Net Liquidity Farming Part 2: Varied Coefficients

Burrow Finance
3 min readJul 28, 2022

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Rewarding Assets Based on Real Demand

TL;DR Burrow introduces a varied coefficient system where different assets now weigh differently in terms of rewards calculation. This is to ensure that the rewards for suppliers match the demand: the more in demand your assets are to borrowers, the more you will be rewarded as a supplier, and vice versa. The only affected assets at this time are $stNEAR and $liNEAR, whose coefficient will be lowered to 0.25, and is effective from today (July 28th). In the future, other assets’ coefficients can also increase or decrease depending on user demand. As this affects users’ global rewards calculation, we recommend users check their Portfolio and react appropriately to the changes, if needed.

On July 12th, Burrow transitioned to “net liquidity farming,” where instead of earning rewards for the total volume of your deposits (including borrowed assets), one earns rewards for their “net liquidity” (excluding borrowed assets). This was to be strategic with rewards emissions during a market downturn and also adapt the protocol to reflect real demand from users, who prefer stable returns over leveraged exposure in these times.

Burrow is now ready to introduce Part 2 of Net Liquidity Farming: the varied coefficient. This means different assets can be weighted differently in terms of how much “net liquidity” they count for.

Previously on Burrow, all deposited assets were treated equally in terms of how they were weighed for net liquidity rewards. $50 worth of pure deposits, whether they were in $stNEAR or $USDT or $wETH, all counted as $50 in net liquidity. More precisely, all assets on Burrow had the coefficient of 1 in the calculation of global rewards.

With the introduction of a varied coefficient, the Burrow DAO will now differentiate the worth of different assets based on the demand for said assets from borrowers. For instance, asset X, which is high in supply but low in demand from borrowers, may now be designated the coefficient of 0.5. This would render $100 of asset X in deposits to be treated as $50 of net liquidity. Conversely, asset Y, which is high in demand from borrowers, may be given the coefficient of 1.5. This means Burrow would treat $100 worth of deposited asset Y as $150.

Naturally, the changes in the asset’s coefficient affects net liqudity rewards calculation: suppliers would earn greater rewards when farming assets with a higher coefficient, compared to an asset with a lower coefficient. All in all, this balances the demand of the users and the rewards for the suppliers — the suppliers of the assets that are utilized more on Burrow will be rewarded more.

The transition to the varied coefficient system starts today (July 28th, PST) and users’ updated rewards will be reflected on their portfolio page. To start off, Burrow will be updating the coefficient of two assets — $stNEAR and $liNEAR — to 0.25. This means if you have $100 of $stNEAR or $liNEAR deposited on Burrow, your net liquidity will count as $25, and your rewards will be adjusted accordingly. For other assets, no changes will be made and the coefficient will remain as 1 as before. In the future, the Burrow DAO may also adapt the coefficient of other assets depending on the user demand.

For any further questions or feedback, please join the Burrow Hog Squad on Discord!

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