Considerations for Blast
Orbit has made specific considerations and improvements to make maximum use of Blast's features. The key features of Blast can be condensed to:
Native Yield
Gas Revenue Sharing
Below are some of the considerations and developments tailor-made for integration with Blast.
Cyclical Issue of Directly Giving Native Yield to Participants
The seemingly straightforward first attempt to utilize Blast's native yield is to directly distribute it to lenders and borrowers of a lending protocol. While this may sound valid at first sight, a deeper analysis proves the need for improvement.
First of all, in order for any lending yield on Blast to be competitive, they must be able to offer a yield higher than: (average market lending yield) + (Blast's native yield). While this may not apply for networks without a native yield for all (subsidized yield just needs to be above the average market lending yield), Blast is different as all accounts on its network natively accrues yield.
Directly distributing the native yield as subsidies to lenders / borrowers (even with different distribution ratios) take away the potential yield from one party to another, making either the lending yield to be unattractive or the borrow interest to be higher than market rates.
For example, if all native yield were to be directly given to lenders only, lenders will initially enjoy elevated yield. However, this makes borrow interest rates unattractive, decreasing borrowing demand. Borrow demand decreases continue until interest rates are lowered to be competitive to average market interest rates - but at this point the total lending yield would also have decreased to the average market lending yield.
Indirect Distribution by Bringing Forward Future Yield
If immediate native yield is not sufficient to generate competitive lending yield, an alternative is to increase the subsidies by forwarding future native yield value to the present and using them as incentives.
Orbit makes use of its own protocol token as the medium to forward future yield. All native yield is first aggregated and given to the Orbit token, thereby setting its valuation to include expected future yield. Lender / borrower incentives are then funded with the Orbit token's inflation - an indirect method of distributing native yield as subsidies.
However, it is important to note that this indirect subsidization is essentially spending from the future - a methodology that cannot and will not continue forever. The supply inflation introduced must be removed in the long run.
Orbit aims to use the brought-forward native yield to boost protocol adoption to a critical mass - after which two mechanism changes will take place over a 4-year time period:
Collected native yield is used to remove Orbit tokens from circulation, instead of redistributing them.
Protocol fees, which are now sufficient enough to justify ORBIT's value, will be the primary source of rewards.
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