PoolTogether

Optimizing Reserve Rates

Proposal 2 to set the global reserve rate to 5% is about to pass. I’m happy to see this had such broad support.

One difficulty with proposal 2 is that the reserve rate is currently applied globally. This means all prize pools will have a 5% reserve rate (Governance managed ones & community ones).

I think this is somewhat non-ideal as 5% is actually quite high for community prize pools but quite low for governance managed prize pools.

Having a much higher reserve rate for governance prize pools has a few key benefits:

  • It takes winnings away from the whales and instead keeps more money in the protocol “sponsorship”. This raises the effective APR for everyone and minimizes the impact of whales leaving.

  • It begins to build a powerful and reinforcing network effect that having a deposit in PoolTogether is ALWAYS better than having a deposit in the underlying yield source.

  • It opens up the option to use reserves for a variety of things that have been mentioned in this forum

I’m posting this now to gauge interest to see if we should push forward with the update enabling this.

VOTE in temperature check here: Snapshot

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I definitely support making this change. Pools that are receiving POOL tokens should be contributing more to build the treasury reserve. Once this is implemented I would support lowering the percentage taken from community pools and raising on governance pools.

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totally in agreement on this. i brought this up a couple weeks ago. i would not want to pay 5% if i was making a community pool as most of them have small prizes. governed pools have much more capital to work with, and i think we could actually raise the governed pools reserve rate in the future.

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100% I think it is very limiting that it has to be applied globally.

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I agree it ´s the way to go

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I also think this is very important. I would set governance pool reserve rate to more than 5 and community pool rate to less than 5.

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Governance rates somewhere between 5% and 10%.
Community pools at 0%.

I don’t think we should be collecting reserve on the community pools. Sure the community pools are a service PoolTogether offers to different protocols, but by those protocols utilizing PoolTogether, it’s bringing more people to PoolTogether and further slotting PoolTogether as a go to protocol.

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Agree. The Community Pools should be left untouched by the reserve rate.

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I agree 5% is probably too low, but I worry about raising it too high also. As long as the reserve rate does not cause the returns to drop below the rate of the underlying yield source I am in support.

I would expect this to cause reserve rates for the pools to differ, since the UNI and COMP pools receive only 1/10 the yield in POOL.

At current AuM I would like to try something radical. Voted for 25% reserve.

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I think the argument is that right now the distribution of POOL is way higher in value than the underlying yield source. So hypothetically the reserve could be at 100% and people would still be deposited because they are primarily here to receive POOL not win the prizes.

So, maybe we take advantage of that by building a huge sponsorship right now so when the people only here for POOL leave we can still have big prizes!

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Radical would be 100% reserve. :slight_smile:

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My opinion is:
governance pools: 25%
community pools: 2.5%

What’s the rationale behind setting a reserve on the community pools?

Billion dollar idea. Of the 25% collected by treasury reserve, we award 10% to the treasury of the primary asset in that pool. Governance protocols like Badger, UNI, SUSHI, etc now are getting revenue from Pooltogether that costs us nothing. Giving huge incentive to grow these pools. Assets like DAI, USDT, and USDC can be handled in a different way.

It’s pretty low, and can help cover costs. I’m sure the developers will have to spend alotta time helping with these pools. Shouldn’t be completely free.

I have posted my thoughts on this topic in Discord, but because it gets crowded there pretty fast, I’ll reiterate them here too.

I fully support the idea of a per-pool reserve rate as I think it makes little sense to have a reserve rate on small community pools. I also understand the reasoning of implementing a higher reserve rate right now and I agree with the first two points of the original post by @leighton (it could contribute to the future health and attractiveness of the protocol). However, I do not like the idea of confiscating a large part of the yield prizes right now to do something undefined with it in the future.

My problem with this proposal is that confiscating a large part of the prize feels really bad for smaller participants. I know they have very little chance to win, but they also do not earn a lot by farming POOL. I’ll give two examples:

  1. A small player may earn something like 0.1 POOL / day or 0.7 POOL per week (yielding approximately 14$).
  2. The biggest whale in the DAI pool earns roughly 700 POOL / day or 4900 POOL per week (yielding approximately 68.6k$).

While player 2 will likely not care too much, taking away 50% of a 20k price means you are taking away much more than player 1 can ever gain by yield farming. Taking away 10k$ from a potential prize (no matter how small the chance is they win) seems really disproportionate for player 1.

If there was a guarantee the confiscated reserve would stay in the pool as sponsorship, it may be somewhat worth it because later on a small player can win more than their stake justifies, but as of now it seems like the proposal aims for the reserve serving any future funding proposal (which people may or may not agree with).

This is obviously just my opinion, but I’d much rather see the high profitability of yield farming tackled (right now this is problematic aspect) than chipping away at the prize pool because the latter is the core feature of the PoolTogether protocol and the yield farming is not. I don’t mind the 5% reserve rate so the effort of the people engaged in the protocol can be somewhat compensated, but building a war chest of more than 100k$ over a couple of weeks (assuming a 50% reserve rate) seems pretty excessive.

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I thing gov pool should have higher rate (25%) to benefit from the high prize rewards… can be lowered later anyway…
Community pool i am not so sure…
The other thing that can have impact is the Pool rate allocated to each pool…

25% is a very reasonable amount to take in from governance pools. I would like to see some of that money given back to the community and some committed to the POOL treasury.
10/10/5 Pooltogether treasury/ treasury of token used in that pool/Gitcoin donation. This model would give incentive for other communitties to commit developement time to integrating with Pooltogether.

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Thanks for writing up these thoughts!

I have three responses:

  1. Right now the whales get the majority of the POOL tokens AND the majority of the prizes. So taking a large % of the prizes and keeping that money in the protocol is better for the long term (and presumably smaller) holders. When the whales leave, they will leave behind a lot of value. Right now the whales aren’t leaving behind much value and are getting almost all the value. So for this reason alone, I think as long as the yield from receiving POOL is higher than the underlying yield source, a high reserve makes sense.

  2. Historical speaking, interest rates are very high right now. So whales and small fish aside, it makes sense to build a high reserve while interest rates are high. I’d rather take 50% of a 10% interest rate than 50% of a 2% interest rate. Right now we can have the best of both worlds. Large prizes and growing reserve.

  3. As you mention, I think so much of this hinges on how we view the reserve. To me the reserve is a perpetual growth mechanism. It’s a way to ensure the prize is always bigger than the sum of the interest earned on all deposits. It’s also a way to ensure that whales that have the highest chance of winning also contribute a lot of value. I have zero desire to use the reserve to fund development. We have millions of dollars of POOL tokens for that. I do think using a portion of reserves for funding donations / public goods is a great idea and has been very popular and also contributes to growth.

Overall, I think a system where 100% of the interest generated gets randomly awarded is mildly interesting but ultimately just becomes a whale game. But a system where there is still a chance to win large prizes but also a perpetual growth mechanism and additional ways of distributing yield is far more interesting.

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