It’s time to start the important discussion around setting POOL distribution rates in a longer term and sustainable manner. There are a few prompts to starting this discussion now:
We are nearing the end of the original 14 week distribution (May 26th)
We have new yield sources integrated that are offering higher APRs than our current ones. We may want to apply some POOL to them. They are launching soon.
The current distribution has run for a full 8 weeks giving us good data
Thinking on this topic, I have a few principals in mind that the community may or may not agree with.
Continuing POOL distribution at a slower and longer term rate is a good thing.
POOL distribution should target assets yielding the highest APRs
Changes to POOL distribution should be infrequent allowing long term planning and minimizing gas costs for users
POOL distribution should remain more generous in the near term (12 months) as rapid growth continues
With all this in mind I’ve created a spreadsheet analyzing the current distribution and suggesting a potential new distribution that can run for 12 months. Key points of this spreadsheet are:
Currently the UNI and COMP pools provide the lowest APRs, and the worst ROI per POOL distributed. Accordingly I propose an 80% decrease in their daily POOL allocation
The Dai and USDC pools provide the highest current APRs, have the largest deposit base, and return the best ROI per POOL distributed. I propose a large but less dramatic reduction of 56%
New pools will be launching with Aave, yearn, and other yield sources. I propose a uniform 100 POOL per day distribution to these new high yield stablecoin pools
I also propose an assumed additional 400 POOL per day for new prize pools that will launch in the future.
On the net, this would amount to a 50% reduction in daily POOL issuance while also spreading POOL issuance across 13 instead of just 4 pools. Here is the analysis.
This post hopefully kicks off a discussion. I’d love more analysis and thoughtful input on how to best structure this for our long term success!
I think it’s good that there is some POOL reserved for future pools. Once those 400 are used up, it will be crucial that every time we add POOL distribution to something, we decrease it somewhere else.
We need to define a budget now that we hold ourselves accountable to.
In 12 months we can revisit it and lower the budget or end the yield farming program.
Sidenote: If we are going to incentivize DEX LPs, as is being discussed currently, I think that should be part of this budget aswell.
Looks like a solid blueprint. Logic seems sound on the 50/100/1000 split although I probably would preferr the main pools to be lower than 56% reduced. Maybe around 800. Some comments that I think could be considered to maybe gig things a bit:
1). If we are going to be doing token swaps with other protocols or if we are going to be doing treasury sales to increase the USD reserves of the treasury I would be in favour of restraining the supply more. The more POOL costs on the open market the better the price we will be able to negotiate.
2). 4-8 more pools added to governance over the next year seems like a conservative estimate of how many we might want to onboard. Although maybe we will diverge from the 50/100 risk_asset/other_stablecoin proportion I’ve assumed is a template from looking at this. Over the next year I would probably expect us to onboard more than 4-8 new pools through governance so the reserve might be a bit thin. Are we going to dig into more of the treasury funds or regig things in drip rates which would go against one of the principles?
3). Torgin just mentioned it above; the AMM LP rewards seem to have heavy support so we should be factoring that into the budget I think.
When this was discussed a while back I was a bit worried about how it would work out but I am now in support. With so many pools being used I definitely think it will be necessary to reduce the distribution. I am hopeful that the APY can be maintained with the price increasing. Looking forward to seeing this play out. Definitely think our distribution should be weighted to the first year so we can grow rapidly. I’m open to a 25-50% reduction on the main pools.
Do we need to make that a throw in here? I feel like this point will slow down getting the distribution reduced. I’d rather see that as a separate proposal. You have already done some solid analysis here and come up with a good plan. Let’s get this pushed through first, then we can figure out how to incentive LP’s
Also, how would that POOL be distributed to LP’s? Create a prize pool that accepts LP token deposits? We could make the pool have zero winners and make it a mining only pool. Kinda like the sponsorship mechanism.
As far as the main points go I think the plan you’ve laid out works. I don’t see a need to change any numbers. We will never get it completely perfect. We can spend time splitting hairs or roll with this. I vote roll.
I don’t think we will hit an 8 figure AMM market if 100 per day is the liquidity mining reward for LP seeders. Think 200+ will be required.
Just to illustrate: let’s say we want to get around 200k in the pool and lets assume it’s a constant whatever happens with the price (I know it won’t be but just for simplicity). Pricex100/(200000xPricex2)x365 = 9.1%. Especially with the POOL pool offering a similar return for half the capital.
At $25 we will have $10mm at $100 we will have $40mm in the AMM pool with 200k. I think you’ll get the pool size to be around 1/3rd to maybe 1/2 of 200k with 100 POOL reward. I think 25% in the native is where the cusp is where people on the side will get interested in it. So I think this could grow the pool to around 75k, maybe 100k POOL.
I like the approach of allocating more POOL for deposits getting higher APRs like USDC and DAI. I would like to see ETH governance POOL and deposit equal POOL in Uniswap as LP. POOL can earn fees from uniswap. Helps community by stabilizing the EthPOOL slippage. We may get some impermanent loss or gain but we will be the only protocol with High APR for ETH .This will attract big deposits into POOL. WIN WIN
I agree.
LP rewards are a separate issue and if we want them, we can use part of the 400 reserved for future dispersal. There’s more to figure out there.
I think something that may be a good addition is doubling the POOL pool distribution. The best way to keep our pools sustainable but still attractive is to have POOL price rise to make up for the rate reduction. Encouraging users to keep there POOL and lock it in the POOL pool could help maintain APR in this transition. I will vote in favour with the currently proposed numbers posted by Leighton but I suggest adding 100 POOL per day to the POOL pool.
Good point. I think it’s a good idea to ramp that up but I already think the proposed amm reward is too low, this will make it even less appealing. Think we need to get some polls running.
I am going to have to disagree with increasing the POOl pool distribution. I think that approx 10% APY is sufficient for essentially staking tokens. there is nowhere else to earn yield on POOL alone. it is the only game in town. If we raise those rates then the LP rewards will need to be even higher. in my opinion, the LP rewards should be significantly higher than the POOL pool rewards (essentially you are a single-sided liquidity provider in the POOL pool). this is how other protocols that allow you to stake operate, and for good reason. we have heard from more than one whale that cannot invest as much as they would like into POOl because of lack of liquidity.
i am thinking that 400 pool should not be related to LP rewards at all. it should be something outside of this proposal entirely.
I agree that 10% APY(8.11% currently) is sufficient, but that APY will drop as more join the pool. If we want to draw more people in quickly and try to compensate for the reduction we should do these at the same time. Best to come out the gate with higher APY on the POOL pool and let it settle.
to be honest, I hope that we do not get more depositors in the POOL pool. I think it should be more enticing to be an LP. having more LP’s benefits us more than having more people in the POOL pool. yes, the POOL pool provides a place to stash tokens instead of selling them, but if people cannot buy the amount they want on the market then we are actually suppressing the price.
I’d like us to figure out a top down approach for the budget once this 14 week period ends. By top down I mean, figure out what the yearly inflation of POOL will be and then work through where the funds need to be allocated. I don’t like this idea of taking everything in isolation and just pulling more POOL out of the treasury as needed. I do think these things should be connected; if we need to allocate funds to the swim meet function or to incentivise AMM participation then that should impact the pool distributions in the lottery. I guess for unforeseen things they can go to new proposals, but if things we already know need funding lets make a global plan for this.
My simplistic POV is that the core KPI the POOL distribution should be optimizing for is TVL.
I think it’s important to acknowledge that depositors right now are likely depositing into the major pools for the POOL distribution, not the other prizes. Right now POOL is the “prize” driving growth, and everyone is winning. This is not sustainable given the POOL distributions will end at some point.
So my approach would be two-pronged:
raise the reserve rate to something far higher that 5% – something closer to 50%. Build up a real treasury this way that can double as a pool sponsorship fund for a long time (e.g. keep TVL high)
Keep the distributions on the USDC / DAI pools as high as possible. Personally I think the non-stablecoin pools are a distraction – those coins are so volatile that the pools can hardly be called “lossless” (as everything is still priced in USD)
Again, it’s important to acknowledge that the power users are farming right now, and they will seek more capital efficient stores once the protocol incentives dither. So my opinion is we should be building up stablecoin reserves to keep TVL as high as possible for as long as possible.
RE: LP incentives. I continue to believe there is a huge gap in liquidity that the USDC / DAI pools have demonstrated can be overcome with sufficient POOL distributions. I don’t think a discounted sale to private (i.e. non-governed) parties at this point aligns with the decentralized spirit of the project. Sorry for mixing up two threads but these topics are all related
PTIP-5 raised reserve rate to 50%. this is already in effect.
I believe the reduction in POOL distribution to the main pools will not be big enough to deter whale depositors. the rates will still be attractive compared to other yield sources in defi. they also will have to factor in the expected value of the prizes. The whales win quite often and this increases their overall return.
i am a strong advocate for increasing the LP rewards. i think the entire community is as well. we will come up with a strategy very soon to reward LP’s.
