Two upcoming events give us an opportunity to re-think POOL distribution:
POOL distribution for all V3 prize pools is set to end in ~35 days (end of October)
The launch of V4 prize pools
I want to kick off a discussion on some radical changes to POOL distribution and get input from the community. My proposal is:
Allow POOL distribution to end for all V3 prize pools
Start V4 prize pools without any POOL distribution (use POOL incentives later)
Incentive V4 usage solely through adding additional USDC to the prizes (starting at $50,000 per week)
Continue POOL distribution only for LP program and POOL pool depositors
Rationale:
POOL distribution with V3 has had mixed results. It’s been successful in growing TVL and creating large prizes but in a fairly inefficient way (i.e. the value being disbursed is less than the value yield farmers are contributing to the prizes). It’s also been successful in distributing control of the protocol but as more POOL has been distributed that goal because less important (because the protocol control already is decentralized).
The distribution of POOL is an important additional incentive that drives protocol usage. However, it works best when it is an additional incentive that accelerates growth. NOT when it becomes the primary reason to use the protocol. To state it plainly, if people are ONLY using the protocol to get POOL tokens and sell them, the distribution is not working. It is simply covering over more core product / market fit issues.
For these reasons, I’m proposing it’s best to start V4 off with no additional incentives. It will be much harder to grow this way but it will allow us to make sure we have true organic traction and can then accelerate that with incentives. An overview of what I see as pros and cons.
Pros:
Stops all farming and token inflation, allows us to gauge true organic traction
Allows us to focus on the core value proposition of no loss prizes
(hopefully) builds a tighter community among long term holders
Enables us to more aggressively distribute POOL to active contributors (via things like Coordinape, etc.)
Enables us to re-introduce POOL incentives in a more impactful way
Cons:
Will see a large drop in TVL as short term minded farmers leave (could be psychologically hard for the community)
Hard to compete for deposits when other protocols are aggressively incentivizing deposits
V3 vs. V4 incentive differences
V4 gives us way more flexibility in how to disburse incentives. V3 incentives worked in a very simple way, you accrued POOL in real time proportional to your deposit. With V4 we can do more interesting things like awarding POOL on a weekly or monthly basis depending on your total deposits over that period of time. That will enable us to use the incentives more effectively.
Next Steps
This is meant to kick off a discussion rather than be a formal proposal. I welcome all feedback! I’ve included a few polls to gauge high level sentiment:
Allow Incentives to expire on V3 prize pools (end of October)
Continue incentives on V3 prize pools (Past end of October)
I would love for v4 pools to launch without farming incentives. I’ve always been attracted to PoolTogether because of the no-loss-lottery concept (or price-linked savings or whatever you want to call it ), and not really for the farming.
Yes, we’ll see a massive drop in TVL because players like Yearn will definitely leave and prizes will shrink significantly, but I think the v4 launch is likely the best moment to rethink our strategy and better assess the impact of future POOL distributions knowing what we know from v3.
Agreed. Yeah, my main thesis here is that the V3 architecture meant we couldn’t really deliver on the core value prop of prizes very well (because prize distribution was so limited). With V4 we can, and we should be able to move away from / or just use incentives in a much more effective way.
Technically, because of how it’ll work with tiered prices, I believe it would be better to not chase players like Yearn away. Tiered prices only really make sense when you have a significant weekly price to distribute.
However, there are tons of things we can do with v4 and I’d still say there is not better time to make a drastic decision than at the launch of it. Furthermore, I’d really like the idea of exploring a more collaborative distribution of POOL tokens (KPI-options, grants, etc) rather than plain APR.
It’s an interesting thought but It’s hard to envision a scenario where this doesn’t completely wipeout our TVL and thus kill the prize. Seems like TVL will be back where it started and how will we achieve growth. Something that might work better is a very drastic cut to distribution. If distribution were drastically cut then maybe demand would overcome supply and those who have held POOL would be rewarded with a big price surge. I just don’t know how we’ll achieve any growth without liquidity mining.
Edit: without liquidity mining**
“this doesn’t completely wipeout our TVL and thus kill the prize.”
As stated in the post. I’m saying we should incentive the prize and not the APR, " Incentive V4 usage solely through adding additional USDC to the prizes (starting at $50,000 per week)".
I just don’t know how we’ll achieve any growth without liquidity mining.
It would be the old fashion / hard way. Having something people love to use! I don’t believe TVL would go down to what it was before because I believe V4 is way better than V3. It definitely would go down but I don’t think organic growth is impossible. To be clear, I 100% believe we will want to use incentives in the future but starting without APR incentives allows us to see what the organic demand is and then apply incentives in a thoughtful way.
Something that might work better is a very drastic cut to distribution.
What do you think this would look like? Just incentives V4 or V3 too? Curious what numbers you think would be good!
Allowing us to gauge organic traction by starting V4 without any POOL distribution is awesome.
It’s a bit of a fire walk, but I’m for it. It’s scary, a bit crazy, but it makes sense.
This is very appealing, especially considering the value being disbursed is less than the value yield farmers are contributing to the prizes. V4 is the time for a drastic move like this. Yes, yield farming is safe and has kept our TVL at a modest 100M-140M, but it’s inefficient and merely following the status quo.
I think it’s time for a drastic move like this, it’ll serve as a reset and an opportunity for creativity in regards to token distribution. If we nuke TVL, albeit temporarily, so be it, especially if it means re-introducing POOL incentives in a more impactful way in the future. Despite TVL stagnating, the community has done nothing but grown. We’ll think of something better than yield farming, without a doubt. I’d rather nuke TVL and build a long-term community of users than relying on some whales absent from the community.
I think removing V3 incentives makes a lot of sense.
On V4, I could go either way. Trying just organic growth would certainly be an interesting experiment.
Uniswap has done this successfully in the past.
One thing that I think is absolutely critical if we do decide to cut incentives is that the website of V3 as well as V4 shows the expected APR of the prize (what you would win on average). This is a feature that has been missing for a long time imo. The Celo pools currently have an effective APR of 60% when considering the prizes, but only show the 30% that are guaranteed drip.
If we do this, the removal of incentives might not even necessarily be noticed by a casual observer.
If we remove incentives, we should set the reserve rate to 0-5%.
Totally agree on this and with more prizes, the effective APR is much more meaningful because you will actually win. APR is still the language people understand so we need to communicate that to them in some way.
My thinking is POOL distribution for the entire protocol being below 500 POOL/ per day. This would set a clear message that there will be no more cheap POOL coming and if APR is gonna get back to what it was it will be because of price growth. The narrative I see here is that this will be your last chance to buy POOL sub $10.00.
I would also only pay out grantees in USDC for the remainder of the quarter to ensure we are not contributing any sell pressure whatsoever.
In addition we could consider paying out the POOL pool drip in KPI options going forward making it a place for those in it for the long term and who want to contribute to governance.
There could be a period where we allow heavily slashed incentives to V3 to aid in the transition. I definitely don’t like the idea of completely removing distribution but could get behind this drastic reduction. Despite being a bit terrified of taking this risky plunge I could YOLO into it.
I took UNI as a case study of what happens when a successful protocol removes incentives.
They kept them off until now, but have recently started talking about reintroducing them.
Here are annotated TVL and UNI/ETH charts. I used UNI/ETH instead of UNI/USD as this filters out the increase in UNI price that resulted from the entire market going up.
On the TVL graph, the effects of stopping incentives are very clear in the short term.
On the price chart it’s hard to tell what the effect of stopping rewards was.
Part of it is not wanting to give away any POOL at these prices, at least temporarily while the dust settles. I do think grants does a good job and it is nice that a good chunk of the budget is USDC.
I completely agree with the original post, incentivizing POOL pool & LP’s like this is great, you could drip a lot of POOL to POOL pool in order to incentivize people to buy more pool and stake it (early exit fee could be added to just ppool), would like to see even more reasons for people to buy POOL in the future. The protocol will grow over time so TVL/prizes is a short term looking metric.
Posted this on discord but I’ll add it here to. I’d like to maintain some small APR that ensures even the most unlucky player is better off depositing to Pooltogether than saving funds in their bank.
I’d propose:
500 POOL per day to USDC POOL V4
Drip KPI options to POOL pool instead of POOL
Reduce LP incentives to 150 POOL per day and divide that between multiple platforms
Do as Leighton mentioned and inject $50K USDC per week as prizes.
Have some reduced drip to V3 pools extended for a transitional period to try and keep as many of those depositors as we can.
Maybe crank up the V3 reserve rate a few weeks after V4 launch so that interest goes to the protocol and users migrate.
I support removing all incentives for launch. this is an opportunity to determine the organic demand. It is not permanent, and we can use our toolbox at a later date if needed. This should have a great outcome for the price of the POOL token.
Injecting USDC directly into the prize should be an interesting experiment and should create at least some demand for a spot in the pool.
We will never know if we do not try, and as I said before this policy can be altered at a later date in more creative ways as Leighton mentioned.
One important thing to keep in mind is that with V4 any incentives that are offered will be chain specific. This is another reason it might be better to start without any special incentives. We can see which chains get the most use, etc.
But with that said, if we were doing 500 POOL per day, how would you suggest splitting that between Ethereum and Polygon. Any thoughts on that?
), and not really for the farming.
