Happy Friday! It’s time again for the weekly update from Llama DAO.
It’s been another busy week, and we’ve got a comprehensive update to share:
On Tuesday, we met with the team from Ruler Protocol to learn about Ruler Bonds, their permissionless treasury bond product. A Ruler Bond is created by providing on over-collateralised deposit with a Mint Ratio set by the Ruler team. The Mint Ratio is a percentage of the current value of POOL, so with a market price of $17/POOL, the Mint Ratio could be set at $12/POOL or so. Currently, Ruler’s non-liquidatable loans have a one-month term with payment due by expiry. Ruler Bonds would be subject to a longer term, which PoolTogether would discuss with the team. To date, there has not been a Ruler Bond offering.
We also met with Ritik from Sublime Finance, an under-collateralised lending protocol that uses social credit and reputation in addition to under-collateralised deposits to borrow from lenders. The protocol allows borrowers to create borrowing pools in tranches to attract lenders’ capital. This will be another great addition to the market, but launch is estimated to be 2 to 3 months away. We will also include this in our report with a note about the time to launch consideration.
We’ve reached out to Goldfinch Finance but have yet to receive a response. We may forgo a write up on Goldfinch Finance since we have a wide array of under-collateralised and zero-collateral lending protocols in our report already.
POOL Drip and Tokenomics
Our team is still building out the Dune Dashboards to accurately analyse POOL drip rates, but our discussion centered around the optimal way to distribute rewards, create long-term depositors, and create productive incentives to bolster greater volume in Sponsorship Deposits.
Given that Compound’s supply rates are lower than the aggregate POOL drip being distributed to depositors, it’s likely that the cost from the treasury isn’t returning greater value in the short term; however, it creates long-term protocol participants and gives governance power to active participants.
Our working group has been exploring how to create long-term changes to the POOL drip mechanisms, while potentially conducting a liquidity mining campaign that distributes call options to depositors who provide Sponsorship Capital in select pools (e.g., DAI and USDC). Andre Cronje’s Medium article Liquidity Mining Rewards v2 outlines how a DAO can use Pods Finance to offer call options for liquidity mining campaigns. Given that call options are a more sophisticated financial instrument, incentivising deposits into Sponsorship Capital would be ideal. We will include a more in-depth analysis in our report.
In addition to call options for liquidity mining, we discussed the potential for users to lock in their deposits for set timeframes in exchange for more attractive reward rates. At the beginning of this month, BarnBridge launched their SMART Yield senior tranche rewards program, which provides a greater share of rewards to earlier depositors with about a one-month time decay on rewards for 5-6 month maturity.
PoolTogether could introduce a feature when V4 launches that allows a depositor to lock their deposit for a maximum time frame (e.g., one year) to receive the greatest proportional share of rewards and a minimum time frame (the current prize pool timelock) for the smallest share of rewards. Such an alteration in the design would allow the protocol to reward long-term depositors while reducing rewards for participants that are entering and exiting the pool to farm and sell rewards. There are other features with respect to this design that need to be discussed but that analysis will be included in our report as well.
Questions for the Community
While we’ve shared a longer update this week, we would like to gauge community sentiment regarding POOL drip. How long does the PoolTogether community plan to incentivise deposits with POOL rewards?
A buyback element could be added to current tokenomics to create a long-term incentive for depositors, but if the community only plans to conduct a liquidity mining campaign until end of year or beyond, then this may not be a productive use of resources to explore.
We have reviewed a wide array of different protocols and available products within the mandate of our proposal, so we will focus on POOL drip, tokenomics, and recommended strategies for the remaining duration of our grant period.
We look forward to having a wider discussion on the community call and in the forum.
Past Llama Treasury Updates