POOL incentive Adjustments

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We are ~3 weeks away from the second period of POOL rewards ending. The last adjustment was quite successful and we have an opportunity for further optimizations.

This thread is to kick off a discussion on our primary options. Once a rough consensus emerges I will re-draft into a PTIP.

To get started, it’s helpful to take a look at what current POOL distribution rates are and how much AUM those prize pools have. All details of that are available here.

A few observations on current POOL distribution:

  • Since the last POOL distribution change we’ve clearly seen the USDC prize pool emerge as the largest now representing 62% of all deposits.
  • The USDC prize pool has actually grown from $80 million to to $108 million despite it’s daily POOL distribution being cut 39%
  • The Dai prize pool has shrunk from $57 million to $33 million over the same period of time. Its POOL distribution was cut 70%.
  • We’re seeing strong signs that that effective APR from POOL distribution is not the sole factor in which pool people join. The Dai prize pool has had a higher APR than USDC for but more unique depositors and AUM are joining the USDC prize pool
  • The non-stablecoin prize pools continue to drive the most AUM per POOL distributed and larger reserves
  • We continue to have tension with large whales primarily interested in farming POOL. It seems there is a strong community consensus to not JUST change the distribution rate.
  • Daily POOL emissions are 2,950. For context this is 1,076,000 in annualized POOL distribution. The treasury current has about 5.1 million in POOL tokens. Another helpful comparison point is the Compound protocol which has the same supply as POOL is currently distributing 2,312 COMP per day.

With the next round of adjustments, we have There are three primary factors to determine:

  • What distribution method should be used
  • What token should be used
  • What distribution rates should be used

What distribution method
Currently the POOL token is being distributed to depositors in the prize pool. This has the benefit of simplicity and providing the dual value proposition of a chance to win + an effective APR. However, it also means that the largest depositors get the most POOL and also have the best chances to win. In general, the largest depositors don’t care very much about the prizes and are primary farming POOL.

One option to address this is to move the POOL distribution to “sponsorship”, depositors of “sponsorship” are NOT eligible to win the prizes and instead would only get the POOL. In theory, this should give smaller depositors who are not earning POOL a much better chance at much larger prizes.

Decision point: should the token be distributed to sponsors / depositors / or both

What Token Should Be Used
Currently POOL is being distributed directly. This could be continued or it could be switched to pPOOL. pPOOL is POOL that is already deposited into the prize pool. The pros have this approach are 1) saves people gas of needing to deposit into the prize pool 2) automatically opts people into rewards 3) automatically opts people into gas free voting 4) introduces defacto vesting because you would need to wait 3 weeks between claiming and withdrawing without an early exit fee.

The downsides are that it increases the initial transaction fee to claim and also centralizes more voting power in the POOL pool

What distribution rate should be used
No explanation needed on this point.

Summary
At this point, I just want to get a general feel for what people are leaning towards in the community. Specifically in regards to distribution method and tokens being distributed. I think from there defining distribution rates should be pretty simple.

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What distribution method
I strongly oppose 100% drip to sponsorship as I believe many users are here for the same reasons I am and want to both earn APR and have the fun of having a chance to win. Please don’t separate fun and finance from Pooltogether!
I would likely support an 80/20 split or something along those lines and am also fine with keeping it as is and working on other solutions to get prizes to small depositors.

What Token Should Be Used
I am somewhat against dripping pPOOL to the USDC and DAI pool, but would be in favour of dripping pPOOL to the POOL pool. I am unsure about new pools and the COMP + UNI pools. My main reason for being against it for the main pools is that I don’t want to completely discourage farming as we can benefit from the deposits of farmers. I would rather see our distribution rates reduced to alleviate some sell pressure caused by farming and protect the value of the POOL token.

What distribution rate should be used
I think we should start talking rates in a per week basis as our prizes are per week and many other protocols discuss distribution as a weekly allocation.

Current Rates
USDC: 9800 POOL per week (1400/day)
DAI: 4900 POOL per week (700/day)
COMP: 350 POOL per week (50/day)
UNI: 350 POOL per week (50/day)
Sushi: 350 PPOOL per week (50/day)
Total depositor incentives: 15,750 POOL per week

POOL pool 1400 POOL per week (200 per day)
LP 3500 POOL per week (500 per day)
Total LP/POOL pool incentives: 4,900 POOL per week

Tuna Proposed Distribution:
USDC 7000 POOL per week (28% reduction)
DAI 3500 POOL per week (28% reduction)
COMP 250 POOL per week (28% reduction)
UNI 250 POOL per week (28% reduction)
Sushi 350 PPOOL per week (no reduction)
Depositor incentives Total:11,350 POOL per week

POOL pool 1400 POOL per week (no reduction)
LP rewards 1750 POOL per week UNI
1750 POOL per week Sushi (No reduction but split between UNI and Sushi)
Total POOL/LP incentives: 4900 POOL per week

Key reasons/points for this reduction:

  • Cuts down a bit of sell pressure from the most heavily farmed pools and hopefully finds the sweet spot on distribution to those pools. This is still very generous distribution and it is okay if we lose a small amount of depositors while searching for balance(but I don’t think we will lose any).
  • This reduction leaves the space we will need for drip to new pools over the course of the next year.
  • I don’t think DAI should be reduced at a greater percentage than USDC as this pool will thrive when the market turns green and I believe we should keep building it up.
  • Sushi should not be reduced, has a good return and is already less APR than it’s underlying yield source.
  • LP rewards should be split between Sushi and UNI to allow liquidity on both.
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Thanks Leighton for the discussion starter!

I agree with “Tuna proposed distribution” for the pools. Last time we cut 49% and ~25% seems appropriate now at minimum. Looking around the greater ecosystem I am pretty confident we have the best rates for our risk profile. But those rates alone are not attracting depositors en masse. Look at Yearn with 5x as much locked in their USDC vault but a lower return. And most importantly, they have no prize.

If current emissions are 700 per day, and we cut ~25% that puts us at 525 per day. We could launch 3 new pools with the yield sources coming online (Idle, Yearn, etc), drip them 50 POOL per day each, and be right back where we started. I think it would be a mistake to let our overall emissions grow now, and that it is essential to budget for new pools. The smaller pools show that they bring in new communities and have a better ROI.

As a sidebar I wonder if we have any metrics of average withdraw time per pool? Like USDC average withdraw is after 2 months deposited, Uniswap 3 months, etc.

Also agree we should split Uniswap LP into Uniswap and Sushi, and I even see justification for a reduction. I propose 200 per day Sushi and 200 per day Uniswap. I do not see the volumes requiring the liquidity we are supporting. Will the APR for the LPs be too close to the pPOOL? Only until the “farm and dump” types move on. I would like to see more evidence that we benefit from this level of liquidity. Looking at protocols with similar marketcaps, volumes, and TVLs I do not see our current $6MM in liquidity at this price point as a net positive to us.

I disagree on a potential 80/20 sponsorship split. 1% POOL APR (20% of 5%) on a prize pool becomes essentially dust for anyone with less than a $5,000 deposit. I think we have to go all or nothing on this one, and I lean towards the sponsorship split, but it will be good to have the experiment of the Polygon USDT pool before making a final decision.

I agree pPOOL dripped to the pPOOL makes a lot of sense. I am on the fence/not enough information for the other pools.

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I haven’t had too much time to look into this, but I agree with a modest reduction of 20-30% suggested by @TheRealTuna and @underthesea . Also think moving the drip fully to sponsorship is a sensible move, don’t think polygon trial is necessary from a tokenomic point of view but if others feel it’s needed so be it.

I would be against splitting the LP reward between UNI and Sushi as I don’t see the value in fragmenting liquidity to another DEX that does on average more than a magnitude less in volume than Uniswap. Moving liquidity to there is much less capital efficient as it makes it less attractive for traders to move from shitcoins XYZ to POOL on uniswap. I think it’s a contradiction to reduce the LP reward on the basis that it is not capital efficient and at the same time fragment the LP reward to another DEX that will not yield the same volume per liquidity.

I also do not understand why we would provide a higher POOL reward for the Sushi pool than other risk tokens on the basis it has a competing underlying yield source as @TheRealTuna suggests. It just means it’s more expensive to attract that liquidity so what is the point in paying more for what is expensive TLV to acquire.

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I should have mentioned the other key reason sushi should be higher than uni and COMP is the 6.63% from the yield source compared to 1.5% for UNI and 0.88% for COMP. Sushi is a solid new pool that we should make an effort to grow. The 4MM in TVL in Sushi is more efficient for the protocol than the 10MM TVL each from that of UNI and COMP.
Current weekly treasury income:
UNI: $1371
COMP: $870
SUSHI: $1280 (pending 25% reserve rate being added)

In regards to LP incentives a lot of trades take place on sushi swap these days and some liquidity there would be nice. Doesn’t necessarily need to be split 50/50 but moving some to sushi would be nice.

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See above for my proposed distribution schedule. there are several reasons for my proposal that I will outline below.

Overall, I feel that the reductions that have been proposed so far are too drastic. I would prefer the protocol not to change the distribution so often and so much. I think people will be more attracted to the protocol if they feel confident the rates will be sustained for a sufficient amount of time. an approximate 30% reduction feels like far too much. we are still in the beginning stages of growth and I do not want to stifle that growth. I know that the last reduction worked out well, but there is no guarantee that another large reduction will have the same effect.
Larger and more established protocols can get away with reducing rates as they have already grown to a sufficient level. I do not feel that we are there yet. We are still relatively small comparatively. Small protocols offer a crazy high yield to attract users. Those yield levels are sometimes in the hundreds of percent. They must be better than other opportunities to make the risk worth it. We are not offering crazy high yields at the moment. 5.5% is higher than other sources, yes, but it is not exorbitant. In my opinion, it is imperative to maintain a higher yield than larger more established players. We must be honest with ourselves when evaluating the protocol. We know the potential and the safety of the protocol, but others clearly do not compared to the larger players like Compound, AAVE, Yearn, etc. If we want to play on the same field as those guys we need to at least get to a billion dollars locked. Cutting rates by 30% may not hurt us, but I certainly do not feel that it will help.
With my proposed reduction it buys us five months to finish our this year at closer to current rates without disturbing the market too much. After the end of this year, I would be open to a more drastic reduction. I urge patience here.

USDC: I STRONGLY DISAGREE WITH REDUCING THE USDC DRIP AT ALL. This is our flagship pool and is the best tool we have to reach our million-dollar prize goal. This pool needs to be more attractive than other protocols. As the market recovers so will the apr via the price of the POOL token. We want growth, not stagnation, and I feel that keeping this pool as attractive as possible will best facilitate that growth.

DAI: a reduction to 450/day would be a 35% reduction. this would still leave the apr at current prices at a similar rate to current Compound rates. reducing this pool will give us the leeway to finish out the year on the USDC pool at current rate. Also, as the market recovers the APR will recover as well and remain attractive in the market. this also frees up a little POOL if we need to add a drip to another pool.

UNI/COMP: I do not believe we can reduce these. This would make our rates less than just depositing in the underlying yield source.

POOL pool/SUHSI: we just passed PTIP-25, so no changes needed here.

LP: I compared our stats to COMP on Uniswap. We have a similar level of liquidity and market depth, but substantially less trading volume. Our liquidity on Sushiswap is practically nothing. Therefore I agree with @TheRealTuna that we can reconfigure our LP rewards.

POOL vs. pPOOL:
I do not want to drip pPOOL. I agree again with @TheRealTuna on this point. I especially do not want to make this change on the USDC and DAI pool. If we switched all drips to pPOOL that would increase the size of the POOL pool by approximately 2% every single week. That would be a 150% increase in the size of the POOL pool over the course of a year. This is assuming all POOL is claimed every week and never withdrawn. Of course, it will not be, but we have to choose some method to analyze the change. If we estimate that we even reach 50% of that 150% you are still looking at a 75% increase in the size of the POOL pool.
This increase in the size of the POOL pool has several effects.

  1. Centralizes Voting/Governance. The POOL pool would have the ultimate say in all governance proposals. This Vote is controlled by a single multisig wallet. this feels quite risky.
  2. Increases gas costs to claim POOL. I believe this harms small players. If we make this switch users will have to pay gas to claim, and then pay gas costs to withdraw from the POOL pool which can be quite a high cost. If players know they will have to pay exorbitant fees to claim their rewards they will be less likely to deposit into our stablecoin pools. we want all the small users as well as the whales to deposit.
  3. Reduces the APR and odds of winning the prize for current POOL pool depositors. The POOL pool will grow every week and reduces everyone’s rewards and odds to win the prize. i do not feel this is fair for those who are long-term holders of their own accord. They have not been forced to stake their POOL.

Overall, I agree with some kind of vesting structure, but I think there could be a better way. Dripping pPOOL feels very coercive to me.

Sponsorship Split:
I do not think we should split the drip. I like receiving my APR and a chance to win the prize. tho my odds are low, they will remain low forever. We also risk losing some depositors in the switch. I think V4 will be more effective in increasing the odds for smaller depositors without removing their APR. after all PoolTogether is a prize linked “SAVINGS” account.

love to hear some feedback on my opionons.
thanks,

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I agree with all of this except for one thing.
We shouldn’t lower LP rewards.
Keep LP rewards the same.

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One of the things I admire the most about Pool Together is that when the POOL token was launched, it was a governance first token. Lately however, it is clear that some have seen it as an opportunity for decent stable coin APRs. This very well may be a symptom of the market change from bullish to bearish.

Allocating More Towards a Participation Mining Model

I would like to see the community continue to develop unique ways of distributing POOL to community members who participate in governance and have the best interest of the protocol in mind. It sounds crazy, but I think Pool Together could be the pioneer of a “participation mining” model. I was reading this article recently from PolyRoll on Polygon which talks about the flaw in the traditional yield farming model. After recognizing the flaws in the traditional yield farming model, they are moving towards a “transaction mining” model (inspired by Axie Infinity).

Steps Pool Together has taken so far towards a “participation mining” model:

  • Introduction of POOL tipping feature in Discord. As if the Discord community wasn’t awesome enough, we are sharing POOL with people who are actually participating in the protocol development.
  • pPOOL drip is a very interesting idea. I am not sure if I am totally on board with its implementation, but I definitely see the merit. Improving on how we could use this feature could be another step in the right direction.
  • Pool Together grants is a fantastic way of supporting protocol development and rewarding participation with POOL. Maybe this is somewhat standard for a decentralized protocol, but it is another contributor to the participation mining model.

Potential Steps to take going forward:

  • pPOOL: We do need to be careful about centralization. A temporary solution (but costs a small amount of gas), would be to have two Gnosis wallets which hold the POOL pool deposits. Then, those wallets redistribute prior to vote so that the vote represents the Snapshot vote.
  • Drip 1 POOL token (on an exponential decay inversely proportional to current vote power) to people who participate in voting. So people with 1 vote have 2 votes next time around and people at the top get 0. Obviously this value would need to be calibrated.
  • Push for more diverse delegation to community members. I am not necessarily motivated to participate because of the value of the POOL token, but more so because I want to participate in something I believe is healthy and part of a financial revolution.

Adjusting Current Rates

I am an engineer. Everything I do has to be supported by data and often times I make decisions using simulations which are calibrated from historical data. The pool drip on each pool is essentially calibration parameters. I personally cannot suggest moving them in one direction or another until I fully understand how the input affects the output. However, there are some people in this community with more experience than myself that can use that experience to make more qualitatively driven changes. If I find time, I will try to make a quantitative assessment; meanwhile I will follow with other people’s recommendations and try to understand their perspective.

Observations/Notes

  • $1000 in USDC pool since start of drip is 4 POOL tokens. It cost $125 in gas to participate at that time. For people under a certain amount PT participation is not about yield farming.
  • $1000 in my opinion is a lot of crypto for the average person especially since it is still in the “invest no more than you can afford to lose” phase.
  • There is always a significant portion of people on Sybil that vote with less than 50 POOL voting power.
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What distribution method
I’m in agreement with TheRealTuna on this one, the chance at a prize and the APR are both really nice to have. It combats the feeling of losing out on yield for the chance to win, if they were to split between sponsorship and chance at a prize it would negatively impact the continuity and experience from an average user standpoint (from my small fish perspective anyway).

What token should be used:
I’d be for testing dripping pPOOL on the smaller pools similar to what is happening with Sushi right now, introducing the vesting period and gas free voting would be a good way to draw people in to the Discord/TG/forums to get more involved in the governance.

For the USDC/DAI pools it may be worth getting feedback from the whales in the pool, farming and dumping might be bad for the token price in the short term but we really don’t need to be too concerned with this following the treasury diversification. Even though farmers can dump the token, they are still contributing to the reserve which is important.

What distribution rate should be used:
I’ve gone with a lower cut to the distribution than some others, our yields are currently way above the rest of the market but it won’t be this way forever. We don’t want to be in a situation where we’ve lowered the yields to match the current market and then everyone else’s yields shoot up as the market picks up again.

Proposed Rates
USDC: 8330 POOL per week (1190/day) - 15% Reduction
DAI: 4165 POOL per week (595/day) - 15% Reduction
COMP: 350 POOL per week (50/day) - No Reduction
UNI: 350 POOL per week (50/day) - No Reduction
Sushi: 350 PPOOL per week (50/day) - No Reduction
Total depositor incentives: 13,545 POOL per week - 6% Reduction
Yearly pool emissions: 704,340 POOL

With that in mind, continuing to incentivise the pools to the point where the yields are attractive for farmers might be our best bet from a longevity perspective. We don’t want to reduce the drip to USDC for example to the point where Yearn withdraw due to it no longer being worth it from their perspective.

Also think it is a good idea to continue with 50/day for the smaller pools as we can continue to draw in other communities this way.

If the concern is for distribution being too high, we could also look at the 500 POOL for LP incentives. We can reduce these incentives slowly and bring it in house by holding some LP tokens in the treasury. There’s currently 5.57m liquidity in the Uni v2 pool which we wouldn’t be able to match at the moment but might be something to consider over the longer term, if we can somehow work out how to migrate the liquidity over the v3 effectively we wouldn’t need anywhere near as much liquidity to get the same effect and would make it easier to lower incentives.

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Lots of data to spit through already, but I’ll pile on my 2 cents on some points.

  1. I really would like to experiment with moving the POOL drip to sponsorship for the DAI pool and see what this does for the win chances of smaller depositors. Will the big players like Yearn really move over to sponsorship or not?

  2. I do not see the advantage of dripping pPool to all the pools. It won’t really solve the selling pressure and it leads to more voting centralization.

  3. Reducing the DAI drip rate right now is, in my opinion, a bad call. As far as I know, the reason why it is that much higher than the USDC pool is because a couple of large players are using the pool from MakerDAO vaults and have withdrawn their deposits in the market downturn. That also means that if we lower the APR right now and if the market recovers leading to people creating more DAI from their vaults, we may not be able to attract those deposits again (essentially killing the growth for the DAI pool).

  4. Generally speaking, I don’t think we should lower our rates because rates at Compound and other yield sources are low right now. If the market picks up again, those rates will pick up too and I feel like we could constantly be ping-ponging between higher and lower rates. I would like us to target a more long-term, stable APR that does not change every couple of weeks. I think the current ones are fine (taking into account the reasoning for the current high DAI APR rate).

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Based on some data @Leighton shared (thanks!) the average supply APR of DAI and USDC over the past year was around 5.3% [1] and 5.7% [2] respectively. I really think we should take that into account when setting our rates and aim for a long-term stable APR rather than change it every so often or only look at the current rates for setting ours.

[1] Compound DAI supply rate
[2] Compound USDC supply rate

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Awesome feedback! I’m going to respond more in depth but I wanted to add one more important piece of strategy as it relates to PoolTogether V4.

On a long term time horizon, the only truly sustainable competitive advantage for the protocol is having the largest no loss prizes with the most engaging way to distribute them. Let’s fast forward 12 months and assume there is some sort of copy-cat PoolTogether protocol on every blockchain. Why would someone want to use PoolTogether over some other random no loss prize savings pool? The answer would be that PoolTogether offers prizes much larger than the copy cats (of course there could be other things like better UI, etc but I’m talking about sustainable competitive advantages).

PoolTogether V3 isn’t well built to execute this strategy because of three primary limitations:

1). The number of prizes and the way prizes are distributed is severely limited in V3 (i.e only 5 winners per prize pool equally splitting prizes, what if we could have 500 winners each week?)
2). The architecture of V3 makes it impossible to bridge deposit tokens to other chains. Instead separate pools need to be deployed on each chain which fragments the prizes. It would be far better if everyone could join the same prize pool from their own blockchain.
3). The V3 does not allow the yield source to be swapped so it is not future proofed

V4 of PoolTogether is all about eliminating these constraints and I think enables us to pursue a strategy of one prize pool that receives ~90% of the incentives and has ~90% of the deposited capital. Doing this will ensure we have the biggest prizes and can own this category of no loss prize savings.

I do still think there will be a long tail of prize pools (like we have now) that are smaller but are still useful for marketing or appealing to specific audiences and ~10% of POOL rewards may be split among a bunch of prize pools.

So all that to say, based on this strategy I think we want to keep pushing in the direction of having one prize pool prioritized because that will set us up well to transition to V4.

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I can’t wait for this. A large prize will be our main differentiator and will undoubtedly attract more users.
Couple this with L2s like Optimism and deposits will start rolling in. Stoked. This is the way we achieve a $1,000,000 weekly prize. Thank you for the insight on V4 Leighton!

@Brendan also dropped some alpha in the Discord and said V4 is slated to drop sometime in mid-August (tentatively).

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really appreciate your perspective here and I love the idea of “participation mining”. I think though that would need to be addressed separately as this PTIP is narrowly defined to cover just liquidity mining. However, by reducing liquidity mining that gives us more room to do things like you are suggesting!

Also looking forward to hearing your thoughts once you have fully digested all the data on the parameters.

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Okay, I’ve read through this 3 times and thought about this for a few days.

Overall, I’m mostly aligned with @RegisIsland:

  1. We definitely don’t want to reduce USDC pool, I agree this is the flagship
  2. Not totally for the DAI drip decrease due to bias and for what drcpu said, but I am intrigued by experimenting with pPOOL drip to such a large pool
  3. I think pPOOL drip across the board is a terrible idea as well for the reasons outlined by RegisIsland.

Some of my own thoughts:

  1. An additional issue with pPOOL drip to everything, is that whales/farmers don’t regularly participate in governance. This would make reaching quorum increasingly more difficult as time goes on in the POOL pool
  2. According to Sybil if we look at wallets greater than 1,000 delegated (those I would consider significantly invested - admittedly arbitrary) and less than 100,000 (those that could pass/fail a proposal in one swoop) there’s only 182,811 POOL, some of these are regular voters, some are not. If we become dependent on regular governance we’ll be in a similar pickle - forced centralized voting as quorum from small holders cannot be reached and 100k votes cannot be passed by the delegates.
  3. We need to remember that the POOL pool drip of 200 is a trial, this may decrease in the future so we may have additional POOL to play with for drips in the future. Do with this what you want.
  4. The original POOL drip for the LPing was 300 in PTIP-10, as a community we decided to pump it up to 500 and potentially re-evaluate in the future. I think that time is now and lowering the UNI LP drip seems accidentally in the plan
  5. Sushi is already dripping SUSHI on the LPing, do we really need to add more to it? Uniswap seems to be the main location for our action so I think we should keep it all at Uniswap.

I’m not going to throw any other numbers in the mix, if it lands near what Regis outlined it has my votes. I think after this reallocation of drips occurs, we as a community should develop a more long-term adjustment cycle. Like Regis said we’re still the new kids on the block, we have to prove out the protocol and get to $1 billi TVL before we drop anything crazy.

@Hook I think another post is needed sometime in the near future to explore the idea of “participation mining”, this is exactly something PoolTogether needs and was an unspoken under-current for the Swim Teams that we couldn’t quite actualize. With how active our community is, this would really bring us all to the next level.

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I do think some of this stuff will need to be voted on in separate votes, these are some big changes. It would be disappointing if we have to vote for switching to sponsorship and changing rates in the same vote.

One other reason I think a reduction is important(besides reducing sell pressure) is we need to make room for new pools. ETH, LINK, Badger and more. I’m guessing those will wait for V4 at this point but 3-6 new pools in the next few months would be awesome.

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I’d also like to see us get more serious about Polygon and other chains. Right now Polygon is sorta a side show but I think we should start doing POOL rewards, incentive liquidity, and really blow it up! I think it can be big!

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I spoke with the Quickswap team again today about a liquidity mining program. I will be making a proposal soon.

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