Over the last 3 years token distribution initiatives have matured tremendously in DeFi. What started as liquidity mining, simple staking and vote locking transformed into metagovernance, omnichain and most recently option tokens. These often were introduced with the goal of decentralizing ownership of a protocol, providing incentives for using a product, bootstrapping governance and aligning interests of a community. Like any new experiment, there is always something to learn.
There has been a lot of scrutiny around how effective these token distribution mechanics have actually been for DeFi protocols. A pretty comprehensive history of these programs was detailed and analyzed by the Tapioca DAO in their post “R.I.P Liquidity Mining” which includes their novel approach to tackling these challenges.
TLDR is “Fortune Favors the Brave”. The brave being DeFi users apeing into new and arguably risky smart contracts as early as possible to extract as much value as they can. This scenario often results in less than favorable returns for the founding protocols as users exit as fast as they entered their positions. This especially rings true for “fair launch” DeFi DAOs like Badger that relied tremendously on its community to flourish via these programs.
Since inception, several distribution initiatives have been deployed with varying results:
- Initial airdrop - Based on 19 qualified actions taken across a variety of protocols (WBTC LP on Uniswap, Balancer, Sushi or DAO governance voter on Yearn as examples), users received BADGER.
- Badger staking - Users simply staked BADGER to earn BADGER. (bBADGER)
- Liquidity mining for yield aggregation products - Users earned BADGER for depositing into protocols developed by the DAO (like Bitcoin vaults) however this liquidity was often rented as there was no lockup or long term commitment required.
- Incentive markets - Users in other ecosystems earned BADGER for voting for certain LP pools to receive rewards in a given epoch.
- Boost program- Users earned more rewards when using BadgerDAO developed Bitcoin vaults based on what value of BADGER they hold vs how much capital deposited in these products.
It’s safe to say that the initial token distribution programs were successful and as a result, Badger was able to;
- Decentralize token ownership - 91% of the supply circulating and 31,692 holders
- Create strong on/off chain liquidity - 36% of total supply in onchain LP’s & 21% on CEX’s
- Bootstrap a community and governance - 13k governance members, 99 completed Badger Improvement Proposals (BIPs) and 3 structured community governed councils.
But where did they fall short?
- Creating sustainable utility for Badger holders
- In accelerating the growth of DAO created protocols
- Having a fair value exchange with the DAO to enable long term growth
With that being said, one program in particular nearly overcame the pitfalls mentioned above - Badger Boost.
By enabling users to get higher yield on their BTC by holding BADGER, it created strong utility for holders and helped to accelerate the growth of Badger vaults, liquid lockers and ibBTC. Unfortunately that utility was tied to products that were ultimately not economically viable, and as a result, not aligned with long term growth for the DAO.
It also had limitations around its crosschain viability, was over reliant on offchain technical infrastructure, had lack of flexibility and increased complexity for new Badgers users.
With the upcoming launch of its first DeFi primitive, eBTC and its efforts in creating sustainable utility for its 36k holders, BadgerDAO enters a new chapter as a fair launch DAO.
With that, I’m excited to share an idea for community discussion that is designed taking into consideration the industries shortcomings of the past, the evolution of what worked with the boost program and a model built for a multichain world.
Introducing the $BOOST token.
What is $BOOST?
$BOOST is a preferred rewards token exclusively for the most impactful users in the Badger ecosystem that help drive utility for token holders and accelerate the growth of DAO developed protocols.
$BOOST is very simple.
Holders have the ability to redeem BOOST for BADGER with a reward multiplier. Different BOOST programs targeted at certain users can have different reward multipliers.
BOOST tokens are immutable, fungible, transferable, crosschain compatible, have no lockups and never expire.
BOOST is strictly demand driven. Meaning regardless of the program initiated, if BOOST is never redeemed then there is no BADGER distributed. A stark difference from incentive programs today which are often fixed and non adjustable. This allows for the flexibility to quickly understand the viability of driving action amongst certain user groups and changing course accordingly.
How does it work?
- A BOOST program is launched with the goal of driving users to take specific actions.
- User receives BOOST for taking those actions.
- User redeems BOOST for BADGER with a predefined reward multiplier (ex. 1 BOOST gives 1.2 BADGER which is a 1.2x reward multiplier).
- Badger is created to satisfy BOOST redemption requirements at the point of redemption and the DAO treasury is allocated a %.
How Do BOOST Parameters Work?
BOOST tokens will have 2 core parameters when a new program is initiated.
- Reward Multiplier - How much BADGER does this BOOST give the holder at redemption. Ex. 1.2, 1.3, or 1.4x multiplier.
- DAO share - How much BADGER should the DAO receive upon redemption as a percentage of the amount the redeemer receives. Ex. 20%, 50% 100% etc.
At any time, users will be able to verify onchain the number of specific BOOST tokens issued, their given reward multiplier and DAO share as these parameters will be hardcoded into the immutable smart contracts.
With the ability to deploy different BOOST tokens with unique parameters across both of these functions, it enables the DAO to align the impact of the actions users are taking with the incentives provided.
The DAO share addresses the lack of value exchange between reward recipients and the protocol issuing those incentives as we’ve seen time and time again with Badger and most other DeFi protocols. It creates a positive feedback loop for reinvesting into growth which is especially important for fair launch DAO’s.
The DAO treasury can then use this Badger for a variety of purposes including but not limited to; increasing protocol owned liquidity, further incentivizing partner markets, supporting new product initiatives, community growth, contributor expansion, grants and treasury diversification.
Unlike other programs that create friction for users by requiring additional capital (ETH) to redeem underlying rewards as is the case with most option tokens, users only have to redeem with a bonus which requires no additional capital as there is no cost associated with redemption.
Where do we start?
Unlike past reward programs initiated by BadgerDAO, BOOST should start small with a focused pilot program that has a greater chance for success.
I suggest the DAO double down on the Balancer/Aura ecosystem and distribute BOOST exclusively through the Hidden Hand incentive markets to;
- veBAL Holders
- vlAURA Holders
With this pilot program I propose replacing BADGER incentives on Hidden Hand with BOOST which equates to roughly $100k/month.
For this program, BOOST should be managed by the treasury council (similar to the approval for emissions in BIP 99) adhering to the same standards of transparency it does today with all decisions needing to reach consensus amongst its members (5/9) and shared publicly here. Treasury Council Decisions - BadgerDAO
For this program the parameters should be;
- Reward Multiplier = 1.2x (1 BOOST = 1.2 BADGER)
- DAO Share = 100%
With 27% of the total supply of Badger token earning strong yield in Balancer pools optimized through Aura, this is clearly a core utility for the Badger token and it represents 84% of all DAO revenue through treasury controlled liquidity farming. It’s clear veBAL and vlAURA holders are driving significant impact for the Badger ecosystem and the DAO should ensure this program is sustainable.
With the current BADGER incentive programs being allocated from a fixed and diminishing DAO treasury of native assets and the incentive markets getting more competitive everyday, this type of sustainability just isn’t possible. With the BOOST rewards program, the DAO can continue to sustain vote weight on BADGER LP’s while measuring the impact of this program in preparation for the launch of eBTC later this year.
If this pilot proves to be effective, eBTC LPs could be the next BOOST program to be activated especially with the current intention of eBTC’s core liquidity being focused on Balancer - liquidity that’s critical for liquidations, arbitrage, leverage and the overall health of the protocol.
How is BOOST governed?
With the approval of BIP 99 5 months ago, the Badger and Treasury councils have done an exceptional job in managing emissions to drive the greatest impact for the DAO and its holders. Specifically focusing all incentives on veBAL and vlAURA holders (starting Jan 2023) who vote for the Badger LP pools. This has enabled consistently strong yield for Badger LP’s and the ability for the Treasury to farm these pools with protocol owned liquidity. This alone has turned emissions from an excessive expense of the DAO into a profit center.
2022
Q4 Incentive Expense Total = $1,094,735
Q4 Revenue from Treasury Controlled Liquidity Farming = $453,637
Q4 Net Loss of $641,098
Source :BadgerDAO: P&L 2022
2023
Q1 Incentive Expense Total HH = $337,154
Q1 Revenue from Treasury Controlled Liquidity Farming = $406,446
Q1 Net Gain of $69,292
Source: BadgerDAO: P&L 2023
With this I propose that the operational council have the ability to approve new programs and the most aligned council amongst the treasury, operational and Badger councils then manage the parameters of BOOST in that program (reward multiplier, DAO share and supply). With the dynamic nature of BOOST and consistent feedback loop on how well the program is performing, having the ability to adjust accordingly is critical and is a responsibility fit for the elected councils.
With that being said, it’s important that these programs are managed within boundaries. This is why I propose a maximum 12.5% increase in annualized Badger supply based on the amount of Badger that’s redeemed by BOOST recipients. Councils should have the ability to adjust this limit on an annualized basis via a public vote after reviewing the performance of the programs in that given year.
A framework like this brings unparalleled transparency to Badger in comparison to other projects in the space. Many of which have 5-30% of their supply circulating and the remainder going to investors and others with unknown terms and unlock timeframes. Badger has approximately 150k ($400k) vested tokens remaining, 90%+ of the supply circulating and will enable the ability to verify all aspects of BOOST onchain including the reward multiplier, DAO share and total supply, Anyone will be able to have a clear picture of the state of Badger DAO.
Conclusion
BOOST is about turning the page to a new chapter for BADGER, one written with sustainability and longevity at the forefront. But, this is only the first page of that chapter. I believe there is a significant opportunity to further enhance utility for Badger tokenomics and I think that BOOST would only help to accelerate this.
It’s an exciting time for the BadgerDAO as its contributors continue to build through the bear market with eBTC around the corner. I for one continue to be a proud Badger 2.5 years after the DAO’s launch and I’m looking forward to the community’s feedback around this idea.
Share your thoughts below and/or join the rff- BOOST channel on the Badger Discord to discuss.