PoolTogether

PTIP-26: Llama 🤝 PoolTogether: Tokenomics Research and Exploring Alternative Capital Structures

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

Simple Summary

Llama DAO plans to create a report that outlines treasury management approaches PoolTogether can use to add balance sheet assets or utilise existing reserves (protocol revenue). The report will include actionable solutions the PoolTogether community can use to attract depositors and deliver value to POOL holders. We will also review possible changes to the POOL drip, current incentives, and tokenomics. To complete this report, we are seeking a grant from PoolTogether (more details below).

After the report is complete, Llama hopes to work with the community and identify the most promising approaches in the report, draft up a detailed implementation strategy, and then ultimately help to facilitate the strategy’s execution.

You can read more about Llama, our existing partnerships and our working group members here.

Abstract

PoolTogether is working to achieve $1B TVL and further increase the price of POOL.

Llama DAO strongly believes in PoolTogether’s business model. The Llama working group is seeking a grant to create a comprehensive report that will review different strategies PoolTogether can utilize to grow prize pool sizes and attract more depositors. Specifically, Llama’s report will include an array of treasury management approaches to increase balance sheet assets through debt instruments and protocols, as well as the possible use of derivatives. These balance sheet assets can then be used as sponsorship capital, used to finance POOL buybacks, or deployed for other uses. The report will also consider how existing reserves can be used, as well as other tokenomics-related questions such as changing the POOL drip rate and different ways to return value to tokenholders (e.g., dividends, burns, buybacks).

During the drafting process, we can submit regular updates to the community directly or through a Community Review Board. This ensures all of the work and reporting Llama conducts is in line with the interests of the PoolTogether community.

At the conclusion of the grant period, the report will be presented to the community for review, with the intention that Llama will then make a further proposal to Governance to request funding for Llama DAO to explore some of the avenues presented in the report in greater depth and eventually help facilitate its execution (e.g., conduct a debt raise/sell derivatives for PoolTogether).

Motivation

The ultimate goal for PoolTogether is to realise $1B in TVL. To date, the protocol has seen significant growth, but total AUM has started to level off.

PoolTogether saw a dramatic increase in AUM at the end of February 2021. This coupled with PTIP 5’s increase of the reserve rates for governed pools drove substantial growth in protocol revenue.

While the USDC pool has grown over time, it is hitting a plateau. The USDC pool saw 45.67% growth from the all-time high on 4/15 to 7/17.

On the other hand, the DAI pool has seen a 63.59% decrease from the all-time high on 4/15 to 7/17.

Notably, the all-time high deposits were within the original 14-week POOL drip schedule, where 2,295 POOL/day were allocated to both USDC and DAI pools. PTIP-15 adjusted the rates by reducing POOL drip allocations for USDC and DAI pools. The USDC pool saw a 39% POOL drip reduction; however, the DAI pool saw a 69.5% POOL drip reduction. It’s likely this reduction in POOL drip affected the AUM within these two pools.

Specification

Overview

Llama wants to partner with PoolTogether to drive growth within your protocol. Llama recognises that POOL is currently undervalued given the current FDV is $82.30m and TVL is $183.5m; the FDV/TVL ratio is a paltry ~0.45x.

Through extensive review, members within Llama can identify various approaches PoolTogether can take to drive growth within the protocol while delivering value to POOL holders.

Llama is already working with other leading DeFi projects such as Uniswap and Aave Grants on asset management strategies. Llama is also developing an Index Coop product for DAO treasuries.

To begin what Llama DAO hopes to become an ongoing partnership, Llama is seeking a grant to create a report on treasury management approaches with actionable solutions PoolTogether can utilise to add balance sheet assets that can be used to increase sponsorship capital and/or conduct POOL buybacks for the PoolTogether community. We will also review and provide possible changes to tokenomics (e.g., POOL drip, staking rewards, periodic buybacks, etc.).

Given the PoolTogether community has already divested a portion of POOL from their treasury into stablecoin assets (PTIP 13), any further sale of POOL assets from the treasury would not be advantageous to the protocol given the resulting dilution it would cause. The protocol has steady revenue inflows, which make other approaches that do not require any sale of POOL more advantageous.

Currently, PoolTogether has weekly inflows from reserves rates of ~$29,432. As more users deposit capital into the various governed prize pools, especially USDC and DAI pools, more revenue flows into treasury reserves. By adding debt to the DAO’s capital structure, the community can pull forward future revenue to be used today as part of POOL buybacks, or as sponsorship capital in stablecoin pools to accelerate deposit growth. These approaches all center around the views @Leighton outlined in his Perpetual Growth framework.

Therefore, Llama DAO believes it would be prudent to explore alternative strategies to increase the amount of assets on PoolTogether’s balance sheet.

Over a 5-7 week period, Llama DAO will review various approaches to increase balance sheet assets, complete relevant high-level calculations for each of the approaches, and think through basic feasibility/implementation analyses for each of the approaches as part of the report for the PoolTogether community to review. This report will present each of the treasury management approaches that are available to increase balance sheet assets; for each approach, the report will provide a corresponding Overview, Calculation, Risks/Considerations, and Feasibility/Implementation section. At the end of this report, Llama’s recommendations will be included along with the estimated work, time, and resources necessary to implement these strategies. In addition to various approaches to increase balance sheet assets, Llama DAO will also review PoolTogether’s current tokenomic incentives, as well as provide recommendations on additional ways to return value to token holders to better align incentives (e.g., comparing regular buyback, token burn, and “dividend” programs).

While Llama is working on the report, our working group will provide weekly updates to the PoolTogether Community to keep the community updated on our work. An open, transparent process will give the community insight into our process and how we use the grant funding to deliver the most value for the PoolTogether community. We think the best way to do this would be to create a “Review Board” consisting of a number of community volunteers with relevant domain knowledge. Llama can share findings, strategies, etc., with such a Review Board. Alternatively, Llama is also happy to engage with the community at large during, e.g., the weekly community call to solicit guidance and provide updates.

After the report is completed and shared with the PoolTogether community, Llama DAO hopes to receive feedback on the most promising treasury management approaches to add more balance sheet assets. Should feedback be positive, and with guidance from the community on the most promising avenues, it is the intention of Llama DAO to request further funding to draft up a detailed implementation strategy and ultimately help execute/facilitate any relevant transactions.

Grant Requested and Milestones

For this grant, Llama is seeking $12,000 in USDC and $18,000 in POOL. These funds will be used to compensate Yuan Han Li (@yuan-han-li), BraveNewDeFi (@BraveNewDeFi), and Accelerated Capital (@AcceleratedCapital), who will be the primary contributors to this exploratory report, along with other supporting members within Llama DAO who will contribute to the report.

Llama proposes that $12,000 in USDC be paid at the start of the grant period. Once the report is delivered to the PoolTogether community at the end of the 5-7 week grant period, the remaining $18,000 in POOL can be paid to Llama. The $18,000 in POOL will be deposited into the POOL pool, and the pPOOL will remain locked within Llama DAO’s treasury for 1 year.

Throughout the duration of the grant period, @BraveNewDeFi will provide weekly reports on the governance forum outlining Llama’s progress on the development of treasury management approaches.

Rationale

Llama aims to set the gold standard for DAO treasury management.

We want to form a strategic partnership with PoolTogether and work to increase depositors and help move the needle closer to the $1B TVL goal. As members of Llama DAO and the PoolTogether community, we don’t want to work for PoolTogether: we want to work with the community to grow AUM and increase revenue.

To kickstart the working relationship between Llama DAO and PoolTogether, we wanted to put together a report with actionable treasury management approaches the community can use to deliver value to POOL holders and increase the number of unique depositors.

The Llama working group first brought this idea to PoolGrants, but after meeting with the committee and discussing our strategy, PoolGrants did not feel it was within their mandate to provide funding for the creation of such a report. Instead, they advised that we bring our proposal directly to governance given it is Llama’s desire to establish a long-term strategic partnership with the PoolTogether DAO.

Status

Approve Llama’s request for funding to create Treasury Management Approaches and Actionable Solutions Report?
  • Yes
  • No
  • Abstain

0 voters

12 Likes

I always find it hard to judge what a particular initiative should be payed. I do think we need a more holistic approach to treasury managment, so I’m voting yes.

4 Likes

Thank you for putting so much time in advance into setting this thorough proposal up.

Llama DAO approached Pool Grants before and from very intensive dialogue my fellow GC members and I can confirm that the experts involved really know what they are doing and are in my opinion on path to set the gold standard for treasury management. For me it would make perfect sense to collaborate and be part of the journey to explore and establish a decentralised CFO/Finance function in protocols.

For sake of transparency, the Grants Committee pointed the Llama DAO team to the governance forum as the proposed grant is 1) very sizeable (for good reason because it involves a lot of work) and 2) the outcome is highly relevant to the public as it affects the protocols treasury as a whole with potential for follow-up requests that also substantially exceed the scope of the grants program.

Topics related to treasury management are often debated e.g. in the governance discord and we have for instance discussed the use of debt for token buybacks extensively. Taking a more structured approach and conducting in-depth research and modelling of various scenarios would be highly beneficial and a worthy investment from protocol perspective. As of now we are at best guessing potential outcomes and so far no one managed to dedicate substantial time to research and analyse this topic because we are chronically lacking of resources.

Ideally there is a group of 2-4 PoolTogether community members who have engaged in related discussions and takes part in your sounding board. Thinking about @ageless or @Uncle for instance. I would also be more than happy to join and contribute to this project and any follow-up work that may arise.

The price tag is quite high to my mind but the scope is very broad and extensive with very specific analysis related to the PoolTogether treasury. This is not copy/paste consulting work.

Last but not least: I would encourage @AcceleratedCapital to submit a grant proposal for sponsorship of the newsletter. Its top notch :wink:

11 Likes

Love seeing a high quality proposal like this. I too am supportive of it.

I specifically interested in getting analysis and recommendations on how POOL distribution can be optimized (i.e. any recommendations on optimum disbursals rates, implementation of vesting, etc.).

Overall, I would be very happy to see some deep analysis on tokenomics and treasury options as it is an under explored area.

7 Likes

Excited to see what plan you can come up with for us. I have been looking into UMA Range options as a good option for us and I hope we can try something like this very soon. :slightly_smiling_face:

7 Likes

Will this be as a sponsorship deposit or with prize winning chances?

Is there an estimated cost to this? I understand it’s difficult to quote this now, I’d just like the community to be aware of being supportive of step 1 and then realizing step 2 is too costly.

@TheRealTuna would be my nomination as volunteer :stuck_out_tongue:
Could explore UMA tools further?

Exactly. Also we in the grants committee ultimately have no control of the treasury and funding a grant does not mean the community/voters would even support it! I think this was a good move and glad you have continued forward in this regard.

Interested to see how this can grow from here.

4 Likes

This is a very thoughtful PTIP; thank you @AcceleratedCapital, @yuan-han-li and @BraveNewDeFi. This is exactly the kind of professional engagement we could use more of.

Regarding the PTIP

@AcceleratedCapital could you provide us with a report that Llama has created in the past so that we can see how comprehensive the work is and what the deliverable looks like?

Regarding Pool Grants

In my opinion this should be a proposal for the Pool Grants committee. Because:

  • The proposal asks for a two-phase payment: $12k at the beginning, and $18k in POOL at the end. Our governance system cannot easily do this. This is very similar to the standard consulting payout structure: 50% up front, then 50% when the job is done. Pool Grants should hold USDC and be empowered to pay out grants for exactly this purpose!

  • Requiring the engagement of all POOL voters for a $30k research paper may be challenging. It’s a lot of required traction just to fund some research. I really like the transparency of the PTIP, but Pool Grants could move much more quickly on small consultancy engagements such as this one.

To me, it seems that Pool Grants needs to hold USDC and be empowered to work with consultants on smaller engagements such as this one. And believe me- in the agency world $30k is a small proposal!

Summary

In my heart of hearts, what I’d like to see is:

  • We have a PTIP to transfer USDC to the Pool Grants committee
  • The Pool Grants committee approves and engages with the above PTIP as a grant, and handles the two-phase payment process.
3 Likes

I agree that this usually would fall under the grants committee. I’m sure we’d be more than willing to act as a short term middleman for this proposal.

Two factors on why we suggested this go to governance funds instead was

  1. We don’t have control of treasury and didn’t want to fund it as a grant without knowledge on the communities interest. What if we funded this initial research and then the community denies the moving of funds/funding etc.
  2. With the recent POOL price drop (due to rest of market) our committee budget is much tighter than the original $500k allocation. You can see we are currently at ~141k and this would eat a very large chunk of our budget that could go to many more smaller grants. Hence we have been a bit more frugal!
2 Likes

Do you guys have anything you can share regarding work you have done before in this regard?

2 Likes

With the recent POOL price drop (due to rest of market) our committee budget is much tighter than the original $500k allocation

Interesting. This stresses the need for Pool Grants to hold USDC as well! With that budget I can see why you pushed it to a PTIP. To me that is a strong signal that we need more diverse assets in the Pool Grants committee so that they can both:

  1. Pay people without putting sell pressure on the token (using USDC)
  2. Give people equity (using POOL)

Pool Grants should be engaging with consultants just like this!

5 Likes

This proposal is priced very reasonably, especially considering that over half of it is in locked POOL.

6 Likes

We have created a Llama Information, Bio, and Portfolio document for community members to review.

While Llama hasn’t yet generated a comprehensive report like the one proposed, members within Llama are working hard to deliver value to other DeFi communities such as Aave Grants, Uniswap, Gitcoin, Index Coop, Radicle, ARCx, and FWB.

4 Likes

Looking forward to what comes of this, treasury funds are very difficult to manage effectively and from the feedback from the call and other communities it seems you guys have the background and skills to deliver.

Thanks for taking the time to deliver a professional proposal and represent on the call also.

4 Likes

I have been waiting for something like this. This is exactly what we need to continue our growth. These in depth reports and analyses will provide us with information that can better direct the protocol. Without building models of how different scenarios would play out it feels like we are shooting in the dark sometimes. I read the article that you guys wrote a couple months ago and it was excellent. I will vote in favor of funding this. I’m very excited about this.

8 Likes

This is an excellent proposal and I think the community will back this partnership! Tokenomics and alternative captial structures have been fervently discussed in the Discord recently. Can’t wait to see the actionable solutions that come out of this report. I am absolutely in favor of this effort and welcome the partnership. Looks like it’ll be fruitful for us both.

2 Likes

Created a snapshot voting to move forward!

https://snapshot.org/#/pooltogether.eth/proposal/QmWFkZGh8zHw7rT3B49f1x9op9x6kWvUgzAZUdnWuxVABM

6 Likes

Is this a temperature check?

1 Like

If the community signals approval of this proposal, through votes in this post and the “temperature check” snapshot Gabor just set up, we could well fund this proposal through a grant. Whether governance or grants makes the payments is a technicality.

This will make it “approved by the community, funded through PoolGrants”. I think due to the nature of the research this is better than PoolGrants unilaterally making the decision.

In 3 weeks, the first quarter of PoolGrants will end. We’ll be making a request to get funding for the second half of the pilot program soon. In that, I anticipate we will be asking to get part of our budget in USDC rather than POOL.

5 Likes

Very happy to see grants funding shift to USDC. Also looking forward to Llama Dao getting to work on this report!

2 Likes

I would like to see this funded ASAP as it seems to have community support. The report is to take 5-7 weeks and we need to act on any treasury moves before the market has fully recovered. Doing a buyback using debt is somewhat time sensitive. Funding from grants would be wise.

1 Like