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A thread on:
LIQUIDITY MINING
on
BALANCER
LIQUIDITY MINING on
BALANCER
Liquidity mining is the mechanism used to periodically distribute newly minted $BAL tokens to liquidity providers (LPs) on the @BalancerLabs protocol.
There are two main goals:
There are two main goals:
1) GOVERNANCE DISTRIBUTION:
$BAL is Balancer's governance token. To be really decentralized, the protocol needs to be governed by a wide and diverse set of participants.
The goal is for token holders to control everything about the protocol in the future.
$BAL is Balancer's governance token. To be really decentralized, the protocol needs to be governed by a wide and diverse set of participants.
The goal is for token holders to control everything about the protocol in the future.
Today BAL is being mainly used for voting on changes to the liquidity mining rules.
Your voting power is proportional to your BAL balance at a pre-defined snapshot block. Not just BAL in your wallet but also BAL you have in Balancer pools.
Your voting power is proportional to your BAL balance at a pre-defined snapshot block. Not just BAL in your wallet but also BAL you have in Balancer pools.
The voting system is still in its early days. It's currently an off-chain tool, so you vote by just signing a message from your address and don't spend on tx fees. 
Check it out at:
https://vote.balancer.finance/balancer
Check it out at:
https://vote.balancer.finance/balancer
2) LIQUIDITY INCENTIVIZATION: (a secondary goal)
Valuable BAL distribution attracts LPs.
Higher liquidity gives traders better conditions (less slippage, better prices).
Higher trading volume generates more fees, attracting even more LPs.
So protocol growth is accelerated.
Valuable BAL distribution attracts LPs.
Higher liquidity gives traders better conditions (less slippage, better prices).
Higher trading volume generates more fees, attracting even more LPs.
So protocol growth is accelerated.
Now on to how liquidity mining works...
Currently there are 233 different tokens eligible for competing for the liquidity mining distribution.
Currently there are 233 different tokens eligible for competing for the liquidity mining distribution.
The community softly vets each new token requested, trying to be very inclusive by only weeding out tokens:
- w/ a supply or price that feels too gameable, &
- that could cause problems on a technical level (deflationary balances, not ERC20 compliant, weird behavior, etc).
- w/ a supply or price that feels too gameable, &
- that could cause problems on a technical level (deflationary balances, not ERC20 compliant, weird behavior, etc).
Before a script is used to calculate the proportion of weekly BAL each LP will get, a few factors are applied to adjust (up or down) the liquidity of each pool.
Here they are:
Here they are:
The "ratioFactor":
It penalizes uneven pools for providing less useful liquidity to traders. Each pair in a pool is assessed separately:
50/50 pair ➜ 1.00 (no penalty)
60/40 pair ➜ 0.96
80/20 pair ➜ 0.64
It penalizes uneven pools for providing less useful liquidity to traders. Each pair in a pool is assessed separately:
50/50 pair ➜ 1.00 (no penalty)
60/40 pair ➜ 0.96
80/20 pair ➜ 0.64
The "feeFactor":
It penalizes high trading fees, because they make the pool less attractive to trading. The two curves in the graph show the old feeFactor (k=0.5) and the one currently active (k=0.25).
0.01% fee ➜ 1.00 (no penalty)
0.50% fee ➜ 0.98
1.50% fee ➜ 0.87
It penalizes high trading fees, because they make the pool less attractive to trading. The two curves in the graph show the old feeFactor (k=0.5) and the one currently active (k=0.25).
0.01% fee ➜ 1.00 (no penalty)
0.50% fee ➜ 0.98
1.50% fee ➜ 0.87
The "wrapFactor":
It penalizes pairs of highly correlated tokens, for attracting less useful liquidity in an unspecialized AMM like Balancer.
Hard pegs: equivalent tokens (DAI/cDAI) ➜ 0.1
Soft pegs: track the same asset (WBTC/sBTC) ➜ 0.2
It penalizes pairs of highly correlated tokens, for attracting less useful liquidity in an unspecialized AMM like Balancer.
Hard pegs: equivalent tokens (DAI/cDAI) ➜ 0.1
Soft pegs: track the same asset (WBTC/sBTC) ➜ 0.2
The "balFactor":
It boosts the adjusted liquidity of pairs of type:
BAL & [ WETH, WBTC, DAI or USDC ]
Calculated in conjunction with the ratioFactor, the combined result of these two is called the "effective balFactor".
50/50 pair ➜ 1.5
57.75/42.25 pair ➜ 1.54 (peak value)
![The "balFactor":It boosts the adjusted liquidity of pairs of type:BAL & [ WETH, WBTC, DAI or USDC ]Calculated in conjunction with the ratioFactor, the combined result of these two is called the "effective balFactor".50/50 pair ➜ 1.557.75/42.25 pair ➜ 1.54 (peak value)](https://pbs.twimg.com/media/Ee28wwXWoAIaD48.jpg "The \"balFactor\":It boosts the adjusted liquidity of pairs of type:BAL & [ WETH, WBTC, DAI or USDC ]Calculated in conjunction with the ratioFactor, the combined result of these two is called the \"effective balFactor\".50/50 pair ➜ 1.557.75/42.25 pair ➜ 1.54 (peak value)")
It boosts the adjusted liquidity of pairs of type:
BAL & [ WETH, WBTC, DAI or USDC ]
Calculated in conjunction with the ratioFactor, the combined result of these two is called the "effective balFactor".
50/50 pair ➜ 1.5
57.75/42.25 pair ➜ 1.54 (peak value)
The "capFactor":
A mechanism deterring some types of liquidity mining gaming.
Some tokens are uncapped: WETH, WBTC, DAI, USDC.
For all others, a protocol-wide cap of currently $10M applies.
If liquidity is exceeded, the capFactor adjusts liquidity down to match the limit.
A mechanism deterring some types of liquidity mining gaming.
Some tokens are uncapped: WETH, WBTC, DAI, USDC.
For all others, a protocol-wide cap of currently $10M applies.
If liquidity is exceeded, the capFactor adjusts liquidity down to match the limit.
Finally, after all factors are applied, your fair share of BAL will be:
yourNewBal = allNewBalForThePeriod * ( yourAdjustedLiquidity / totalAdjustedLiquidity )
This is calculated off-chain, for every hourly snapshot in a full week.
yourNewBal = allNewBalForThePeriod * ( yourAdjustedLiquidity / totalAdjustedLiquidity )
This is calculated off-chain, for every hourly snapshot in a full week.
145,000 BAL are newly minted per week and, usually on Tuesdays, airdropped to all LPs at the wallet where they hold their BPTs (Balancer Pool Tokens, the proof-of-liquidity-ownership vouchers). 
Hope this was helpful.
I'll keep appending tweets to this thread whenever more fundamental changes in liquidity mining are enacted.
I'll keep appending tweets to this thread whenever more fundamental changes in liquidity mining are enacted.
