LIP # Title Author(s) Created Requires Replaces 1 Governance & Farming Model Sean (@Seanm99, Sean#4006); commissioned by the Lixir team 24-08-2021 N/A N/A Simple Summary As has been known for a while, LIX farming emissions to stimulate TVL and protocol growth are imminent. However, the model to be used for these emissions has been a hot topic of discussion within both the community and team. This LIP, LIP-1, proposes to adopt Curve’s governance and farming model with some minor adjustments to fit our own tokenomics and protocol. Adoption of this model would imply that • the total LIX farming emission during the first year would be ≈ 760k LIX (0.24 LIX/block), after which the emission rate drops by a factor 2/15 every year such that the ecosystem fund (currently ≈ 5.2M LIX) bottoms out at ≈ 0 over the course of 17 years (not taking into account possible buyback replenishment or farming model changes), Year Ecosystem fund starting balance LIX emission Year 1 5,200,000 0.32/block; 759,720/year Year 2 4,440,280 0.2773/block; 658,424/year Year 3 3,781,856 0.24035/block; 570,634/year .. .. .. . . . Year 18 0 - • LIX can be time-locked for veLIX (’voting escrowed LIX’; non-transerrable) for up to 4 years such that the amount of veLIX received per LIX is proportional to the length of the timelock and decreases proportionally with each protocol interaction as the remaining timelock shortens, • vaults will be subdivided into (at least) two categories: stable pairs (e.g. USDT/USDC, renBTC/WBTC), and unstable pairs (e.g. WETH/USDC, LIX/WETH), such that an unstable pair’s vault has a higher LIX emission rate than a stable pair’s vault at the same TVL, • farming emissions are evenly distributed across depositors’ liquidity ($-value) per category (before taking veLIX-boosted weights into account; see last bullet point), • a user’s voting power in governance issues will be proportional to said user’s veLIX holdings, • and veLIX can be staked to boost one’s weight in the farming emissions by up to 150% (i.e. 2.5x the initial weight). Technical Abstract See https://curve.fi/files/CurveDAO.pdf for an abstract on the full implementation. Motivation At the time of writing, Lixir’s TVL is at roughly $340k. It’s clear that in order to boost this number drastically in a short period of time (i.e. bootstrapping liquidity), the incentives to deposit liquidity, the APY’s, need to be raised. The obvious and perhaps only way to achieve a drastic increase in APY’s short-term is through LIX farming emissions. Although farming emissions inherently increase selling pressure, it allows still relatively unknown protocols to gain traction quickly through high, easily marketed APY’s and has proven to be a net positive when the token utility/value proposition more than mitigates this increase in selling pressure by in turn increasing the buy pressure through the gained traction. Furthermore, it increases Lixir’s competitive edge when compared to other protocols that attempt to draw in capital with attractive APY’s. Rationale After extensive discussions about the possibilities within both the community and team, and even having designed and discussed (to our knowledge) new farming mechanics within the team, we agreed that it would be wise to let our initial farming model be an established and battle-tested one in order to form a strong basis and have it live considerably quicker. While there’s tons of different farming models out there, we felt that one stands out from the rest: Curve DAO. What makes Curve DAO’s governance & farming model so unique is that it ties a user’s voting power to the product of his stake in the protocol’s governance token (financial commitment) and the timelock applied (time commitment) instead of making it proportional to the former only. Moreover, it then uses this metric of voting power relative to the user’s deposited liquidity to determine the user’s boosted weight in the LIX farming emissions. Hence users are not required to hold any LIX/veLIX (making the protocol more accessible), but incentivized to do so. Considerations • If governance ever decides to change the governance/farming model, the LIX/veLIX mechanics within the model are not easily removed in a way that is fair to all stakeholders (i.e. timelocked LIX will remain timelocked). • Although we are unsure about the long-term sustainability and effectiveness of the farming model as described above, we would be able to either decrease the emissions at a later point in time through a new LIP or even upgrade the model completely to for example an own-LIX-to-farm-LIX model compatible with existing LIX/veLIX mechanics. • Implementation/code is battle-tested and quick to implement. • The performance fee will not be turned on yet with the release of the model in case LIP-1 passes, so both the veLIX staker’s entitlement to a portion of the revenue (50% in CurveDAO) as well as the destination for bought back LIX remains a future point of discussion.