Treasury Working Group thoughts on PTIP-56
Deposit Concentration
In V3, two addresses make up 86.91% of the USDC prize pool deposits. PoolTogether V3 is still dominated by whales. Both wallets combined have deposits totalling 14,337,795.70 USDC.
0x8084…9267. = 10,243,187.00
0x8f64…129e = 4,094,608.7
The DAI prize pool in V3 has one wallet that represents 35.71% of total deposits in the pool, with 1,000,000 DAI deposited from that wallet and roughly 2,800,000 DAI as the pool’s TVL.
Reducing reserves will only create a greater incentive for whales to continue to dominate and it does not offer a solution for smaller depositors. Outside of airdropping users compensation for gas costs, we can’t solve this issue. Nobody has made any complaints about the reserve rate as is and Pooltogether treasury recouping some funds should be a bigger priority than feeding more prizes to the whales who seem to still be thriving in V3.
All things held equal with current rates, we’ve got the following:
PoolTogether V3
USDC TVL: 20,298,907
TVL less reserves and sponsorship: 16,496,936.76
Aave Mainnet Yield: 1.47%
16,496,936.76 USDC @ 1.47% = 242,504.97 USDC
Annual Reserves Earned: 121,252.48 USDC
20,298,907 USDC @ 1.47% = 298,393.93 USDC
Annual Reserves Earned: 149,196.97 USDC
Annual Difference: 55,888.96 USDC
V4 TVL
TOTAL: 31,411,873
POLY: 25,809,345 | Aave APY: 1.76% | Annual Yield: 454,244.47 USDC
ETH: 2,878,798 | Aave APY: 1.47% | Annual Yield: 42,318.33 USDC
AVAX: 2,723,729 | Aave APY: 1.54% | Annual Yield: 41,945.43 USDC
Total yield across prize pool network: 538,508.23 USDC
Total annual prize costs @ average daily claimed prizes: 3,150,315 USDC
^ Average of 8,631 USDC claimed in prizes per day
[Data pulled from @drcpu’s data here, assuming 90% claim rate.]
Net projected annual cost, all things held equal: 2,611,806.77 USDC
Total USDC + DAI reserves/treasury holdings: 4,285,123.74 (USDC + DAI)
Annual cost as representation of our current treasury holdings: 60.95%
Cost of USDC Prize Distribution
0.2093754955 ETH in total gas costs on 22 Feb 2022
Roughly 76.42 ETH ($199,671.70 at current prices) on an annual basis.
Divided by a factor of five:
And x365 = 15.28 ETH ($39,923.88 at current costs)
I’m sure it’s not approximate but it’s a rough guess. @Brendan can likely give us better insight into the potential gas savings, but I use the figure here to demonstrate the cost for just the USDC prize pool.
TL;DR: Removing reserve and sponsorship capital reduces prizes for V3 depositors by $1,074.78 a week, while turning off reserves in V3 costs the DAO $2,331.78, while we’re losing $7,155.63 a day given current prize subsidies.
V3 USDC reserves currently offset daily losses by $333.11, which is 4.66% a day. V3 reserves also offset the cost of prize distribution, which is $109.38/day or 32.83% of daily V3 USDC reserves earned.
Reducing any cash flow while we’re subsidizing prize pools and earning no revenue in V4 does not make fiscal sense.
The rationale in this PTIP is fairness, but the overall aim of the PTIP is to incentivize deposits in V4, which means we’d want it to be more favorable to deposit in V4 instead of V3. We’re already proposing to reduce the total number of prizes to 1, which is to save on gas costs. If we’re optimizing the number of prizes for cost, we ought to optimize reserves for the cost of V4, which means they either stay the same or increase. Increasing wouldn’t be fair but keeping reserves the same as when users first deposited is in line with the status quo at the time of deposit.
Currently, we’re seeing growth rates drop off, and we’re losing money each day. Cutting costs is not ideal, as we don’t want to reduce the incentive to deposit in V4 but we can’t afford to lose any more funds.
It’s clear that something has to change, but reducing cashflow at such a delicate time in the PoolTogether product lifecycle would be detrimental, as it would shift an additional $121,252.48 onto the DAO and reduce current treasury holdings by an additional 2.83%. Total loss to the stablecoins in the treasury after a year with no significant growth: 63.78%
Important to note: we’re only using the numbers from the USDC prize pool, as it has the most TVL of any stable pool. The total opportunity cost of turning off reserves in V3 would be more given we have the USDC, Dai, COMP, GUSD, and UNI pools on Ethereum.
On this point alone, we disagree with the PTIP but the TWG would be in favour of the PTIP should the provision to turn off reserves be taken out.