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A Model Relating BAL Price and veBAL Yield
Key Insights
- We isolate the mathematical relationship between the price of BAL and four variables: veBAL revenues, veBAL locker yield, BAL outstanding, and percent of BAL locked in veBAL.
- The model enables users to understand market expectations. BAL outstanding is on a predetermined schedule, and the minimum percent of locked BAL is predictable given the unlock schedule, leaving investors with two primary variables to toggle: required yield and revenues.
- Counterintuitively, the lower the percent of BAL staked, the higher the price of BAL, all else equal.
- The model illustrates the impacts of misaligned lockers and liquid alternatives that remove the liquidity premium.
- This also helps inform the balanced incentives of the veBAL design, where a higher price means a lower yield (all else equal) but also more powerful incentives for LPs. Weaker incentives for LPs would occur when BAL is low, implying a higher yield for stakers, balancing the system.
How Does Balancer Work?
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Before joining Messari as a Senior Research Analyst, John worked in Equity Derivatives on the buy-side and sell-side for over five years. He studied macroeconomics and markets for almost a decade. Now, John spends time thinking about token design, DeFi protocols, and governance.
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