Incentivizing vDOT Lend Market During The 2nd Batch of Crowdloan DOT Expried

Background

As the second round of Polkadot Crowdloan expiries approaches, a significant amount of DOT liquidity will be released. For users who have DOT staking needs, vDOT may be the most appropriate solution for earning staking rewards whilst also participating in DeFi. vDOT offers a wide range of compelling use cases within Interlay, including as a collateral asset for the lending and borrowing Market, iBTC Vault, Cross-Chain, and as a Fee Token. In addition, vDOT has become a significantly important asset within Interlay lending and borrowing markets. As a result of its relevance and its demand, we would like to increase the incentives for vDOT on Interlays lending and borrow markets during the upcoming DOT unlock event, allowing more vDOT holders to experience the seamless integration between Polkadot and BTC within the Polkadot ecosystem.

Summary

This proposal suggests a co-Incentivized initiative between Bifrost and Interlay for the vDOT lend and borrow market. Whereby, this will have a target supply of $3,000,000 and offer a 10% incentive APY for a one-month period during the unlock event.

Benefits

BNC-INTR Buyback

Since BNC cannot directly incentivize vDOT on Interlay, Bifrost needs to use BNC for INTR buybacks on HydraDX. Then, Bifrost can use INTR to provide incentives for the vDOT Lend Market.

Conversion of vDOT to BTC Vault

Once a certain level of vDOT liquidity is established on Interlay, the number of vDOT holders will increase. This will enable the conversion of vDOT to BTC Vault in the future.

Continuous Incentives for Interlay Treasury through vDOT Fees

In Bifrost Tokenomics, the protocol imposes a staking APY*10% protocol fee on vDOT. Moreover, Bifrost has the capability to establish a vDOT Referral Program for the Interlay Treasury. Through the Referral Link, effectively minted vDOT can generate a continuous income of staking APY10%*20% for the Interlay Treasury.
Note: The current vDOT protocol fee is 0.1%, which will be adjusted to 10% once Bifrost Tokenomics 2.0 launched within several months.

• Referral Link: https://bifrost.app/vstaking/?r=interlay
• Referral Fee: Starting from 20% of vDOT Protocol Fee
• Program Timeline: From 16th Jan, 2024 to 16th Jan, 2025

Incentive Estimates

The incentives for vDOT lend market is suggested to run for one month during the period of 2nd batch of DOT unlock and is merely a means to bootstrap the vDOT liquidity, attracting more vDOT holders to know Interlay and further providing vDOT as collateral in IBTC Vaults.

*Since Lend Market does not accept other token’s incentivizing besides INTR. Hence, Bifrost needs to swap BNC to INTR on HydraDX and then add rewards in vDOT lend market. The suggested propotion of co-incentivizing value states as follow:

Note: All calculations assume an INTR price of $0.027. The actual APR and TVL might change due to price changes of INTR and the other tokens used in these calculations.

Since Bifrost will also need to propose a referendum to transfer $14,796 worth of $BNC and swap to around 548k $INTR, then it will be added in vDOT lending market by calling the add_reward function. (this step will be commented below once Bifrost referendum enacted it, before this proposal enacted of course.)
Please note that since the price is fluctuating before this proposal is enacted, the final APY may vary slightly.