PoolTogether

Llama Treasury Update (8/20)

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:

Protocol/Product Meetings

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

Llama Treasury Update (8/12)

Llama Treasury Update (8/6)

Original Proposal | PTIP-26: Llama handshake PoolTogether: Tokenomics Research and Exploring Alternative Capital Structures

3 Likes

Hi all, Ritik here from Sublime Finance. We’re particularly interested in treasury management for DAOs and are excited to be a part of the on-going discussions. Happy to answer any questions!

3 Likes

As always these updates are amazing and speaks to the enormous effort Llama is putting in, thank you. I really appreciate how you’re integrating protocol’s of interest that anyone in the community demonstrates interest in and ways how we could leverage them.

Regarding your questions:

  1. How long do we drip?
    • I believe 10 years has been floated pretty consistently. I believe this is paying credence to Compound as their drip should last roughly 10 years iirc. But I don’t know what other rationale there was for the 10 year number - a fine target though imo.
  2. Should buyback be integrated in tokenomics?
    • I think this will be a contentious point in the community, so perhaps a poll may be better suited here. I’m for integrating a buyback given how much we’ve dripped early on. Once we find a stable drip rate, I don’t see as much of a need to do buybacks.
  3. Recommendations
    • None at this time, Thanks again.
2 Likes

This is one of the most well written updates I’ve ever seen in crypto. Everything I have seen from llama is exceptional. Does llama DAO have public meetings? I don’t have time to participate, but would maybe love to be a fly on the wall (I can look this up myself, just typing as I think).

It is going to take time for me to understand everything you have written so I will probably have to read it again and reply this week.

It might help if you try to use some existing examples for things you are describing if they already exist. Like the lock up that you mention, I think some places refer to that as a “staking vault”. An example being the vaults on DFYN. Admittedly what you are describing sounds a little different.

3 Likes

Hi guys, Alan from Ruler Protocol here, just wanted to provide some more insight into how a bond structure would work for PoolTogether’s case.

Ruler Bonds Structure
Ruler Bonds have the option of making the bonds overcollateralized OR undercollateralized.

Overcollateralized Bonds
In the overcollateralized instance, we would set the mint ratio to a price below the current POOL value, and it would function in the same way a normal Ruler pair operates. The benefit of this is it ensures that if the PoolTogether defaults or is unable to make the interest payment, the lenders would be guaranteed to be made whole (as long as POOL price is > mint ratio at expiry); lenders would receive POOL instead of DAI in return. The downside is PoolTogether would need to put enough POOL tokens as collateral to meet the requirements of the overcollateralization.

Undercollateralized Bonds
However, an undercollateralized loan relies on PoolTogether’s “credit score” perceived by the lenders. If lenders feel PoolTogether will most likely repay their debt regardless of the price of POOL at expiry, then we could theoretically set the mint ratio to, for example, $30 (or even higher). As long as PoolTogether repays their debt on time, the price of POOL doesn’t matter for lenders; they will receive their original investment + interest at the bond’s maturity date. The only risk with undercollateralized loans, as highlighted above, is if the debt repayer doesn’t fulfill the obligation to repay. The benefit to undercollateralized bonds is PoolTogether wouldn’t need to put as much capital upfront, allowing them to have access to more POOL tokens during the period.

Maturity
Regarding the bond maturity date, we can set any date the lenders feel most comfortable with, whether it be 6 months, 1 year, 2 years, or even longer.