Proposal for Revenue Distribution for Active LENFI Holders

1. Revenue Sharing for Active LENFI Tokens

This proposal outlines a new revenue-sharing mechanism for active LENFI tokens within the Lenfi ecosystem. Unlike traditional models, such as those employed by INDY, where staking users receive a percentage of the revenues, this approach aims to deliver greater benefits to LENFI holders.

Active LENFI Definition

Active LENFI tokens are those involved in activities within the Lenfi platform (app.lenfi.io), such as:

  • Depositing LENFI into the LENFI/ADA pool.
  • Using LENFI as collateral for borrowing ADA in the ADA/LENFI pool.
  • Could be even the LENFI tokens found as collateral in Butane(in the future)

LENFI tokens that remain idle in wallets will not be eligible for rewards.

Reward Distribution Mechanism

A script will periodically scan the platform to identify wallets meeting the active LENFI criteria. Rewards will be calculated and distributed each epoch, similar to the INDY staking model.

A new “Distributions” tab will be added to the main page, adjacent to the “Governance” tab. This section will allow users to:

  • View their earnings based on the number of active LENFI tokens.
  • Claim their rewards

By incentivizing active participation, this mechanism should reduce the circulation of LENFI tokens in the open market, enhancing their scarcity and value.

LENFI tokens will also become a revenue generating asset, which will most likely attract investors as well.

The funds that will be distributed will be the platform fees collected on Lenfi V2 together with the V1 staking rewards.

2. Increasing Total Value Locked (TVL) and Platform Usage

To boost TVL and increase engagement with the Lenfi platform, I propose that the Lenfi DAO implements a rewards system for ADA depositors in the ADA/LENFI pool.

Incentive Structure

ADA depositors will receive a variable reward, each epoch, ranging from 5% to 15% of their deposited ADA, paid in LENFI tokens. This rate will be determined by the utilization rate (UR) to maintain an affordable borrowing cost for ADA, by the LENFI holders.

  • Reward Tiers:
    • 5% Reward: For a lower UR, incentivizing depositors while keeping borrowing costs minimal.
    • Up to 15% Reward: For a higher UR, which makes borrowing ADA more expensive, thus encouraging more deposits to balance the pool.

The “Distributions” page will also display LENFI rewards for ADA depositors, available for collection each epoch.

On the pool’s page, alongside the supply APY, the LENFI reward percentage will be shown, similar to the display used by LQ.

Pilot Program

This initiative should be tested as a pilot program for a period of 6 to 12 months to evaluate its impact on platform usage and TVL.

Ideally, the infrastructure will be designed to allow other projects to reward ADA depositors in their respective pools with their own tokens. For example, Iagon could reward ADA depositors in the ADA/IAG pool with IAG tokens.

Conclusion

Implementing these proposals should enhance the LENFI token’s value by incentivizing active participation and reducing market circulation. Simultaneously, it will increase the TVL and usage of the Lenfi platform, positioning Lenfi.io as the leading lending and borrowing protocol on the Cardano network.

I truly believe this strategic approach will outcompete other protocols and solidify Lenfi.io as the go-to lending and borrowing platform on Cardano.

3 Likes

I like the proposal in part 1. It should also include Lenfi in liquidity.

Since fee receipts are low right now, I don’t see a issue to supplementing it with Lenfi from the staking allocation. Using the commonly talked about number of 750 Lenfi a day, it causes an inflation number of 1.8% per year, which is reasonable. Plus, the supplemental amount could decrease as fee receipts increase, eventually phasing out completely.

I don’t see the need for part 2. The supplier APR should rise as the pools mature and that should be enough to attract ADA suppliers. There isn’t a shortage of ADA right now in the pools. The shortage is more on the borrowing side.

Hey, thanks for your thoughts!

I see them go hand in hand. For 1 to be profitable and make lenfi token holders money, proposal 2 must work very well.

Right now, for @ 1M ADA depositors in ADA/LENFI, we will reward around 410 lenfi / epoch, which is close to half than the talked 750/epoch. But the economics has our back → more depositors → better rates → more borrowers → more fees → more earnings for us.

More lenfi users(since some ada depositors might not hold lenfi) → and when they see the taste of what they can do with it, they will get into it more and so on.

And imagine other projects having the option to reward their token pool ada depositors, this will reinforce the usage growth even more.

Thanks :slight_smile:

OK, that makes more sense. I can see how it would help bring some awareness to Lenfi, possibly add new holders, and build TVL.

However, I don’t think you want to overwhelm the interest rate adjustment mechanism built into the program. This should be a patch until the supplier rates are high enough to stand on their own. I think you could probably get away with as little as 3%, since it is in addition to the APR or ADA staking. At that rate, there is little inflation (<0.25%) and enough Lenfi in ‘staking and governance’ to last for 350+ years.

But, overall, I like it.

1 Like

Agree, thanks!

Hopefully, more people will like it too and together we can push it forward.

God bless!