Shield Mining Rewards Update #2

Cover Protocol
2 min readDec 7, 2020

Since our launch over 2 weeks ago, we now have over $24 million of coverage minted across 14 DeFi protocols! In this time, we have observed some unintended economic effects that have affected the price of coverage, mainly the price of coverage is too expensive. Most, if not all, CLAIM tokens annually cost more than 20% to buy, which is a direct effect of the lucrative shield mining rewards.

The Problem

Shield mining is rewarding the CLAIM/DAI Balancer pool with too much $COVER, which in turn, drives users to market-buy CLAIM covTokens with the sole intention to shield mine, raising the cost of coverage.

As shown above, the APY for the CLAIM pools is significantly higher than the NOCLAIM pool

The Solution

In ~24 hours, we will adjust the ratio of rewards to CLAIM/NOCLAIM pools from 30/50 => 5/75.

Note: this adjustment has no effect on liquidity providers in both CLAIM and NOCLAIM Balancer pools since the total allocated rewards between the 2 pools will not change.

The Goal

By decreasing the allocation to the CLAIM pool and transferring the rewards to the NOCLAIM pool, we want to facilitate equal APYs between the CLAIM and NOCLAIM pools. This will remove the incentive for users to outright buy CLAIM tokens and shield mine, but rather incentivize users to be liquidity providers for both the CLAIM and NOCLAIM pools. This should dramatically reduce the buying pressure on CLAIM tokens and instead make it more affordable for those seeking coverage.

Projected APYs with implemented change and assuming CLAIM and NOCLAIM priced at $0.05 and $0.95 respectively