Gauges
Learn about the different gauges on Tren Finance, and why users are incentivized to vote responsibly
Last updated
Learn about the different gauges on Tren Finance, and why users are incentivized to vote responsibly
Last updated
Gauges are used to determine how protocol revenue and rewards are allocated. Unlike other protocols, which primarily focus on liquidity mining rewards (i.e. which liquidity pools receive the most rewards), gauges on Tren Finance are also used to determine how rewards are allocated amongst veTREN holders, the Insurance Pool, TREN burns, along with liquidity mining rewards and its subsets. This ensures that committed stakeholders (the TrenDAO) directly control the future of the protocol.
Voting power for gauges is determined by the amount of veTREN held. Votes are held on a weekly basis (one week is considered an epoch), which means that votes can be cast at any time during the week until the deadline to determine gauge rewards for the following epoch week.
Once a user votes on a gauge, the vote / vote power will persist unless it is changed. There is a 10-day cool down period before users can change their votes.
The protocol uses 90% of its generated revenue for TREN buybacks. These buybacks, along with ecosystem rewards, will be used to reward gauges with TREN.
The power to vote on Gauges provides a glimpse into the delicate balance between managing risk and reward on a protocol like Tren Finance. The temptation is to direct a large portion of revenue to veTREN holders and TREN token burns for higher rewards and quick TREN price appreciation.
However, if the risk management aspect of gauges is ignored, this will likely have detrimental effects on the protocol, and accordingly the TREN token price. For example, if rewards aren't high enough to incentivize a sufficient amount of XY in the Insurance Pool, the protocol could face bad debt. And if rewards aren't high enough to incentivize a sufficient amount of liquidity for XY, users will face higher slippage on functionalities like leverage, and a low amount of liquidity could negatively impact the XY peg.
We'll look at each of the different gauges that users can vote on below:
This gauge is used to determine the amount of rewards that are allocated towards XY and TREN liquidity pools. Each liquidity pool has a separate gauge that is voted on separately.
TREN Liquidity Pools - Strong liquidity for TREN acts as a price stabilizer, and reduces volatility. Potential buyers may also be discouraged from investing in TREN if high slippage is involved in transactions
XY Liquidity Pools - XY liquidity is paramount to the overall success of the protocol. For functions like leverage, sufficient XY liquidity is especially important as it involves swapping in and out of potentially large amounts of XY. If these swaps cause high slippage, users lose capital efficiency, and certain functionalities on the protocol cease to become profitable. As a result, the protocol loses users, and accordingly, the future revenue that these users bring by using the protocol.
The Insurance Pool and Insurance Providers play a vital role in the safety of the protocol. While most liquidations are expected to be profitable for Insurance Providers (XY stakers), they do face the potential of taking on bad debt. As such, a sufficient amount of rewards needs to be allocated to the Insurance Pool.
Insurance Providers act as the primary line of defense against bad debt on Tren Finance, and therefore need to be rewarded appropriately for taking on this risk. We expect this gauge to receive the highest percentage of overall rewards, as it has the most impact on all stakeholders.
For example, XY LP holders will also want to vote on this gauge as it could lead to impermanent loss. If Insurance Providers weren't compensated appropriately, bad debt could accrue, leading to XY depeg, and accordingly impermanent loss for XY LP holders.
For TREN, veTREN, and TREN LP holders, accrued bad debt also has severe negative implications. Bad debt and a potential XY depeg would cause users to lose faith in the future of the protocol, harming protocol revenue, all of which would likely lead to detrimental effects on the TREN token price.
TREN is designed to be a long-term deflationary asset through TREN token burns. As rewards for all gauges are provided in TREN tokens, once the amount of TREN tokens to be burnt has been decided, the TREN tokens in the rewards pool allocated for this gauge will be burned.
Token burns and a diminishing token supply are one of the most effective ways to increase buying pressure on an asset. Such buybacks and burns can also act as an effective marketing tactic to gain exposure to potential investors and users of the protocol.
This gauge is to determine the amount of rewards that are allocated to veTREN holders. In order to acquire veTREN, a user must first acquire TREN, and then lock their TREN. veTREN is calculated based on the number of TREN locked up, and the duration of the lock-up.
By locking TREN for veTREN, veTREN holders take on fundamental risk by delaying their access to liquidity. These users are essentially betting on the future of the protocol, and should be compensated appropriately for this risk. A high amount of rewards for veTREN holders also reduces selling pressure on TREN by encouraging users to lock their TREN.
