Summary
Synapse DAO’s most liquid trading venue, the SYN/ETH pool on SushiSwap, has accumulated over $10m worth of liquidity due to SYN incentives emitted to LPs. By migrating liquidity to Balancer & migrating incentives to Hidden Hand vs. direct emissions, Synapse DAO can deepen liquidity further.
Background
Since SYN’s launch, Synapse DAO has dripped SYN incentives to SYN/ETH SushiSwap LPs via the forked ‘masterchefv2’ contract. This has done well to bootstrap the pool’s liquidity. At current, the SYN/ETH pool on SushiSwap is the main venue for on-chain SYN trading, with over $10m in liquidity and an average of ~$5m worth of volume each day.
While simple, Synapse DAO should seek more capital efficient ways to incentivize the pool to deepen liquidity and increase yield for LPs.
Voting Incentives & Balancer Gauge
Synapse DAO, with support from Aura contributors, recently requested the whitelisting of a gauge for a SYN/ETH Balancer pool. The proposal has passed and allows for BAL & AURA to be emitted to SYN/ETH LPs assuming the gauge receives veBAL votes.
Synapse DAO can benefit from the capital efficiency of “voting incentives” via Hidden Hand, whereby projects deposit coins to incentivize apathetic holders of vlAURA to vote for gauges.
Over the past six months, the efficiency of these voting incentives has averaged around 2-2.5x ROI per round. This means that for every $1 worth of voting incentives submitted by projects, LPs to incentivized gauges received $2 to $2.5 worth of emissions.
Synapse can redirect direct emissions (which have a 1:1 ROI) to vlAURA voting incentives to benefit from this capital efficiency.
Terms
At current, the rewards contract distributes 0.0976 SYN per second to staked LPs. This amounts to roughly 8,400 SYN per day, or approximately ~$12,000 worth of incentives a day. This is dripped block by block to LPs staked in the contract.
Synapse DAO can both increase the yield of the pool and reduce SYN spend by migrating to Balancer gauges and vlAURA voting incentives.
Should this proposal pass, Synapse DAO will begin a gradual migration of liquidity and incentives from Sushi to Balancer/Aura.
The first phase will reallocate 15,000 SYN a week, or a quarter of the existing incentives, to vlAURA Hidden Hand incentives, for one gauge voting cycle (two weeks). Simultaneously, Synapse DAO will migrate its protocol-owned liquidity to Aura to ensure robust pool depth from day one. The second phase will reallocate 25,000 SYN a week, or 45% of the voting incentives, to vlAURA Hidden Hand incentives, the next voting cycle. Then finally, ending the migration, Synapse DAO will allocate 35,000 SYN a week to vlAURA voting incentives permanently, ending Sushi incentives.
At this point, based on efficiency of vlAURA incentives, the pool should have deeper liquidity and Synapse DAO would have reduced its Pool 2 spend by 40%, or over $2m worth of SYN per year.
To benefit from the voting incentives in full, all SYN/ETH Balancer LPs will need to stake their liquidity on Aura.
Evaluation of Success
Should this proposal pass, Synapse DAO stakeholders should seek to evaluate the success of the proposal after four months (after 8 voting cycles) have elapsed. If no alternative is proposed, the incentive program will continue.
About Aura Finance
Aura Finance is a decentralized metagovernance protocol, optimizing yields and incentives in the Balancer veBAL ecosystem. Aura DAO has deep alignment with key Balancer stakeholders, actively collaborating with Balancer’s core contributors, the “Maxis”, and Balancer shareholders. Since its launch in mid 2022, Aura has accumulated 25% of veBAL share and over $500m in TVL. Aura is actively utilized by Olympus, Yearn, Redacted, Badger, Gnosis, Karpatkey, Rocketpool, and Lido, to name just a few partners.
Aura has multiple successful audits, including one each from Code4rena and Halborn. A number of prominent security partners and experts, including the largest LPs on Aura, also regularly review Aura contracts.
