ERGO Tokenomics & TVL

Now there is a trend in the market for evaluating blockchains by TVL. As Ergo strives to become a key player in the DeFi market, it also needs to build up TVL.
An algorithmic stable coin has been launched on the Ergo blockchain, but unfortunately, it has not yet received traction. And now, with the upcoming launch of DEXY, it runs the risk of being left behind. I believe that the AgeUSD protocol was designed quite well, but incorrectly set fees for using the protocol harm ERGO ecosystem and prevent TVL from growing.

Fees should serve several purposes:

  • to encourage the use of the protocol
  • to increase TVL
  • to protect reserves

At the moment, none of the points is being followed.

I propose to change fees as follows:

  • Mint SigUSD 0.5%

  • Redeem SigUSD 4%

  • Mint SigRSV 0.5%

  • Redeem SigRSV 3%

Such fee structure encourages the use of the protocol not only for the purpose of reverse withdrawal but also for other applications. The overall TVL will grow. Higher fees on withdrawal will protect the reserves. I myself want to start using AgeUSD to interact with ErgoDex, but the 2% minting fee does not make any sense.

Please consider my proposal. Keeping protocol at its current state will slow down DeFI growth on Ergo.

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I find the premise of your suggestion to be false. Increasing TVL just for the sake of increasing TVL is not useful. The TVL increases, if people want to use the stablecoin. It is not sustainable to bloat the TVL beyond what is needed for usage.

You are correct in that RSV holders don’t have good enough incentives. Though judging from current reserve ratio (487%) there is still enough people who hold RSV anyway. The incentives can improve by more usage, or changes. Sigmausd is not abandoned, the usage/profitability is being monitored, while the changes are discussed. You can search my username for proposals on the topic.

Your suggestion to change the fee structure is good to consider. It should be added to the SIP discussion. One consequence would be that arbitrage would behave differently via Ergodex. If fees are balanced, then 2% difference in price in either direction is enough to make arbitrage profitable. In your suggestion this dynamic would change. This means going off peg more than 2%. Not sure if this is desirable or not, just something to keep in mind.

Dexy will not replace sigmausd. There will be different stablecoin experiments, and that is good for the system as a whole. Time will show which ones are sustainable.