I don’t think we want to commit to a specific schedule for an entire year.
I agree that long-term planning is important due to gas fees, but 1 year is incredibly long in DeFi.
There is no guarantee that Compound will offer competitive rates in a year.
In fact, Compound’s rates in some coins aren’t competitive with Aave right now (due to their yield farming program).
The best way to get to a large headline prize is to optimize for interest rates. These interest rates shift around as time goes on.
We need to give ourselves the option to stay somewhat nimble.
I think we should investigate adding significant rewards to an Aave-powered prize pool.
Once we have yearn integration, that will likely be the highest interest rate by far (with more risk), so we should think about how much we will want to incentivize that too.
The reserve also doesn’t matter too much, if you look at it in effective APR.
Currently the USDC prize has an effective APR of 25%. 18% POOL + 7% from Compound.
If reserve was 0, the effective APR on that pool would be 27.3% instead.
The impact is not huge. If the protocol is earning income, that may make it more attractive to investors, which may increase price. It could even be beneficial in terms of effective APR.
On reduction of total yield farming rewards:
I totally agree, we should reduce them drastically, to see what happens to the price. We all know the power of Bitcoin’s halvings. I personally like the idea of reducing them by a clean 50% so we can also call it a POOL halving. I think many people are familiar with this concept and the effect it can have on prices.
Effective APR has two components: POOL price and distribution amount. Keeping the effect of our policies on price in mind is crucial. Higher LP/POOL pool rewards have a role to play here too.
The APY throughout the course of any month will likely have quite a wide range. I think over the course of the last month we’ve seen anywhere from 17% to 30%+ on USDC and DAI pools.
How the community elects to proceed with the future pool distribution will be sending a message to POOL whales that can to a good extent “set” the floor in the price of POOL. Does it make more sense to set the price higher and either save the POOL or redirect it somewhere else from the communities perspective? I think the answer is yes, but getting there in a smooth way is better than trying getting there rapidly.
If we started off with what’s suggested here and reduced the USDC POOL (and others potentially) reward coming to market on a monthly / Quarterly basis by X amount until we got down to some target and reassess then. Having a tapering supply coming to market throughout the year is quite a bit easier to work with than a fixed one for the entire year from my perspective at least.
You’re missing something fundamental: the 0% reserve rate would be temporary to allow for maximal growth. The idea being to make the prize as big as possible to attract as many people as possible.
Once the prize is huge, we can begin to grow the reserve.
Edit: I want to add to this that this is why companies like Uber and Amazon lose money for years. They grow as quickly as they can to become dominant, then they have free range to capture profits.
Currently the USDC prize has an effective APR of 25%. 18% POOL + 7% from Compound.
If reserve was 0, the effective APR on that pool would be 27.3% instead.
I agree that the reserve doesn’t impact the APR significantly, but it impacts the prize significantly. Our goal of $1m prize is harder to reach when we’re taking bites out of it.
If the protocol is earning income, that may make it more attractive to investors, which may increase price. It could even be beneficial in terms of effective APR.
This an interesting point. TVL is important for investors, but value capture is as well. A 0% reserve would be an attempt at maximizing TVL at the sacrifice of value capture. Perhaps it’s wise to hedge our bets and retain a small reserve, even if it’s just for the narrative.
I would be supportive of our original 5% reserve rate.
Don’t like the idea of lowering reserve rate from 50%, that would be a complete 180 on our perpetual growth plan which I am a big fan of.
Too be honest I’m not even completely sold on the idea of weighting the drip to sponsorship. I understand the benefits but I think it kinda makes it so that the smaller depositors are only in it to win the prize and won’t get much in the way of POOL tokens.
Don’t like the idea of lowering reserve rate from 50%, that would be a complete 180 on our perpetual growth plan which I am a big fan of.
This post was scoped down to exclude any decision on reserve rates. So we’ll handle that separately.
but I think it kinda makes it so that the smaller depositors are only in it to win the prize and won’t get much in the way of POOL tokens.
Actually, the most likely outcome is small depositors will end up getting the exact same amount (or maybe slightly less). Less POOL tokens would be going to depositors but there would also be less $$ deposited to split it. After a short adjustment period the effective APR for sponsorship would presumably be slightly higher than deposits.
Imagine if right now we did this, the APR for sponsoring would be super high and APR for deposits would be super low. Many people would withdraw deposits and deposit sponsorship. As people leave the deposits, the APR for deposits would rise again.
You’re probably right about APR ending up the same. One other thing I don’t like is that users will have to pay gas to move to sponsorship and it makes depositing more confusing for new depositors. If our goal in the weighted drip portion is just to help smaller depositors win I’d rather take a cut from the pools to feed a 1 ticket per wallet jackpot. I’d imagine some of the whales will remain in the prize pool so it won’t totally solve the issue. I am not opposed enough on this to vote against the whole thing but would lean towards this part being a separate vote.
I think I tend to agree with @Brendan that splitting the POOL drip adds unnecessary complexity.
Pods solve at least half the problem, giving small fish a higher chance to win.
We’ll clutter up the UI and add another thing that everyone needs to be educated on how it works.
I was going to say we should test it out on a small scale first, but that doesn’t help the UI and education problem at all.
The only thing with pods is your upside is capped. You win a prize proportional to you deposit in the pod. If the pod is quite large then your share of the prize will be small. I think having multiple pods could be a solution.
I think the people (whales) who would opt for sponsorship instead of prizes would not struggle with education. They will go where the yield is. They tend to be savvy.
It would be awesome to 10x your odds without decreasing the size of the prize. Not sure how much the odds would actually change just threw that number out there. @TheRealTuna to your point of gas costs to move. I don’t think whales are affected by those costs. Also a side jackpot would still be possible while implementing a drip split. The interest generated wouldn’t change as long as TVL doesn’t plummet as a result of a change. I think we are a ways off from a side pot though. We need to grow the TVL and prizes to attract more users.
I think people are incorrectly conflating two features together as if they offer the same value propositions. My understanding of what pods will allow for is 1). reduced gas price for depositors and 2). improved odds of winning with a reduced jackpot. Please correct me if I am misunderstanding the value propositions.
Moving the POOL drip to sponsorship does not have the same effect; it will offer improved odds and an increased jackpot for those in the lottery. You can still give users the option of pods with this structure if users want to tailor the tradeoffs of 2).
It’s also an assumption at this stage that pods will be meaningfully adopted. Most players entering small amounts in a lotto accept that they may never win. While it’s nice to give users the option of pods the fundamental principle of low cost entry with long odds to win are what make lotteries lotteries. I think we are offering users a lottery and not some form of a consistent APY vehicle. They can get that in other applications.
The big changes I proposed were to introduce quarterly tapering and doubling the AMM reward. As each quarter passes the drip reduction reduces to reflect what I would anticipate is a maturing market for POOL. A big issue with having a fixed supply for the year, at a relatively high emission imo, is where does it put you for year 2 emission? Are we going to shock the market with a big reduction then? Won’t we have the same worries then about losing the TLV in a years time? I can understand why community members are apprehensive about losing TLV from a drastic reduction in the drip, but the diminishing returns on the POOL drip are quite large right now by my estimates. A drastic reduction is appropriate and there won’t be a better time to do it than now.
I have kept USDC to DAI drip at a 2:1 ratio to reflect the desire to have a main pool, but that could be adjusted as necessary, it depends what we’re trying to architect, we could taper the ratio to grow over time to 3 or 4 to 1 by years end for example.
Lastly, this proposal also saves us 100,000’s of POOL this year, for what I believe will give us similar APYs, and in the coming years save us more POOL since we’ll be at a better place from an inflation point of view in year two.
Moving the POOL drip to sponsorship does not have the same effect; it will offer improved odds and an increased jackpot for those in the lottery.
Splitting the drip 80/20 would, theoretically move a large portion of the current whales over to sponsorship. It won’t increase TVL, it simply shifts it. In fact, the APR for sponsorship whales would be 80% of what it was. TVL may drop.
A lower TVL means that the prize itself is lower. I don’t follow what you mean with a larger jackpot? Where does this money come from? What’s your rationale?
Sorry, you’re right. Jackpot doesn’t get bigger. But it doesn’t get smaller so there is still a key distinction there. example: whale moves 1mm USDC from main pool to sponsorship improves everyone elses odds in the lottery and jackpot stays the same.
In pods you sacrifice jackpot size for improved odds, moving drip to sponsorship you get improved odds without sacrificing jackpot size.
In pods you sacrifice jackpot size for improved odds, moving drip to sponsorship you get improved odds without sacrificing jackpot size.
This is true; if we moved 50% of the liquidity to sponsorship the small fish could win in 50 years instead of 100 years.
The thing is, this is mathematically correct but I don’t think it’s going to make a material difference for many people. It simply shifts the definition of “whale” from $1m to $100k. The fish will still have a hard time winning, and we will still see people unhappy in Discord. I’ve literally been seeing this for years.
This is what led me to the conclusion that the complexity isn’t really worth it.
Instead, imagine if the user could choose their chance of winning, no matter how much money they have?
We can liquidity cap Pods to control their chances. Cap them as a percentage of pool TVL.
Let’s say we have four Dai pods: 10% chance of winning, 25% chance of winning, 50% and finally an uncapped Pod (the current Pod). No matter who you are, you can have a high chance of winning if you wish.
I believe there is so much more we can do that is aligned with PoolTogether value proposition of the prize rather than devolve PT into yet another APR farming protocol. Pods are the first step into a realm of possibilities; it’s only the beginning.
This is true; if we moved 50% of the liquidity to sponsorship the small fish could win in 50 years instead of 100 years.
This is a valid point but the counterpoint is that although an individual small depositor might still have slim odds, the chances of ANY small depositor winning become much higher because small depositors combined make up a larger portion of deposits. This is the important thing in my mind, it shows that not just millionaires win.
I completely agree with your conclusion… at the end of the day what’s UNIQUE about PoolTogether is the ability to win massive prizes without risking your deposit. This is what we should maximize on. The APR is a bonus and should not become the emphasis (yield farming is far more competitive). However, I do think there is a good argument that moving yield farmers into sponsorship allows us to better serve the core value proposition of winning prizes much larger than deposit size.
On the balance though, given that 1) we have pods about to launch and we don’t know what the impact of that will be and 2) just the POOL distribution rate change is a very big switch up. It might be best to just do a distribution rate change, evaluate the impact of pods and then determine if we want to split sponsorship.
So I’m onboard with increasing AMM reward and with not publicly committing to an exact amount for one year. I do think the messaging should be that we plan to keep POOL distribution for a long time (years) but that rates will be changed to optimize for largest prizes and overall, the rates will be much slower than what they were the last 14 weeks.
but the diminishing returns on the POOL drip are quite large right now by my estimates. A drastic reduction is appropriate and there won’t be a better time to do it than now.
I’m curious if there is any specific data you are basing this on… I agree that distribution rate right now is too high but having a specific data point might help us optimize.
Overall, I favor the idea of keeping USDC at only a slight reduction initially to get a better A/B test for how reactive deposits are between that and Dai.
It’s also an assumption at this stage that pods will be meaningfully adopted. Most players entering small amounts in a lotto accept that they may never win. While it’s nice to give users the option of pods the fundamental principle of low cost entry with long odds to win are what make lotteries lotteries. I think we are offering users a lottery and not some form of a consistent APY vehicle. They can get that in other applications.
Also totally agree here. At large scale pods become a fairly normal APR distributed un-evenly, that’s great if some subset of people want that but the small chance to win large prizes that are 100x your deposit is what draws people in. I think optimizing for that is super important in combination with pods which have a somewhat different appeal
This is a great point. Pods has great potential, but the name itself is plural. I think pods could improve with multiple pods to choose from. Different pods provide different returns based on risk. Different organizations could create different pods and they accept donations directly to their pod. If that pod wins they can donate the winnings to their foundation.
