PoolTogether

Llama DAO Presents | Tokenomics and Alternative Capital Structures: Approaches for PoolTogether Treasury Management

The Llama DAO Working Group is pleased to share our treasury management report with the PoolTogether community.

Tokenomics and Alternative Capital Structures: Approaches for PoolTogether Treasury Management

We proposed the creation of this report in PTIP-26 and our Working Group has reviewed an array of financial products and protocols to provide the PoolTogether community with the requisite information necessary to have an informed discussion and to determine next steps.

Llama DAO would like to thank the PoolTogether community for collaborating with the Working Group and providing us with the necessary resources to create this detailed report. We would also like to thank the members of the PoolGrants committee for their guidance and direction.

The Working Group looks forward to having an open dialogue with the PoolTogether community about this report. We will discuss how Llama can help if the PoolTogether community wants to further explore and implement any recommendation(s).

7 Likes

Congratulations to this thoughtful and extensive report.

One aspect that I find particularly interesting and worth exploring in the future is the timelock mentioned on pages 4/5, i.e. to incentivise a long lock which would provide the protocol and treasury with better visibility of AuM. I would even go beyond the indicative 14 week lock and think about multi-year locks which would be highly attractive e.g. for smaller depositors that really have the long term game in mind and do not just view PoolTogether as an attractive yield farm.

The data points on POOL drip are also useful. Good to see that “only” 11% of claimed POOL gets sold. I wonder why the majority of the claimed POOL are not deposited into the pPOOL.

Would be interesting to understand the rationale to move from regular buybacks to discretionary ones. The current model has the “cost averaging” logic whereas I fully get that timing can beat the financial outcome if the capital is used during dips.

A treasury management committee for this and other purposes makes sense, it is important that there is no front-running. Can you expand on the actions taken in the treasury management committees after they were formed in the other protocols? Just to get a better feeling for what they did execute afterwards.

Thank you so much for the quality work, I am very curious to hear the thoughts from the broader community on this!

6 Likes

Hey Llama team,

Great job summarizing everything in a comprehensive report.

One thing i wanted to get out of this report is to figure out ideal split of POOL rewards across different Layer 2’s and different protocols.

I would love to see a suggested % distribution of how POOL drip
(1) Mainnet and other L2 platforms (polygon, celo, optimism, arbitrum…) etc
(2) Between major protocols (uniswap, bancor) etc

Is this something you can provide a draft guidance for?

2 Likes

Our working group believes a timelock feature could be interesting. Because V4 will award POOL as prizes eligible for depositors to win, the original idea of allocating more dripped POOL for longer lockups didn’t quite fit into the recommendations wrt POOL drip. But having a timelock feature that increased your odds of winning based on lock up time would be one way to reward long-term depositors. We are not sure of the technical aspect to such a timelock mechanism, though. @Brendan could likely provide more insight on that.

Because POOL is currently being dripped and soon awarded to depositors, continuous buybacks may be less efficient than discretionary buybacks. An alternative could be conducting continuous buybacks during a bear market or when POOL is below a certain price, and the period during which the continuous buyback occurs is at the discretion of a Treasury Management Committee.

We can also speak more to these points on Friday’s community call. Thanks for the input and the great questions, Gabor.

2 Likes

Deciding a multi-chain drip strategy, allocation would be a big task, and it’s not one that was included in our initial mandate for this report. We could speak to this on the call but drip allocation wasn’t reviewed in our report but rather how effective POOL drip has been to date and how best to distribute POOL on a whole rather than individual allocations.

We did discuss using alternative capital structures to raise debt that could be used as Sponsorship Capital. Sponsorship Capital can be used to help launch new prize pools on sidechains and L2s to increase prize size and attract a greater number of users.

3 Likes

Sounds good. I will create a new thread for POOL community to think this through in more detail.

1 Like

I’m reading through the report, great work so far on the comprehensiveness!

I’ll probably have some more questions, but I’ll start with this one, based on the quote from Gabor.

I’m not quite sure I understand the metric whereby you arrived at the conclusion that only ~11% of farmed POOL is sold. We know that for example Yearn sells 90% of their farmed POOL which is about 1/3 of all farmed POOL (roughly speaking). Thus I’m not quite sure how the final sell percentage can only be 11%? Maybe I’m missing something about this metric? Note that this significantly influences further conclusions about e.g. a buy back program.

3 Likes

What I was essentially looking at was the total activity for all the addresses that are receiving dripped POOL, and tallying up all of the activity those addresses were doing. I did not cover transfers of POOL out from those addresses, because any interaction with a contract (e.g. trading, depositing in pPOOL) also looks like a transfer and there would be double counting there.

Here’s an example from the report:

For example, imagine a user with 1000 existing POOL who then claims a further 300 POOL, sells 200 POOL, and then puts 200 POOL into the POOL pool (hereafter, pPOOL). Since the Working Group cannot attribute the claimed POOL directly into selling and pPOOL activity, respectively, what we can say is, at a maximum, that user sold 200 of their 300 claimed POOL, and, at a maximum, they put 200 of their 300 claimed POOL into the pPOOL. By definition this user could not have done both, but what this heuristic defines is the maximum amount of POOL they could either sell or move into the pPOOL.

What this emphatically does not cover is activity where the selling address is different from the claiming address. So if Yearn claims POOL into address X, and transfers to address Y before selling from address Y, then that would not show up in my analysis. I assumed that most addresses are straightforward about where they do their activity from and don’t route their claimed POOL to various place. But so long as Yearn is claiming into address X and then selling or pulling into pPOOL from address X, this analysis will catch that.

Since this particular part of the analysis was only a fringe part of the overall report, I limited my scope of the analysis to defensible simplifying assumptions around the entire claiming userbase. I didn’t want to get into a really detailed chain analysis rabbit hole around tracking down exactly what Yearn is doing with their claimed POOL- but if y’all think that’s important we can structure another proposal centered around doing this sort of detective work.

3 Likes

Due to high gas costs, individual addresses claiming/selling POOL may not be very representative of actual behavior in the last 4-6 months.

So trying to focus the analysis on whale addresses (such as yearn) to understand how they are farming and dumping is very helpful.

So i’d actually suggest we have a cut-off and pick 5-10 whale addresses (including yearn) to get a deeper understanding of the situation.

With all due respect as I think the overall report is pretty great, but claiming that the sell rate of the dripped pool is a fringe analysis is very loosely dealing with how important it can be in informing our continued strategy. You both repeat that figure in the summary (without noting it is likely an underestimation) and build upon that analysis in the Discretionary POOL Buybacks.

For people reading only the summary, that could be quite misleading. I would suggest to amend this statement to explain it only covers direct sells and not transfers + sells.

Knowing the actual sell rate would likely change the advice for performing buy backs to mitigate the sell pressure from “probably not a good idea since it’ll take too much reserve capital” to “impossible”. Furthermore, the sell rate could likely be one of the main factors in deciding our drip rates in the future.

1 Like

Totally understand how crucial this is to understanding the situation and informing future drip rates. I totally agree that if we assumed the sell pressure was not 11% of drip but actually 70%, that would change some of the nuances of our recommendations.

The only caveat is the scope of the work as defined. I’ll talk more about this on Friday as well, so happy to have a dialogue then.

For those who can’t make it on Friday, in summary, our emphasis was on research of various treasury management and drip management options, and not necessarily doing on-chain analytics and a full blown flow analysis of POOL. The on-chain analytics portion was to get rough drip metrics around the entire userbase, which means categorizing on-chain activity in a way that applies equally to every user and every account. I was not comfortable assuming a priori that the bulk of the selling is coming from a pre-defined set of Yearn addresses. Furthermore, Yearn vaults are comprised of a complex series of interacting contracts and addresses that will require a deep dive of how they work and how tokens flow between them, so the work required to say with certainty what they’re doing on chain was outside the scope of this specific project.

That said, I wanted to be clear and transparent about how we pulled the data and the assumptions we were making, and if you think those assumptions are invalid, I think it’s completely correct to adjust your understanding of our recommendations accordingly.

Unfortunately, I can almost never make the community calls. I’m sure others will have plenty of things to talk about though. :wink:

I do not think the analysis / assumptions are invalid. It is a useful first-order approximation. Unfortunately, we know that a large part of the actual drip selling is not caught by that analysis and thus the wording of the result of this analysis in the summary bothers me a bit. After all, this summary could be what people take away as a major point when discussing future program adjustments.

Thank you for the write up! A few comments from me:

  • The analysis on different possible tools to use for treasury management was very good! Quite happy to have a detailed analysis with recommendations on how to use them. If you wanted to shorten the report, I’d recommend simply cutting out some of the tools you view less favorably (or moving them to an appendix).

  • I’d agree with the point @drcpu is making. The analysis of the effectiveness of current POOL distribution is quite thin. Even some small changes could have increased the effectiveness by a lot (i.e. how much POOL is transferred immediately? even if we don’t know how much is sold). The analysis of POOL distribution and tokenomics was always what I was primarily interested in (see my comment on the original proposal here).

So overall I think this is helpful as a survey of capital tools but we likely need to revisit the POOL distribution and usage analysis to make better decisions on what the best next steps are.

Hi @leighton,

Thank you for the feedback on the report! We’re sorry to hear the POOL drip analysis differed from what you originally envisioned. To correct this, we will dive deeper into the data and amend the report with a more robust review of claimed POOL usage to date. Our working group will deliver an amended report by October 1, which will substantially update the POOL drip analysis and move the various Alternative Capital Structures entries that are not included in the Llama Recommendations section to an appendix at the end of the report to improve readability.

Through these measures, we hope to improve the quality of the existing report and update the analysis to better inform the PoolTogether community when making their treasury management decisions.

We apologize for the delay this has caused and are working to update our report to meet the community’s expectations.

3 Likes