets will earn more DIGG. They may want to chase the excess rewards in the DIGG/ETH pool. However, they may not have enough ETH to match when providing liquidity. This actually could create MORE sell pressure to get enough ETH to LP. Referencing #1, selling DIGG (lowering the price) and then increasing DIGG/ETH liquidity requires MORE DIGG purchased to return to the original price.

  3. Given that non-DIGG sets will sometimes earn DIGG, the users they will likely already have it in their wallets unless they either dumped or LPed already. However, some will still have DIGG in their wallets when below-peg occurs. Hence, that group may just decide to LP DIGG/ETH rather than market buy DIGG to pull the price back up.

I’d love to continue this discussion! I may have to think some more too, as I’m currently on mobile. In general, increasing liquidity when price is near-peg is actually the best way to keep prices stable. As already mentioned, adding liquidity makes it naturally harder to shift prices. Further thinking would have to be done before I could figure out if that is the best thing to do here.

3 Likes

I think the proposal is well thought and structured.

However, what about multipliers? BIP 21 mentioned that “Part II will introduce the new staking multiplier and DIGG peg based distribution model”. I don’t see them anywhere in the proposal and in the model.

I think they could play an important role to incentivize permanence in the setts, especially in a volatile asset such as DIGG.

How will they work and what impact they will have? I think the model should consider this too. By the way, people should be aware of the multiplier and know at all times what their current multiplier is.

1 Like

In agreement here and I really hope OP @pro reconsiders. With the wrong incentives it could be very tricky to come back from a dip below peg, which will lead to a lot of apathy and the wind being taken from DIGG’s sails.

I’d suggest this mechanism is implemented later when the project is more mature. It’s important early on that we make the peg easy to achieve (or at least, not harder to achieve).

Every time liquidity is added to an AMM pool, it takes more capital to move the price.

@CometShock @0xNick

The liquidity mechanic is a bit different when it comes to rebasing tokens.

When the price goes down, the liquidity shrinks not only because of price reduction but also because the negative rebases start to occur.

So if the price stays at 80%, no matter how you structure the rewards, the overall liquidity will be shrinking due to supply contractions.

If we think about algo stablecoins that don’t have external incentives, usually holders don’t win anything in the supply retraction phase, they only keep the % of the supply.

Here not only a staker/LP increases the % of the supply, but the increase rate is also higher.

1 Like